Is Biotech Industry Melting Down?

Biotech investment busy going nowhere
By Claire Robinson
ISIS Press Release 13/07/04

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Biotechnology is the answer to problems ranging from hunger in Africa and
Asia to obesity in the West. This was the upbeat message from the industry¹s
promotional showcase, the BIO 2004 conference, which took place in San
Francisco in June. In its press release launching the conference, BIO (the
Biotechnology Industry Organisation) trumpeted, "the biotechnology industry
is performing well across a variety of financial and product development
measures."

But not everyone was persuaded. This year¹s media coverage of the annual
event was decidedly cynical. A report in the Asia Times commented, "For many
in the scientific community, the smorgasbord of marketing claims merely adds
to the credibility problems that are piling up against genetic engineering,
especially as its base claims of boosting food output have not been
realized."

Another jaded reporter, David Ewing, wrote in the San Francisco Chronicle,
"As of yet, most of what I'm looking for here is in the 'promise' category -
and has been each year I have come to this ever-larger industry fete." And
disappointment at the biotech industry¹s unfulfilled promises is reflected
in its falling bottom line. As the New Zealand Herald said, "Investment in
genetically modified food is drying up in the world's biggest GM market, the
United States, because consumers in the rest of the world are not willing to
buy its products."

Roger Wyse of San Francisco-based Burrill and Company, the biggest
investment firm focused on life sciences, said the consumer backlash against
GMOs had forced a lull in projects aimed at modifying food. "We are probably
looking at three, four or five years before the GMO issue subsides
sufficiently that we will feel comfortable investing in it," he said.

Lack of investment has led to massive losses. Back to Ewing: "Last year,
this industry lost $5.4 billion, and has lost a staggering $57.7 billion
since BIO last held its annual conference in San Francisco in 1994,
according to an Ernst and Young study. Only a few companies have been
consistently profitable in the 30 years since biotech was born - a few, such
as Amgen and Genentech, fantastically so. Remove them, and the losses and
numbers are far worse for the rest of the industry."

An article in the usually biotech-bullish Wall Street Journal (20 May) drove
home the point. The heading, "Biotech's dismal bottom line: More than $40
billion in losses", eloquently summarised the story. The article continued,
"BiotechnologyS may yet turn into an engine of economic growth and cure
deadly diseases. But it's hard to argue that it's a good investment. Not
only has the biotech industry yielded negative financial returns for
decades, it generally digs its hole deeper every year."

The Journal points out that this truth becomes lost in the periodic bursts
of enthusiasm for biotech stocks, one of which is under way right now. After
a three-year slump, biotech companies raised $1.5 billion from new stock
offerings in the first quarter of 2004, almost three times the level of a
year earlier. Thus BIO¹s press release was able to boast that while major
stock indexes have slipped this year, the Nasdaq Biotech Index had edged up
about 6 percent at close of markets on 2 June.

In the absence of consumer takeup of its products, says the Wall Street
Journal, selling stocks has become a biotech industry lifeline. In 2003, US
biotech firms raised almost USD4 billion by selling new stock to investors,
according to Burrill & Co. The same year, US biotechs as a group posted
almost that much in losses. Only 12 of the 50 largest biotechs turned a
profit in 2003.

Meltdown continues

In the UK, the biotech meltdown continues apace. Earlier this year, it
emerged that two biotech firms linked to science minister and donor to the
Labour Party Lord Sainsbury are facing serious financial difficulties.
Diatech Ltd, which holds several patents for techniques designed to be used
in GM foods, has gone into liquidation, while biotechnology investment firm
Innotech is making huge losses.

At the end of June, the British GM science lobby wailed and gnashed its
teeth at news that Anglo-Swiss biotech giant Syngenta was withdrawing from
the UK and transferring to North Carolina in the US. Syngenta was the last
biotech company to retain a significant GM research presence in the UK after
decisions by Monsanto, Dupont and Bayer Cropscience to withdraw.

Whether Syngenta will face a more sustainable future in the US is open to
question. Almost one-sixth of the more than 350 US biotechs that went public
over the past two decades either were bought out for pennies on the dollar,
dissolved themselves or had filed for bankruptcy protection by the end of
2003. Examples include Escagenetics, Advanced Tissue Sciences, ImmuLogic and
Gliatech.

In May, San Diego-based Epicyte Pharmaceutical, one of the last vestiges of
the city's attempt to become an agricultural biotech stronghold, closed. The
demise of Epicyte was lamented in the local newspaper as "the latest
casualty for the region's fledgling agricultural biotechnology industry,
which just five years ago appeared to hold considerable commercial promise."
In 1999, Stephen Briggs, the head of San Diego¹s Novartis Agricultural
Discovery Institute, which was building a major research campus, predicted
San Diego could become the "Silicon Valley of agricultural biotech."

Yet the industry didn't retain a strong hold there: a consumer backlash
against GM food, along with high-profile industry blunders such as the
StarLink contamination incident, nipped investor enthusiasm in the bud. In
2000, the Novartis Agricultural Discovery Institute was folded into
Syngenta. Then in 2002, Syngenta closed the La Jolla, San Diego unit. Other
San Diego agricultural biotechs also disappeared. Mycogen was purchased by
Dow Chemical, and Akkadix Corp. faded from the scene. Dow retains a research
unit in San Diego, but moved a second agbiotech unit out of the state.

Biotech medicines a refuge of hope

Biotech drugs have long provided a refuge of hope for investors wary about
the prospects for agricultural biotech. The promise of lucrative magic
bullets against intractable diseases attracted those who kept faith in the
genetic determinist model of illness. Biotech pioneers stoked investor
enthusiasm by arguing that since biotech drugs are often versions of human
proteins, genetic engineering could cut short the long safety trials that
traditional drugs go through. But that didn't turn out to be the case, and
most genetically engineered medications take 10 to 15 years to win approval,
much the same as other drugs.

At the turn of the millennium, hopes rose with the hype when the deciphering
of the human genome appeared to herald a new age of treatments tailored for
individual genetic differences. This sparked an incredible 170% rise in
biotech stock prices in just four months - followed by a steep crash over
the next year. By 2002, disillusionment had set in. Canadian magazine
Maclean¹s reported, in an article called "The biotech revolution has failed
to deliver", "Federal and provincial governments have long had a love affair
with genetics, pumping billions into the biotech biz since the early 1980s.
S 20 years later and how many breakthrough products has biotech produced?
Gene therapy may actually have harmed more people than it's helped. S The
few drugs derived from GE such as insulin simply replace existing products
while creating new risks."

Bad-idea virus

We¹ve seen how one lifeline for a largely unprofitable industry is selling
stocks. Another is public money. The BIO conference, reported Associated
Press, was packed with mayors and governors from across the US desperate to
lure biotech companies to their area with promises of tax breaks, government
grants, even help with parking. Yet biotech, wrote the AP reporter, "remains
a money-losing, niche industry firmly rooted in three small regions of the
country: ¹This notion that you lure biotech to your community to save its
economy is laughable,¹ said Joseph Cortright, a Portland, Ore. economist who
co-wrote a report on the subject. OThis is a bad-idea virus that has swept
through governors, mayors and economic development officials.¹"

A case in point is Florida governor Jeb Bush, brother of president George W.
Bush. Jeb Bush spearheaded an initiative to hand over USD510 million of
Florida and Palm Beach County taxpayers¹ money to build a new biotech centre
for the Scripps Research Institute, based in San Diego. Land, buildings,
labs, offices, equipment, even employees' salaries for seven years: Scripps
got it all for free, putting in no money of its own. The company will
eventually repay Florida up to USD155 million, half of the state's
investment. But the payback provision will not kick in until 2011. Bush and
other Florida officials hope that Scripps will make Florida a biotech hub ­
like San Diego.

The wisdom of using San Diego as a model is open to question, given the
industry¹s record of failure there. But Bush seems blind to the risks. "It's
always good to have sceptics, but I like to be on the dreaming side," he
told the press. "It's a lot more fun on the dreaming side of the road."

According to a report prepared for the Biotechnology Industry Organization
and released at its annual convention in San Francisco this week, at least
29 states have formal plans to woo the biotech industry. Many, like
Pennsylvania, are using money gained from the global tobacco settlement to
fund biotech development projects.

How does this "bad-idea virus" gain such a hold over so many? In an article
in the journal Nature Biotechnology, medical bioethicist Leigh Turner of
McGill University, Quebec, suggests that biotech fulfils many of the same
needs as religious fanaticism: "Biotech, in a similar manner to many
religious movements, has its charismatic prophets, enthusiastic evangelists
and enrapt audiences. Like religions, it offers a comforting message of
salvation. Instead of imagining a day of rapture when the dead rise from
their graves to begin eternal life, biotech enthusiasts imagine the era when
medical technologies provide a renewable, largely imperishable body. S
Biotech is not just an assemblage of research programs and techniques. In a
scientific and technological era, biotech also offers a surrogate religious
framework for many individuals."

Within this framework of religious extremism, it is a small step to the type
of language found in the Nuffield Council report and repeated by biotech
'evangelists' such as Derek Burke, which insists on the "moral imperative
for investment into GM crop research in developing countries". And once that
article of faith is swallowed, it is but another small step to appropriating
public money to promote and export biotech to the third world under the
guise of aid and development programmes. As private finance for biotech
dries up, the industry is increasingly turning to government to provide
investment to force the crops the West doesn't want into Africa and Asia.
The British government has already quietly sunk over GBP13m of public money
into such projects via the Dept for International Development during a
period of intense domestic disquiet over GM. It has also sunk further money,
along with USAID, into the Nairobi-based African Agricultural Technology
Foundation (AATF) project to push GM crops into Africa.

What is so insidious about this, as Dr Tewolde Egziabher, the head of
Ethiopia's Environmental Protection Authority, has noted, is that "the moral
imperative is in fact the opposite. The policy of drawing funds away from
low-cost sustainable agriculture research, towards hi-tech, exclusive,
expensive and unsafe technology is itself ethically questionable. There is a
strong moral argument that the funding of GM technology in agriculture is
harming the long-term sustainability of agriculture in the developing
world."

Nobody should be in any doubt that the GM lobby's real aim has little to do
with feeding the hungry. It is to shore up GM research in the UK in the face
of industry's current retreat, to associate the technology in the official
mind with the public interest, and to give GM's public relations campaigns a
charitable face.

ENDS

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