You have to have a strong stomach to invest in biotechnology. Last year a few words from Tony Blair and Bill Clinton about making genes "freely available to scientists" took half the value out of the typical biotech stock within a month. Early this year, when Celera Genomics and the Human Genome Project said they would publish a working draft of the human genome (the full complement of human genes), biotech shares rallied briefly.
But they took another dive, in part because of news that the draft included fewer than 40,000 genes--about 60,000 short of the number expected. After Sept. 11, biotech crashed along with the rest of the market, but it has lately risen resolutely. One reason is all the talk of bioterrorism and the need for remedies. But the other, more important one is that biotech firms, many of which survived for years on their promise, are increasingly turning into real businesses, with real managers, products and earnings.
Genomics firms in the U.S. and Europe--those involved in sexy explorations of the genome--once swore they would steer clear of risky drug development and stick to peddling genetic information. But many are now busy recasting themselves as little pharmaceutical firms and buying up smaller companies to fill the holes in their drug-development technology. Meanwhile, big drugmakers such as Aventis and Bristol-Myers Squibb, under pressure to jump-start their slowing rates of drug discovery, are investing billions of dollars in collaborations with biotech firms to mine the genome for new medicines.
Wall Street's recent drug addiction strikes some as ironic. Robert Erwin, CEO of the Vaca Valley, Calif., biotech firm Large Scale Biology, recalls being told all last year that investors were interested only in hearing about his company's technology. "Now the advice I get is, 'Don't talk about your technology. People only want to hear about your products.'"
Millennium Pharmaceuticals of Cambridge, Mass., has been a step ahead of most competitors. It announced on Dec. 6 the acquisition of COR Therapeutics of South San Francisco, Calif., for a stock swap worth $2 billion--the largest in biotech history and Millennium's fourth acquisition in as many years. That was just the latest in a series of mergers that have changed the face of the industry. Last month Celera Genomics, once the quintessential genetic information-services company, paid $174 million for Axys Pharmaceuticals of South San Francisco, a master designer of drugs. Another major information-services firm, Incyte Genomics, based in Palo Alto, Calif., laid off 400 employees from one of its gene-analysis services to focus resources on drug development. Late last month Incyte's founder hired a pair of veterans from DuPont Pharmaceuticals as CEO and chief scientific officer.