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There's plenty of cash available to fuel more drug-driven consolidation, particularly in the U.S., where, according to Ernst & Young, annual biotech revenues have risen at an 11% clip since 1995. Although only 60 of 339 publicly traded U.S. firms turned a profit last year, that's three times as many as did in 1995. And 42% of them have enough cash squirreled away to last at least five years at current burn rates--up from 24% in 1998. Worldwide, as money has rushed out of telecom and digital-technology stocks in the past couple of years, biotechs have raised more than $47 billion in public and private financing. Says Mark Edwards, head of Silicon Valley consultancy Recombinant Capital: "The best genomics companies have all the money and moxie they need to step up and create the kind of pharmaceutical firm that pharmas would like to be."
The biotechs also have a healthy crop of experienced managers to guide them through the transition. "There's a lot of this dotcom--whoops--dotbomb stuff that people think about" when they think about biotechnology, laments Steven Burrill, CEO of the San Francisco merchant bank Burrill & Co. But the image of "crazy guys throwing companies together with dreams of grandeur and no understanding of business" is not accurate, he says. Respected, seasoned executives at large biotechs such as Millennium and Human Genome Sciences of Rockville, Md., have carefully thought through the challenges they face as they move from the genome to the pharmacy.
Meanwhile, the industry's scientific focus has also shifted--away from genes to the proteins those genes encode. These proteins are the molecules on which drugs exert their effects. The medicines that doctors use to treat cancers, for example, work by invading and disabling the proteins responsible for a tumor's uncontrolled growth. The best of them--like Novartis' hot new pill Gleevec--pick their targets selectively and cause fewer side effects than standard chemotherapy.
The multibillion-dollar race under way to identify those target proteins is transforming drug discovery in the same way that the assembly line transformed the automotive industry. Drug development in much of the past century was a charmingly fuddy-duddy affair, carried out amid frothing beakers and spiraling tubes. Today it is conducted through the chilly mediation of robots and beeping computers.
But outside a handful of laboratories, the process still relies more on brute force than strategy. It begins with what's known in pharmaceutical jargon as "target validation"--checking out a protein to see if it plays a role in disease. If so, the protein is subjected to a battery of molecules until one binds to it and exerts a desired effect--say, shutting it down. That binding molecule is then modified in a variety of ways, and the cycle is repeated until a potential drug emerges. This proto-drug is analyzed to ensure that it can be absorbed by the body and isn't too toxic. Only then does it move to clinical trials on humans.