Biotech investment busy going nowhere (13/7/2004)

In this ISIS article GM Watch editor Claire Robinson takes a look at the biotech industry's track record and prospects. Contains some very useful figures as well as insights into strategy.

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 industry’s 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 year’s 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 industry’s 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, "Biotechnology
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 BIO’s 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 Diego’s 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 Maclean’s 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.
20 years later and how many breakthrough products has biotech produced? Gene therapy may actually have harmed more people than it's helped.
The few drugs derived from GE such as insulin simply replace existing products while creating new risks."

Bad-idea virus

We’ve 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: ’This notion that you lure biotech to your community to save its economy is laughable,’ said Joseph Cortright, a Portland, Ore. economist who co-wrote a report on the subject. ‘This is a bad-idea virus that has swept through governors, mayors and economic development officials.’"

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 taxpayers’ 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 industry’s 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.
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.


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