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BIO 2003: Back to the Future

By Amy Tsao What a difference a year can make. Convention-goers at this year's biotech industry bash, thrown by the Biotechnology Industry Organization (BIO) in Washington, D.C., were transported back in time to the late 1990s. Remember those fabulous dot-com parties? Champagne flowed again at the Grand Hyatt in the nation's capital from June 22-25, as sponsors like IBM's (IBM) Life Sciences unit, the economic-development council of Scotland, and commercial realtor Spaulding & Slye Colliers hosted shindigs 'til the food and booze ran out.

Quite a contrast to last year's gathering in Toronto, described by one investment banker as "funereal." Back then, the confab met under rampant fears of terrorism, gathering clouds of war, a wave of disappointing research, and a bear market that just wouldn't go away.

No such worries at BIO 2003. Biotech stocks have surged some 25% this year on a spate of upbeat news, such as the Senate confirmation of Dr. Mark McClellan as head of the Food & Drug Administration after two years of agency drift and surprisingly positive data on the development of new cancer drugs at the annual meeting of the American Society of Clinical Oncology in Chicago a few weeks earlier. "I'm very optimistic," says James Feeney, president of Apogees Consulting. Feeney just started his own biotech consulting firm in Lexington, Mass. (see BW Online, 6/26/03, "'Marvelous Opportunities' for Biotech VCs").

THAT OLD MAGIC. Perhaps it's still too early to hoot and holler. Clearly, biotech isn't back to the golden days leading up to the completion of the Human Genome Project in early 2001. And expressions of optimism at the convention were usually tempered with a dose of caution. Jan Michel, assistant vice-president and scientific manager at Germany's Deutsche Bank (DB), says his firm sent him to BIO to keep abreast of the market, but he also notes that his firm stopped investing in biotech deals about 18 months ago.

Still, more than most industries, biotech thrives on positive momentum and hope for the future. If enough people get excited about prospects for new developments and breakthroughs, then investments and deals start up again. And the old magic seemed to be in the air at this BIO meeting.

Jim Barrett, general partner at New Enterprise Associates, a venture-capital fund with $2.2 billion under management, sees reason to be positive, especially if the public markets manage to open up later in the year. "In the fall, things will look better, if some sound, classic initial public offerings get done." Barrett is probably right. It could take just one successful biotech IPO to whet appetites for biotech stocks. Just look at what the Oracle bid for PeopleSoft is doing to arouse interest in brokerage and investment-bank shares (see BW Online, 6/25/03, "Financial Stocks: In the Money?").

PIPE CONVERGENCE. For pharmaceutical companies struggling to fill their pipelines with promising new drugs, biotech investments, though risky, are still seen as hot prospects. The meeting was crawling with licensing execs and venture-capital representatives. Hans Hultberg, head of global discovery alliances for drugmaker Astra-Zeneca (AZ), told me that his company had 20 licensing directors at the powwow, scouring the early-stage technologies and products in development of some 200 biotech firms.

A look at the legions of exhibit-hall booths reveals just how much is riding on biotech's shoulders. The industry is increasingly viewed as an engine of growth by countries such as Sweden and Taiwan, and by states such as Michigan and Texas. It's seen as good for law firms and consultants, and for the myriad cottage industries that have sprung up around biotech. Even President Bush wants to get in on the act: In a speech hastily added to his weekly schedule, Bush addressed one of the BIO luncheons, stressing the importance of drugs to fight bioterror while also urging Europe to lift its ban on genetically modified crops.

The meeting's celebratory tone took a slight hit when, on the convention's first day, biotech giants Biogen (BGEN) and Idec Pharmaceuticals (IDPH) announced a $6 billion-plus merger. Analysts suspect the deal was done to compensate for both companies' unimpressive pipelines. Shares in both companies tumbled about 5% on the news. But the likelihood of more consolidation in the days ahead can't be escaped, especially after the woes of 2002 left big companies with weak product prospects and small companies with depleted bank accounts.

REGIONAL BATTLES. The bigger question is whether biotech's surge will benefit some regions to the detriment of others. The competition among states and localities for investment is now cutthroat, putting traditional industry meccas like Massachusetts and California on edge. "It's a wake-up call," said Kevin O'Sullivan, president and CEO of Massachusetts Biomedical Initiatives.

Indeed, the global interest in biotech was one of the most striking elements of this year's meeting. For the first time ever, Japan set up its own pavilion at the exhibit hall. "Japan very recently has been introduced to the capital markets," says Junichi Nakagawa, director of industrial technology research for the Japan External Trade Organization. Now, startups are spinning out from the country's universities and large companies. "The government is preparing support for them," Nakagawa says, with goal being to match the might of the U.S. biotech industry in 5 to 10 years.

Whether the buoyant feel of BIO 2003 spreads to the investing public remains to be seen. But compared with the dismal past few years, biotech sentiment seems to be on the rise from all corners. And that could create new corporate champions that will help the industry thrive over the long term. Smart investors might want to take notice. Tsao covers biotechnology issues for BusinessWeek Online. Follow her Biotech Beat column only on BusinessWeek Online

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