Biotech's hype and hope have yielded cures and billions in losses

Since researchers first mixed together genes from two species more than a quarter century ago, biotechnology companies have promised to revolutionize the pharmaceutical industry - and even disrupt centuries of farming practices.
Despite that promise - and some very significant breakthroughs in treating cancer, diabetes and other widespread and deadly diseases - the industry's combined losses continued to mount in 2004.
The biotechnology industry lost a combined $6.4 billion last year, according to a new report from Ernst & Young. The industry's total accrued loss since its birth in Silicon Valley in the mid-1970s is more than $45 billion.
The 93-page report was mostly upbeat: Federal regulators approved 20 new drugs created with biotechnology last year and 230 such medicines and other related products are now on the market. Ernst & Young is optimistic that biotechnology as a whole will become profitable by 2009, pointing to some 365 drugs in the last stages of development compared to 290 in 2003.
Revenues worldwide grew 17 percent to $54.6 billion based on Ernst & Young's study of 641 public companies and 3,775 private companies.
"What's remarkable about this industry is that you can lose money for many years," said Ernst & Young's Michael Hildreth. "But the whole nature of your business changes dramatically once a product is improved."
A handful of biotechnology companies have indeed hit it big after modest beginnings, making their initial investors wealthy.
The market capitalization of Genentech Inc., the South San Francisco biotechnology pioneer, recently surpassed several pharmaceutical giants like Merck & Co. and biotech rival Amgen Inc.
For its part, the drugs that launched Thousand Oaks-based Amgen into profitability - epogen and its successors - rang up more than $10 billion in sales last year for Amgen and three competitors who also market the drugs, which is used to treat anemia in many cancer patients and other with kidney disease.
Genentech earned $785 million in 2004 while Amgen reported profits of $2.4 billion for last year.
Investors, meanwhile, continue to plow billions into biotechnology each year in hopes of getting in on the next Genentech, which shareholders value at $83 billion.
According to Ernst & Young, the industry raised a total of $17 billion from investors last year - the highest total since 2000. Venture capitalists invested $3.6 billion last year.
Yet there's no getting around the industry's continued losses. For every success like Genentech and Amgen, there are still dozens of failures. "It's a crazy industry to invest in," said John McCamant, a biotechnology investor and editor of a stock-advising newsletter. McCamant is nevertheless optimistic that biotechnology is poised for explosive growth in the coming years and measuring it today against staid sectors like the automotive industry is unfair.
But others are more skeptical.
"It's essentially like a casino," said Joseph Cortright, a Portland, Ore. economist. "There are lots of bets you can lay down and the potential can be very valuable. But for the most part, the odds that any one will pan out are extremely long."
Biotechnology remains a money-losing, niche industry of 1,400 companies that employ about 183,000 workers nationwide. By contrast, Wal-Mart employs 1.7 million workers itself and its annual revenues rival the entire biotech industry's annual sales.
Cortright, who co-wrote a report critical of biotechnology's ability to drive a region's economic growth, says local government officials who promise companies also sorts of incentives to relocate are ignoring the industry's financials.
"The mistake that people make is confusing science that is really cool with something that is going to have a significant economic impact," he said.

Paul Elias