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ISIS Report 13/07/04
Biotech Investment Busy Going Nowhere
Claire Robinson exposes the financial woes of the biotech
industry
The sources for this article
are posted on ISIS Members’ website.
Details here.
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 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."
Falling investment
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 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
drove home the point. Entitled "Biotech’s dismal bottom line: More than
$40 billion in losses", the article said, "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 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 take-up of its products, selling stocks has
become a biotech industry lifeline. In 2003, US biotech firms raised almost $4
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 for use 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 despaired 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 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 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 stronghold 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 "Biotech hope and hype:
The genetics revolution has failed to deliver", "Federal and provincial
governments have long had a love affair with genetics, pumping billions into
the biotech biz… 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, "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 $510 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 $155 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 questionable, 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 BIO and released at its annual
convention in San Francisco, 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 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, 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 £13m of public money into such projects via the
Department 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 Berhan Gebre 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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