Burst of start-up activity predicted for Md. 2 experts say state to fare better than U.S.

October 27, 1995|By Mark Guidera | Mark Guidera,SUN STAFF

Look for Maryland and the Mid-Atlantic region to be a hotbed of start-up activity in the biotechnology industry in the year ahead -- a development that would run counter to a decline in biotech start-up activity nationally.

That was the conclusion yesterday of two top experts on the biotechnology industry, William H. Washecka, Washington, D.C.-based director of high technology and life sciences for Ernst & Young, and Kenneth B. Lee, co-chairman of the company's international life sciences practice.

The two experts presented the key findings of the 10th annual in-depth study by Ernst & Young, the professional services firm, on the biotechnology industry during a symposium on biotechnology trends and forecasts in Baltimore.

The reasons for the rosy picture for local biotech start-ups, the two said: the area's high concentration of technological brain power and fast-paced scientific innovation occurring at research institutions such as Johns Hopkins School of Medicine in Baltimore and the National Institutes of Health near Washington. Those elements are attracting interest among financiers.

"We will see more start-ups in this area than most of the country," said Mr. Washecka.

"The innovation and concentration of scientists in this area are going to attract big pharmaceutical companies and other big industries looking for a good bet to gamble on."

Elsewhere in the nation, said Mr. Lee, scientists and others looking to launch biotechnology ventures are going to find the going tough.

Venture capitalists -- a key source of early financing for almost all of today's large biotechnology companies -- are shifting away from biotechnology, he said.

During the first six months of 1995, venture capitalists had committed just $34 million to start-ups. That's a pace that, if it holds for the remainder of the year, would amount to less then one-fourth the $240 million venture partnerships spent in 1993 financing biotechnology. Only 8 percent of venture firms surveyed said they expected to fund biotechnology start-ups in the year ahead.

Meanwhile, the amount of money committed this year to more mature companies is expected to remain steady, or possibly increase, the study found.

The reason for the shift, said Mr. Lee: Venture capitalists are looking to companies that are much further along in their research to invest in so they can meet their goal of seeing a return on their money in seven to 10 years.

Other key trends and forecasts in the Ernst & Young study:

* Expect 1995-96 to see the consolidation trend continue. Established biotechnology companies -- in Maryland and nationally -- will increasingly agree to alliances, licensing agreements and mergers with large pharmaceutical companies and other big, cash-flush industries. The name of the game for the next several years for most companies will be sustaining research as they near breakthroughs and affording the high expense of seeking Food and Drug Administration approvals for products.

* Watch for the first "blockbuster" biotechnology products to see market approval in the year ahead.

* Biotechnology executives increasingly will have to concentrate persuading price-conscious managed health care concerns not to undercut the true value of their approved products if they hope to recoup their investments.

* Look for job growth to continue locally and nationally. The industry in 1996 is projected to employ 108,000 nationwide.

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