Osiris Therapeutics Inc. just raised $16.5 million from private investors. Not bad for a money-losing biotechnology company that has no products on the market, lost two top executives and an important contract, and was forced to cut about 40 positions, all within the last year.
But the Baltimore-based developer of technologies designed to regenerate injured tissues for the human body is hardly alone in its recent success raising funds.
Biotechnology companies are back in the money. To be sure, the overall sector has not recovered the lofty stock-market highs it hit in early March, and experts warn that shares of many companies will continue to be volatile, as they trudge through the years-long process of gaining government approval to sell drugs.
But fears of a prolonged biotechnology market downturn have evaporated, as investors pour money into companies bent on using genes, proteins and stem cells to do everything from grow new blood vessels for injured hearts to regenerate chemotherapy - damaged bone marrow.
"There is new life in the sector," said new Osiris Chief Executive Officer Annemarie B. Moseley. "My guess is it's going to stay for a while."
Consider: In the four-week period ended Aug. 11, 28 initial public offerings of biotech company stock were priced, more than in any other four-week period since 1992, according to Thomson Financial Securities Data.
Investors poured nearly $1.5 billion into biotech companies during the first two weeks of this month, after $2.1 billion last month and $14.4 billion in the first two quarters of the year, according to Burrill & Co., a San Francisco merchant bank that concentrates on the life sciences industry.
By comparison, biotech raised $10.3 billion last year and no more than $5.6 billion in any of the three previous years.
The numbers include investments made in public markets through stock or debt offerings, and private ones, such as venture capital.
Among the local recipients: Silver Spring-based United Therapeutics Corp., which raised $143 million through a private stock sale to institutional investors, and EntreMed Inc., a Rockville company that sold 1 million shares to raise $21 million after canceling a planned earlier stock sale because of the market downturn.
Analysts and fund managers say the biotech comeback has been fueled by a number of factors.
Investors disillusioned with pharmaceutical companies in June or technology stocks in July were looking for new places to land. Anticipation of the June 26 announcement that scientists had discovered the order of the human genome, the genetic instructions for building and running a human body, increased attention on companies associated with gene-based drugs, said SG Cowen Securities Corp. analyst Eric Schmidt.
Additionally, a small but growing number of companies, such as Gaithersburg-based MedImmune Inc., are beginning to put successful drugs on the market, raising investor confidence in the sector.
Despite the recovery, Dr. Faraz Naqvi, co-manager of the Dresdner RCM Biotechnology Fund, considers biotech in the midst of the "summer doldrums." He points out that a rally in biotech stocks topped out July 11, saying that "there is some profit-taking going on, and a little shift back into technology shares" such as semiconductor companies.
Also, he warns that, because much of the biotech run-up likely came from individual investors who got excited about the sequencing of the genome, volatility is sure to follow, as these investors learn that many of the companies they have purchased won't make a profit for years, if ever.
Steven T. Newby, manager of the new GenomicsFund.com fund specializing in genomics stocks, warns, "We're going to have tremendous volatility. This is not the place to put your children's education money."
Still, there is no question that biotechnology companies are becoming a staple in the portfolios of investors who previously might have held only one established biotech name, such as Amgen Inc., Naqvi said.
The growth is apparent in his own fund, which has surged from $3 million in assets when he took over management in January 1999 to $575 million last week.
GenomicsFund.com, which Newby started up March 1 in Gaithersburg just in time for the biotech crash, went from no assets then to $22 million last week. And the Nasdaq Biotechnology Index, though down from its March 6 high of 1596.53, is roughly double its year-ago value.
"Biotech as an entire industry is worth twice as much as it was a year ago," Naqvi said.
It is investor enthusiasm such as this that keeps Osiris and other money-losing biotechs afloat while they test therapies. The company has two in clinical trials, the human testing required by the Food and Drug Administration before a medical treatment can go on the market, and has another poised to begin.
While the company lost a contract with Novartis AG that meant $10 million a year in compensation subsidies for workers doing research related to osteoporosis and arthritis, the research didn't affect products being developed.
Osiris, which employs about 80, has enough money to operate through the middle of next year, when Moseley said it should be in a better position to go public. Biotech investors, she said, are more savvy than they used to be, and many want a company to have a product in the third and final phase of clinical trials or one on the market before they consider investing.
Osiris' most advanced product is in Phase II trials.
"I think there had been a sense under prior management that we might be able to go out sooner," Moseley said of a public offering. But, she said, despite the heady market, "There's still rules and criteria for biotech" among investors. "Those rules really haven't changed."