Rolling in cash, poised to grow

Revenue: New and existing products, along with the focus on fighting bioterrorism, hold the promise of a prosperous year.


January 20, 2002|By Julie Bell | Julie Bell,SUN STAFF

Maryland's biotechnology industry, flush with cash overall and poised to bring in increased revenue from selling products, is expected to grow steadily this year after largely dodging the recession, experts say.

"You can argue that, at the beginning of 2001, only MedImmune had real revenues in this industry," said Rene Salas, an Ernst & Young life sciences consultant, noting that most other biotechs have yet to put products on the market.

Soon, however, more Maryland companies should be selling like MedImmune, he said. A handful await Food and Drug Administration approval of new drugs. Others expect significantly more revenue from existing products. What's more, the government's focus on bioterrorism has meant added revenue for several others.

Martek Biosciences Corp. of Columbia expects its nutritional supplement to hit U.S. store shelves in baby formula; Novavax Inc., also of Columbia, awaits FDA approval of its estrogen-replacement lotion; United Therapeutics Corp. of Silver Spring hopes to win FDA permission for its first drug, a pulmonary hypertension treatment; and Baltimore's Guilford Pharmaceuticals Corp. has applied to the FDA to expand marketing of its brain-cancer treatment.

Rockville contract manufacturer BioReliance Corp. is helping to make a national stockpile of smallpox vaccine under a government contract designed to prepare for a bioterrorist attack.

Not all of the news is good. The industry remains young and vulnerable. Most drug-making biotech companies are living off investors while developing their first products. Many of the youngest ones, and those seeking to attract up to $10 million at a pop, continue to have a harder time attracting money, experts said.

Rockville drug developer EntreMed Inc. recently sold shares at a discount to attract investors amid a declining stock market. And I. Richard Garr, chief executive officer of Gaithersburg-based Neuralstem Inc., said the stem cell researcher has scaled back its plans for a $50 million fund-raising campaign.

Venture capitalists said the company was worth less amid a recession and demanded a bigger ownership slice in exchange for cash, Garr said. The controversy over the use of stem cells probably didn't help.

Still, the biotechnology industry in general has a leg up compared with other sectors in a weak economy.

Health care - including biotechnology - traditionally has been a haven when the economy sours, as investors figure doctors and medicines will be in demand no matter what.

That effect was in evidence last year, when money flowing into venture funds slowed overall, said Tom Salemi, editor of industry newsletter Venture Capital & Health Care. At the same time, he said, venture firms focused primarily on health care raked in $5.2 billion - their best year ever - giving them a larger slice of a smaller pie.

Now, that money is poised to flow out of funds into young companies. In what could be a sign of things to come, fledgling Gaithersburg drug researcher Avalon Pharmaceuticals attracted $70 million last month.

Some companies are still awash in cash after a spectacular fund-raising year for the industry in 2000, when biotech companies raised nearly $32 billion in public and private money.

Celera Genomics Group reported cash and short-term investments of more than $968 million as of Sept. 30, despite having never turned a profit.

Biotech firms also are sheltered because drugs take up to 15 years to develop, meaning core investors tend to be patient, said David S. Iannucci, secretary of the state's Department of Business and Economic Development. They're waiting for a payoff over the long haul, making the companies less susceptible to economic swings.

Even the fact that most biotechs are losing money can be a perverse positive, said Jim McCamant of Medical Technology Stock Letter. Investors generally decide whether to stay in a biotech stock based on what kinds of milestones the company is hitting - getting drugs into a late-stage human test, for example - rather than on how much of a loss it's posting.

Maryland's biotech sector now employs about 40,000, about half of whom are in public sector jobs at institutions such as the National Institutes of Health, Iannucci said.

Forty-nine of Maryland's 330 or so biotech companies now have products in FDA-mandated clinical testing, meaning they may begin large-scale manufacturing in coming years. Whether they do - and generate more jobs - is dependent on a number of factors, not the least of which is whether the products work in late-stage tests in patients.

Iannucci said one company already talking with the department about building a plant is Rockville's EntreMed. Others are further ahead. MedImmune Inc. begins construction on its new $70 million Gaithersburg headquarters this month. Human Genome Sciences Inc. is building a headquarters and research campus and a large-scale manufacturing plant in Rockville, projects that represent more than $500 million worth of investment.

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