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Biotech Reports says biotechs are showing strength in down economy



Report Says Industry Showing Strength

San Diego’s biotechnology industry is well-positioned to weather an economic downfall, according to a recent industry report by consultancy Ernst & Young.

Ernst & Young said in its annual review of the state of the industry that biotech companies raised $33 billion on Wall Street in 2000, more than in the last five years combined.

San Diego had 31 biotech public companies by the end of 2000, a 3 percent rise from 1999, said Rich Mejia, an Ernst & Young partner in San Diego.

San Diego is home to 216 biotech firms with 32,000 employees, the third largest region for such employment in the nation, according to Biocom, the local industry association.

The aggregate market value for local public companies surged 44.7 percent to $23.3 billion in 2000 from $16.1 billion in 1999, according to Mejia.

That compares to a total market value of $92.1 billion for public companies in the Bay Area as of June 30.

“I think we have a lot of companies that have made significant progress,” Mejia said, referring to local companies. Before the stock market was showing positive signs for the industry in late 1999, many biotechs had less than a year’s worth of cash in the bank, and some were forced to sign unfavorable deals with big pharmaceutical firms in which they gave up much of their value for a quick cash injection.

“Today, companies that have good cash balances are well positioned to negotiate much better deals than we used to see,” Mejia said.

Recent examples include Carlsbad-based Isis Pharmaceuticals Inc.’s valued $200 million deal with Indianapolis-based pharmaceutical giant Eli Lilly & Co.; Immusol Inc.’s potential $150 million deal with Swiss drugmaker Novartis AG; and Neurocrine Biosciences Inc.’s potential $150 million deal with British firm Glaxo SmithKline Beecham.

Revenues for San Diego-based public companies jumped 35 percent to $874 million in 2000 from $305.9 million in 1999.

Local public firms invested more than $555 million in R & D; spending in 2000, a 5 percent increase from 1999, Mejia said.

Mejia counts Idec Pharmaceuticals Corp., Isis, and Neurocrine among the biggest drivers of growth in San Diego.

Idec, the flagship of local biotechs, sells the successful non-Hodgkin’s lymphoma drug Rituxan with its partner Genentech Inc., and recently won a recommendation by a Food and Drug Administration advisory panel to market a second lymphoma drug, Zevalin.

The Ernst & Young report however, also points to the dramatic slowdown in biotechnology funding and initial public offerings since the Nasdaq drop in early 2000.

Mejia said the IPO window is effectively closed for biotechnology firms, but has a slight opening for medical products and devices.

Two local medical device companies , Digirad Corp. in San Diego and dj Orthopedics Inc. in Vista , filed an IPO with the Securities and Exchange Commission in September, and Mejia said a successfully completed offering should put them on the stock exchange by Thanksgiving.

John McCamant, editor of the Medical Technology Stock Letter in Berkeley, said the Sept. 11 events have left investors jittery.

“Life has been tough since the terrorist attacks and companies have a difficult time to gain sponsorship in this kind of environment,” McCamant said. But most companies have raised enough cash to be in good shape.

McCamant said Ernst & Young’s report was informative and offered insights rarely seen.

On the downside, he found Ernst & Young put too much emphasis on genomics.

Companies involved in analyzing genes have yet to deliver on their promise to drive the drug development process.

“They have to prove that it’s a viable business model and where they fit in,” he said.

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