Thursday, January 24, 2008

Report: California Biotech Industry Grows, But Uncertainty Looms

Report: California Biotech Industry Grows, But Uncertainty Looms
By MARCUS WOHLSEN
Jan. 23, 2008

SAN FRANCISCO - California's biotechnology industry is growing steadily, but the looming possibility of increased government oversight could stifle new drug development, according to an industry-supported report set for release Thursday.

The California Healthcare Institute reported that biotech businesses and research generated $73 billion in revenue in 2006 in California, up nearly 20 percent from 2005.

Including medical device and diagnostics firms, California biotech companies brought in just over 40 percent of the $7.4 billion in biotech venture capital _ about three times as much as Massachusetts, the state's nearest competitor. And the National Institutes of Health bestowed $3.3 billion in grants on California researchers, significantly more than any other state, the report found.

The state's 2,700 firms employed nearly 270,000 workers, more than either the aerospace or the movie businesses, the report said. California biotech workers in the state pulled down an average salary of $71,300.

However, a recession could drag down biotech like any other industry, said David Gollaher, the institute's chief executive and co-author of the report. But just one new blockbuster biological drug that strikes a blow against an intractable disease like cancer, diabetes or Alzheimer's would shield the sector from any economic downturn, he predicted.

"There's an enormous market for the products of the industry as they're developed," Gollaher said.

The report, compiled by PriceWaterhouseCoopers, did not address profitability, which has always eluded the biotech industry as a whole. Analysts put the U.S. biotech industry's losses at more than $52 billion since its inception three decades ago.

And despite the report's rosy picture of California biotech, the state's biggest makers of genetically engineered pharmaceuticals, Amgen Inc. and Genentech Inc., have seen their stock prices fall sharply in the last year.

Amgen shares lost more than 30 percent of their value in 2007 amid Food and Drug Administration safety warnings about the side effects of the Thousand Oaks-based company's blockbuster anemia drugs. Research has suggested that high doses increased patients' risk of tumors and death.

Though Genentech of South San Francisco remains profitable, the company's shares lost nearly 20 percent during the year as sales of the company's top-selling cancer drugs failed to impress Wall Street.

"In the near term, there are some definite headwinds that the industry faces," said Jim Birchenough, a Lehman Brothers biotech equities analyst.

Top-selling drugs from the state's biggest companies are reaching the point of market saturation, Birchenough said. And the field of small startups, where many of the industry's innovative discoveries are made, has become so crowded that raising money to sustain them has become difficult, especially in the face of more stringent FDA safety testing requirements.

Industry growth was likely to stay flat in the short-term, though new treatments would likely spur another "leg of growth" in the future, Birchenough said.

Another challenge looming over the biotech industry, according to the report, is the likely expansion of the federal government's role in determining not just whether new drugs are safe but which are cost-effective.

A December report issued by the Congressional Budget Office said more research that would encourage insurers to cover only the least expensive of similar treatments could help rein in rising health care costs.

Under such a system, "developers of new drugs, devices and procedures would have clearer incentives ... to generate products and services that yielded substantial health gains relative to current treatments," the CBO report said.

But so-called "comparative effectiveness research" could spawn health care rationing and prevent insurers from covering the most advanced and costly treatments and strip companies of the incentive to create new drugs, the report said.

"A lot of things that have been developed in the past just wouldn't have a chance to make it through that filter," Gollaher said.

New drugs and devices must incorporate the massive costs of research and development into their asking price when they first go on the market, he said. As they are more widely prescribed, their cost goes down.

The high cost of biotech drugs has long been the subject of emotional debate, especially surrounding terminal illnesses like cancer, where the cost of genetically engineered treatments can reach hundreds of thousands of dollars.

Pending legislation before Congress would give the FDA the right to approve so-called copycat versions of biotechnology drugs worth $12 billion annually whose patents have expired.

The biotech industry has long argued that because their products are more complex than standard chemical-based pharmaceuticals, ensuring the safety of copycat versions made by generic drug companies would be difficult.

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