A Rollercoaster Ride

INVESTOR’S LAB A rollercoaster ride Tom Jacobs If only we knew then, what we know now. macogenomics and individualized medicine BIIB), and Serono (Geneva, Switzerland; Biotech investing has changed over the past ‘a reality.’ NYSE:SRA). Today, Genentech and Amgen ten years in two major ways. First, thanks to Investors flocked to data providers, such are the sixth and seventh largest drug com- fitful bursts of initial public offerings (IPOs), as Celera, research toolmakers, such as panies in the world by enterprise value (see the growth and sheer diversity of companies Affymetrix (Santa Clara, CA, USA; Nasdaq: Supplementary Table 1). Five years ago listed on exchanges has greatly expanded the AFFX), and drug makers like Millennium Genentech wasn’t even in the top 13 and choices available to investors. And second, the Pharmaceuticals (Cambridge, MA, USA; Amgen was eleventh. burgeoning number of biopharmaceutical Nasdaq:MLNM) and Human Genome In fact, the two biotechs easily outpaced the approvals has meant that a few biotech firms Sciences (Rockville, MD, USA; Nasdaq:HGSI). large pharmaceutical companies, even includ- http://www.nature.com/naturebiotechnology have increased in valuation, joining the ranks These and many dozens more companies had ing their dividends. Only four companies have of the top drug makers and offering investors very different businesses, but riches lay in fatter enterprise values today than in 2001 and profitable, sustainable ventures for the first joining the chorus of genomics. Marketing Amgen and Genentech on a percentage basis time. departments knew the right words and even lead the pack. Though all these companies rebranded; Incyte Pharmaceuticals (today just benefited from biotech through acquisitions Waves, bubbles and tsunamis Incyte, Wilmington, DE, USA; Nasdaq:INCY) and/or partnerships, the pure biotechs are There are about 375 publicly traded bio- became Incyte Genomics, for example. Cash now powerful competitors for all their future tech and drug companies today—down flowed in as institutional investors bought the biotech deals. from roughly 425 two years ago, but many stories and new shares. There might be more on this list were it times more than ten years ago. This growth Then, a tsunami of investor reality suddenly not for the acquisitions of Immunex (Seattle, occurred in three broad IPO waves, begin- engulfed the sector, causing unprecedented dev- WA, USA), Sanofi-Synthelabo (Paris), and Nature Publishing Group Group Nature Publishing 6 ning before and after the 1993 marketing of astation. Although a few companies survived Centocor (Malvern, PA, USA), and Serono Eli Lilly’s (Indianapolis, IN, USA) Humulin to make money today, most are impoverished is now for sale as well. To stay independent 200 © (recombinant insulin). Then came blockbust- survivors—living dead, picking among the last and reward shareholders is truly a rare feat. In ers, such as erythropoietin, boosting Amgen vestiges of cash raised during the boom’s stock ten years, I’d expect to see Genzyme, Biogen- (Thousand Oaks, CA, USA; Nasdaq:AMGN). price inflation. Others didn’t make it. Deltagen Idec and MedImmune higher on the list, with The monoclonal antibody drugs wave, still in (San Carlos, CA, USA), Gliatech (Cleveland, a nod to dark horses Vertex Pharmaceuticals progress, arrived next. Here, Genentech (S. OH, USA), Large Scale Biology (Vacaville, CA, (Cambridge, MA, USA; Nasdaq:VRTX) and San Francisco, CA, USA; NYSE:DNA) unerr- USA), Cambridge Biotech and others filed Elán Pharmaceuticals (Dublin, Ireland; NYSE: ingly developed and chose the right partners for Chapter 11 bankruptcy protection. Some, ELN). for approvable drugs. Investors surfed to like Hyseq (Sunnyvale, CA, USA)—the largest wealth. biotech IPO of 1997—squeaked by, collapsing And now? But choice is not always a virtue. By mid- from over a split-adjusted $300 a share to a The two main risks for biotech investors today 1999, the Human Genome Program and com- few paltry dollars in 2003, only to merge and are likely to continue for many years: valuation peting efforts at Celera Genomics (Rockville, rise from the wreckage as Nuvelo (Sunnyvale, and speculation. The few profitable cash-gener- MD, USA; NYSE:CRA) seduced investors. Just CA, USA; Nasdaq:NUVO), recently raking in ating companies all sell for multiples reflecting as any ‘dot.com/e-commerce’ venture could $100 million from a new share offering. That’s impossibly high growth expectations, offering seemingly raise millions on the market and better than most investors, who bought any- investors great risk of sub-par returns. Only watch its stock vault, so too could genomics. where except the bottom and didn’t sell until Amgen may prove an exception if its stock price Gene sequencing and genomic data would too late. continues to stagnate while earnings rise. ‘revolutionize’ drug making, making phar- Little lies between the overpriced successes Biotech beats pharma and the product-less speculations on one big Tom Jacobs is cofounder of Complete Growth Only a handful of biotechs achieved inde- drug’s approval, so if you speculate, make small Investor, http://www.completegrowth.com, pendent, self-funding success. These include selective bets only with money you can afford a stock service for individual investors. Tom Amgen, Genentech, Genzyme (Cambridge, to lose. If your stock doubles, sell half and leave owned no shares of these companies at time MA, USA; Nasdaq:GENZ), MedImmune the rest as long as you are comfortable. You of writing. He welcomes your comments at (Gaithersburg, MD, USA; Nasdaq:MEDI), would have slept better doing so in the past [email protected]. Biogen-Idec (Cambridge, MA, USA; Nasdaq: ten years, and ditto for the next ten. 284 VOLUME 24 NUMBER 3 MARCH 2006 NATURE BIOTECHNOLOGY.

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