Washington Editor

McLEAN, Va. - It's not all gloom and doom in the biotech industry, even though 35 percent of U.S. companies have only a year's worth of cash, 90 percent of the industry's stocks are down and a number of companies are facing Nasdaq delisting after falling below the $1 bid requirement.

The industry has been through slumps before, and this recent one likely won't be the last. But there is hope on the horizon, speakers at the second annual BIO IT Coalition conference here said. The coalition is a nonprofit organization operating in the metropolitan Washington area charged with promoting the development of bioinformatics.

As keynote speaker, John Holaday, co-founder and retired CEO at EntreMed Inc., understands the ebb and flow of money and ideas in a biotechnology company, as his own Rockville, Md.-based firm was forced to let go 30 of its 115 staff members last summer (the staff size is now 50). Addressing the topic, "Weathering the Storm in Biotechnology," Holaday traced the history of biotech through the markets, remembering a time when "you could go public on an idea."

"By 1999 you needed earnings to get funding, and by February 2000 you could get funding on anything with the word gene' in it," Holaday said. Then markets collapsed, then corporate scandals hit the news, and then, he said, "I'll say one word to you - ImClone." (Samuel Waksal, former CEO of New York-based ImClone Systems Inc., is facing jail time on fraud and insider-trading charges related to the cancer drug Erbitux.)

Despite that blemish, biotech does a lot of things right, Holaday said. Specifically, biotechnology companies invent, while big pharmaceutical companies market and sell well.

So the question becomes, how does a small biotechnology company stay in business long enough to actually have the opportunity to "invent" a product or technology and then partner with big pharma, without getting swallowed up in a turbulent economy.

Among his suggestions, Holaday said to avoid unwarranted publicity.

Ironically, it was publicity - warranted or unwarranted - that helped unfold the scandal at ImClone, which peaked last year. For anyone keeping track of the saga, senior management found themselves on Capitol Hill testifying before the House Energy and Commerce Committee about a "60 Minutes" program that touted Erbitux, a cancer candidate, as the savior for cancer patients. (See BioWorld Today, June 14, 2002, and June 18, 2002.)

In his own experience, Holaday told a story of a New York Times headline five years ago. "There was a comment made about EntreMed curing cancer in two years, and a reporter picked up on it and it ended up in the paper. Try living up to that."

Companies should be careful to avoid setting false expectations, and to keep the business afloat, Holaday suggested, "Raise all the money you can when you can, and cut your burn rate."

And a few other strategies that might just help along the way are people, persistence, focus and a little bit of luck, he said.

And then there's the much quoted $800 million cost associated with developing a drug. That is a Tufts University figure that has caused some commotion, especially on Capitol Hill, where a growing number of politicians seem to believe it's a tad high.

In fact, a number of conference attendees felt the desire to speak out on the estimate, in particular asking Holaday if the enormous figure is scaring investors away.

Unlike lawmakers who sometimes throw the number out in speeches, Holaday clarified the statement, saying it takes into account the failures.

Indeed, he said one in 5,000 products is commercialized and two-thirds of drugs on the market do not recover research and development expenses.

"A lot of failures occur not because the products don't work, but for financial reasons, bad business decisions, poor planning and regulatory snafus," Barry Abelson, chairman at the law firm Pepper Hamilton LLP, said.

As a result, many companies seek out partnerships with big pharma. Over the next few years, biotechnology companies will be positioned well as patents on blockbusters begin expiring. For example, patents on Zoloft, a billion-dollar antidepressant drug made by New York-based Pfizer Inc., expires in 2005. Once President Bush's proposed rule limiting patent extensions to one 30-month stay goes into effect (expected sometime later this year), Pfizer and others holding patents on blockbusters will have to begin looking deeper into their pipelines.

Holaday cautioned that partnering isn't the best answer in every situation. That is, if your shareholders and finances will allow you to go it alone, then that may be the best solution. "But in this market, often there's little alternative," he said.