With 20 drugs approved last year, a somewhat brightened market picture in the final quarter of 2002 and Phase III data due in the months ahead, analysts are finding cause for optimism even as the rumblings of war grow louder.

The efforts to fight biological terrorism might prove a boon in itself, with the federal government having committed more than $2 billion for research and development in that area, from which biotechnology firms already are benefiting. President Bush in his State of the Union speech last week proposed allocating almost $6 billion for vaccines against such agents as anthrax, botulinum toxin, Ebola and plague.

But there may be even bigger happy news due from peacetime drugs this year, when analyst Michael King of Banc of America Securities predicted in a research report that the industry will be "chockablock with product approvals" and said 2003 "could be the biggest product year ever for the biotech industry."

He's not alone. The customary end-of-year, look-ahead reports from analysts showed a markedly upbeat tone, even for pundits on the buy side. First quarters often are sluggish and the brewing storm in Iraq is casting a pall, but the sector already has brightened.

The year's first major high note was FDA word on Aldurazyme (laronidase), the enzyme replacement drug for mucopolysaccharidosis-1 from Genzyme General (a division of Genzyme Corp.) and BioMarin Pharmaceutical Inc. (See BioWorld Financial Watch, Jan. 20, 2003.)

An advisory panel found the companies' data showed meaningful effects with Aldurazyme, and the FDA's complete response letter followed up to say no more data would be necessary for approval. Genzyme also heard favorably from the panel about the company's other enzyme replacement product, Fabrazyme (agalsidase beta), for Fabry's disease. (Competitor Transkaryotic Therapies Inc. came out a loser, with panel members saying unanimously that TKT's data for its Fabry's drug, Replagal [agalsidase alfa] didn't provide adequate proof of efficacy.)

Next came the approval, late last week, of Biogen Inc.'s Amevive (alfacept) for adults with moderate to severe chronic plaque psoriasis who are candidates for systemic therapy or phototherapy. Still in the agency's hands and expected to be acted upon in the near term are FluMist, MedImmune Inc.'s intranasal influenza vaccine, viewed with overall favor by an advisory panel in December; and Fuzeon (enfuvirtide), from Trimeris Inc. and Hoffmann-La Roche Inc., for which a new drug application was submitted in December.

Last week, MedImmune got a complete response letter from the FDA, in which the agency sought no further trials with FluMist and asked five questions that the company said were "relatively minor."

The year ahead is not without hurdles. Aside from the prospect of war, skirmishing over Medicare continues. But the new FDA commissioner, Mark McClellan, is in place, and the Prescription Drug User Fee Act III has been approved.

Effects remain to be seen of last year's move to consolidate some duties of the Center for Biologics Evaluation and Research (CBER, which reviews biologics applications) with the Center for Drug Evaluation and Research (CDER, which handles new drug applications) - a move that led in part to the December resignation of the director of CBER, Kathryn Zoon.

Claims by the FDA that BLAs are harder to wade through than NDAs seemed to have been proven amply by the agency's numbers: in 2001, CBER reviewed 16 BLAs in a median time of 13.8 months and approved them in a median time of 20.3 months, whereas CDER reviewed 66 NDAs, including 10 priority products that made it through in a median time of six months.

Whether evaluators work speedily or not, of course, the data must be there. And - another hopeful sign - in 2002, companies managed to file for approval and win favor from the advisory panel with strong Phase II rather than Phase III figures: AstraZeneca plc's Iressa (gefitinib or ZD 1839), an epidermal growth factor receptor tyrosine kinase inhibitor in tablet form for non-small-cell lung cancer; and Bexxar (tositumomab, iodine-131), Corixa Corp.'s antibody specific to the CD20 antigen on B cells, conjugated to radioactive iodine-131 for non-Hodgkin's lymphoma.

Both drugs had run into problems earlier, and investors viewed the panel's positive disposition toward Iressa as particularly encouraging, given that the compound earlier had blown up in Phase III trials - an August event that put a dent in the shares of OSI Pharmaceuticals Inc. and scandal-ridden ImClone Systems Inc., which also are developing EGFR drugs.

Jason Kantor, an analyst with WR Hambrecht and Co., was more cautious, but acknowledged the year has exciting prospects.

"Let's keep our feet on the ground," he told BioWorld Financial Watch. "There will be some serious blowups. It's just the nature of the beast."

Data may turn out to be problematic for several other drug candidates, including one of those EGFRs: Tarceva (erlotinib). OSI said in January enrollment had completed in the Phase III study in advanced, previously untreated pancreatic cancer. OSI is in a three-way development deal with Genentech Inc. and Roche.

Also in January, Regeneron Pharmaceuticals Inc. said the last patient had completed the 12-month placebo-controlled portion of its Phase III trial of Axokine, a genetically re-engineered version of ciliary neurotrophic factor, in overweight and obese subjects, which began in July 2001 and involved almost 2,000 people at 65 U.S. sites.

Axokine's distant past includes the loss of partner Procter & Gamble, which backed out in 1999 after preliminary Phase I results indicated effective doses for treatment of obesity and diabetes may be safe only in herpes simplex virus-negative patients.

Regeneron went ahead with an adjusted dosing schedule in HSV-positive and HSV-negative patients, eliminating that concern, and the drug is aimed at both patient groups now, but remains unpartnered.

Another drug at which investors might look askance, and for which Phase III data will be coming later this year, is Genentech's Avastin (bevacizumab), the monoclonal antibody directed at vascular endothelial growth factor, for use in combination with chemotherapy against breast cancer.

Avastin missed its primary endpoint in relapsed metastatic breast cancer last fall, and two Phase III trials of Avastin in colorectal cancer had completed enrollment in December. The FDA has told Genentech that the Phase III breast cancer data to be offered in mid-2003 will have to be "very significant" to warrant a filing.

Such are among potential dark spots - and even those are only potentials. Overall, many analysts agree with King. The numbers are there, he notes: About two dozen product candidates will be reviewed by FDA panels or be the subject of action such as approvals or complete response letters. More than 200 compounds are in Phase III development and more than 800 in Phase II.

"It'll be a busy year," Kantor said. "I can't tell you which ones they are, but some of these drugs aren't going to make it." He added that he is "fairly bullish on biotech in general. My only big-cap hold is on Genentech, which has a lot of late-stage opportunity for product failure, and they've failed more than most companies."

They've tried a lot more than many companies, too, he conceded - but regular failure is "not a scaleable business model."

Any set of events might tip over the biotechnology apple cart, causing investors to scorn a class of would-be drugs, or (less likely) treatments for a specific indication, or the biotechnology sector itself (least likely of all, given the increased maturity of those who put their money in).

Such could happen. But, while national security teams and President Bush's cabinet members may be on the edges of their chairs, for the first time in quite a while, the biotechnology sector can sit up straight and smile.

"The biotech industry is reaching critical mass," Kantor said. Things, so far, are looking good.