By Randall Osborne


SAN DIEGO -; Sunny skies, clear water, balmy breezes . . . the site of the BIO 2001 International Biotechnology Convention & Exhibition was near to paradise. And it was overrun by cops.

Local police, FBI agents and security types of all kinds roamed the perimeter of the convention center like T cells on patrol, signaling into collar microphones and scanning the area constantly for disruptive protestor germs.

There had been hints of something beyond peaceful marching by various activist groups who disagree with genetically modified organisms in food, stem cell research and gene therapy. The Biotechnology Industry Organization, sponsor of the meeting, sent representatives in San Diego weeks in advance, to speak with the excited media and line up law enforcement.

Nothing much happened.

At least, not much outside the convention center's walls, aside from a few arrests for minor offenses. Inside, however, was a bustling collection of some 14,000 registrants, who circulated between rooms, auditoriums and the exhibit area by way of arterial hallways and escalators.

The registration number was a record. So was the number of international people taking part: almost 5,000, which is twice as many as last year, from 44 countries.

They talked about money.

They talked about other things, too, such as the moral and ethical issues surrounding (and sometimes impeding) the progress of drug development -; the very issues with which protestors claimed to be preoccupied, the issues that BIO takes on legislatively and elsewhere as a matter of course.

"That's the irony of it," said Dan Eramian, vice president of communications for BIO.

Sessions in the "policy and ethics" track bore such titles as "Bioethics is Good for Business and Good Business Integrates Bioethics: Benefits of Establishing Formal Advising Processes" and "Cloning and Stem Cells: New Controversies."

Mostly, though, they talked about money: how to make more of it, despite the complicated arguments against some modes of investigation.

"Times are tough on Wall Street," acknowledged Stelios Papadopoulos, managing director of SG Cowen Securities. "Last year, when we made a lot of money doing a lot of deals with genomics companies, we could go to work in sneakers and T-shirts, but this year, it's back to suits. At the rate we're going, by September, I'll think we'll be wearing tuxedos to work."

At a recent meeting with 300 senior managers from a "large multinational pharmaceutical company," he said, he asked them who they believed would be their major competitor. Would it be Pfizer Inc.? Merck and Co. Inc.? GlaxoSmithKline plc?

They didn't answer. He started over.

"Let me make this a more specific question," he said. "How quickly can you decide to commit $100 million irrevocably in a particular project? Would it take you a week, a month, six months?"

It can often take several months, as pharmaceutical companies are "going through the checklist," having meetings and debating merits, he said.

That's way too long, Papadopoulos said. Fast access to capital is the key, especially in an environment where Wall Street is punishing companies for being unable to accomplish the impossible. Although he didn't mention the firm by name, CV Therapeutics Inc. raised $100 million earlier this month, in an offering with Cowen as the underwriter.

"This has become a business where ideas alone are not enough," Papadopoulos said.

Such might have been obvious to the audience, but he went on to posit a longer view of the industry.

"What I will try to remind you is that, contrary to conventional wisdom, the aggregate world of biotech and pharma is not a collection of companies moving in a linear direction," he said.

"We're talking of consolidation as if it's a linear phenomenon, [saying that] more of it will take place in the future, with bigger and bigger market share, fewer and fewer companies, and so on and so forth," Papadopoulos said. "I will argue that this aggregate of biotech and pharma companies is more of a collection of somewhat unstable equilibrium environments, much like swinging pendulums, that go back and forth depending on what part of the cycle you're on. And we will always be seeing some aspect, some phase of that."

No one will see the whole cycle in his or her professional life, he added, "unless you do this for 40 or 50 years."

In the current phase, Papadopoulos said, Wall Street has been giving companies that chalk up a successful drug "the benefit of the doubt, if you're good and smart and clever in your message" -; but only up to a point.

"Just as soon as you wash the champagne glasses from celebrating, you start thinking, 'Oh my God, now what next?'" he said.

Just then, investors "forget where you came from," he said. "That you were just until yesterday spending $100 million and making no money, tomorrow [you'll be] making $50 million in revenues and losing a little money, and the next year you'll break even, and as you break even, they expect you to grow at 20 percent per annum."

Building a pipeline through major research and development costs while meeting those expectations is almost unheard of, Papadopoulos said.

"It does happen, once in a very long while, when you have a blockbuster like erythropoietin or Neupogen," he said, referring to Amgen Inc. drugs.

As an example of what he said will be a trend toward deconsolidation, Papadopoulos pointed to Agouron Pharmaceuticals Inc., which -; in order to meet Wall Street's expectations -; had to cut back its efforts to build a pipeline when earnings slacked off.

The next decision was to "accept a nice offer from a bigger brother, and go join forces with them, and become somebody else's subsidiary."

Agouron was acquired by Warner Lambert Co., which was acquired by Pfizer Inc.

"Now where is the pendulum?" Papadopoulos said, and answered his own question. "If you walk the hallways of Agouron today, you will see the departure," he said, adding that a "number of very good" employees are leaving. "Why? Because they want to do it again," a prospect that "excites them and you can't take that away from them," he said.

It will go on "for the next 20 or 30 years," he predicted.

Papadopoulos spoke as part of a panel session called "Does Biotech Need Pharma in the New Economy? Strategic Alliances in the Post-Genome Era."

Another heavy hitter in the analyst league speaking at BIO 2001 was Dennis Purcell, senior managing partner with Perseus-Soros BioPharmaceutical Fund LLC. He spoke as part of a panel titled "An Overview: The Future of Life Sciences Financing."

Last year, Purcell said, "almost 75 percent of the companies that went public were not telling product stories, they were telling technology stories," largely as a result of the genomics wave.

Companies that took advantage of that wave have undergone an "enormous correction" since, he said. "All the companies that went public are down about two-thirds from where their high was."

Rather than trade momentum and volatility, Purcell recommended a "buy and hold" approach. "We think there's an intersection where risk gets wrung out, as you go through clinical trials, but Wall Street doesn't recognize the true value," he said, starting at around the Phase II trial period some "later-stage opportunities where valuations have not kept up with the underlying business."

That's not to neglect some good pickings in the earlier stage, Purcell added, because of funding from the National Institutes of Health, which has increased. "Generally, that's where all the new companies have been spawned," he said. *

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