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Growing Industry Gets Transfusion

Biotech: Soaring stock prices and fresh capital energize the sector. Genomics firms are leading the charge.


After a long funding drought that brought many firms to the brink of bankruptcy, the biotech industry is being rejuvenated by soaring stock prices and an influx of fresh capital.

Biotech firms are using the money they have raised to move new drugs into clinical trials that might have otherwise stayed on laboratory shelves. They're expanding their work forces, looking to acquire promising start-ups, building new facilities and signing on for services that will allow them to take advantage of the decoding of the human genome.

And the emerging strength of the sector has another benefit to individual companies: All the stock options used as bonuses to lure new hires and reward loyal workers are suddenly worth a lot of money.

Among the companies that have seized the opportunity to go to the market with initial public stock offerings in the last few months are San Diego-based Sequenom, which raised over $150 million, and another San Diego firm, Diversa, which raised $200 million.

And companies that have already gone public, such as Celera Genomics of Rockville, Md., are going back to the market for additional financing.

In the first two months of 2000, the industry pulled in more than $8.5 billion from stock offerings and private investments--that's more than all of last year, according to a database maintained by BioCentury, a trade publication.

And there's an additional $4.5 billion in deals already waiting on the table, according to BioCentury's editor in chief, Karen Bernstein.

The influx of capital parallels the rise of biotech shares. Biotechnology stocks are on an amazing ride: Despite this week's setback, the Nasdaq biotechnology index is up 62% since Jan. 1; the Amex index is up 76%.

Thanks to this run-up, biotech workers--many of them biologists--no longer need to envy the sudden paper wealth of their counterparts at software and Internet companies.

One middle manager at Incyte Pharmaceuticals in Palo Alto, who has been collecting stock options for the past five years, affirmed that he is now a millionaire--on paper--while still in his 20s.

"A good analogy is with the folks who win the Super Bowl," said this biotech supervisor, who asked not to be identified. "You get caught up in the glory."

Genomics Companies in the Vanguard

Leading the biotech boom are the genomics companies--firms like Incyte and Celera Genomics that probe the human genetic code, known as the genome, looking for individual genes, deducing their function and then patenting their discoveries.

These companies have become controversial because of their attempts to stake claim to our common genetic heritage. However, they also provide tools now recognized as indispensable to pharmaceutical and biotech companies seeking new ways of treating and diagnosing illnesses, including cancer, heart disease, arthritis and senility.

So strong are the genomics companies that investors may even be rewarding the biotech firms that sign up for their services.

When Corixa Pharmaceuticals in Seattle announced that it had signed up for Incyte's premium database of gene sequencing information in early February, its shares shot up almost 30%. Later that month, when Vertex Pharmaceutical announced a similar deal with Incyte, the Cambridge, Mass., firm's shares got a similar boost.

"You're just seeing the pixie dust that spills over because the genomics companies are such darlings," said Richard A. van den Broek, biotech analyst at Chase Hambrecht & Quist. "Does paying Incyte make a company more valuable? It's a sign that the folks in research and development get it. . . . If you're in the drug development business and not in the genomics game, you're functionally extinct."

Incyte's chief executive, Roy A. Whitfield, doesn't promise that his firm's clients will get an immediate boost in share prices, but he jokes that the Vertex and Corixa experience "has not gone unnoticed by the marketing group here at Incyte."

Like many biotech companies--both genomics and drug discovery firms--Incyte's stock was flagging through the middle of 1999. But in the last six months its share price has shot up over 600%, with much of the dollar gains coming after the new year.

That increase in valuation allowed the company to raise $620 million last month. "To put that in perspective," Whitfield said, "the total value of the entire company was $600 million back in October.

The cash will fuel the company's continued work force expansion, primarily in St. Louis, where it operates a plant that distributes genes and gene fragments to pharmaceutical and biotech companies.

The company also will increase its own investments in smaller companies and look for acquisitions.

But the biggest benefit of the increase in share price for the 9-year-old company may be its impact on employees. "The unvested options encourage people to remain," Whitfield said. "It's still a competitive marketplace. We compete with other biotech companies for talent."

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