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Biotech investing a high-risk gamble
By Chee Yoke Heong

KUALA LUMPUR - The promise of biotechnology seems to have caught the imagination of many scientists, government authorities and investors. Singapore, India and Malaysia are now thick into developing their biotechnology centers. In the case of Malaysia, the government has earmarked the industry as the next engine of growth for the country.

These countries might have been taken by the sales pitch offered by biotechnology proponents, who often trumpet the benefits of the technology and the wonders that techniques such as genetic engineering can bring to people's lives. No doubt, some positive results have been derived from biotechnology, including new drugs that have helped hundreds of people overcome illnesses.

A few biotechnology companies have been highly successful, and the sentiment on biotech stocks is looking up of late in an industry that is highly volatile and risky, According to an article in the Wall Street Journal, Amgen, the largest and perhaps most successful biotech firm to date, earned US$2.3 billion in net profit in 2003. Its rival, Genentech Inc, earned $563 million. After a three-year slump, biotech companies raised $1.5 billion from new stock offerings in the first quarter of 2004, almost three times the level from a year ago.

But that same article also quoted an Ernst and Young report saying that publicly traded biotechnology companies in the United States were estimated to have suffered cumulative losses of more than $41 billion from 1990-2003.

"Biotechnology ... may yet turn into an engine of economic growth and cure deadly diseases. But it's hard to argue that it's [biotechnology] is a good investment. Not only has the biotech industry yielded negative financial returns for decades, it generally digs its hole deeper every year," the report states.

Apart from exceptional years such as 2003, when the losses are narrower, the industry's losses have generally grown larger over time. Fourteen years ago, net losses at the 194 US biotechnology companies then listed publicly amounted to $900 million. In 2003, 314 public companies posted total losses of $3.2 billion, better than the $9.4 billion total loss posted in 2002 when merger- and restructuring-related accounting charges made losses unusually large, according to Ernst and Young.

Because the industry raises much of its financing from the stock market, where speculations are rampant, investing in biotechnology stocks has been likened to being in a casino where money is put into high-risk gambles, with only a small few reaping huge rewards.

A bad-idea virus
In 2003, US biotechnology firms raised almost $4 billion by selling new stock issues. But that same year, US biotechnology companies as a group posted almost that much in total net losses, according to Burrill & Co, a life-sciences merchant bank. Only 12 of the 50 largest biotechnology companies posted a profit in 2003.

It is therefore not surprising to hear Joseph Cortright, an economist who wrote a report on the issue, say: "This notion that you lure biotech to your community to save its economy is laughable. This is a bad-idea virus that has swept through governors, mayors and economic-development officials."

Cortright said the biotechnology industry tends to "cluster" around just a few places where there is a high concentration of venture-capital communities, universities and highly educated workforces, making it difficult to start from scratch.

The failure rate is also high. According to the Wall Street Journal article, of the more than 350 US biotechnology firms that have gone public over the past two decades, almost one-sixth were either bought over, dissolved or had filed for bankruptcy protection by the end of 2003.

This, however, has not stopped government officials dreaming about setting up their own biotechnology industries. Many are wooing investors, willing to do whatever it takes.

At a recent industry convention in San Francisco, that US city's mayor, Gavin Newsom, was quoted as saying: "We are frustrated. You need parking requirement changes? We'll take care of it. You need tax incentives? You've got it. Whatever you need."

Malaysian Minister of Science, Technology and Innovation Jamaludin Jarjis led a large contingent to the San Francisco event aimed at wooing investors for Malaysia's biotechnology initiative, the Biovalley, which is part of the government's mission to thrust the country into the biotechnology arena.

"We are committed to providing attractive incentive packages to biotechnology companies investing in Malaysia," the minister promised. That package includes a wide spectrum of financing structures, including business-angle financing, venture-capital financing, debt ventures and technology banking.

Malaysia is pushing ahead in developing its biotechnology capacity, and under the Biovalley plan three research institutes will be set up - Genomics and Molecular Biology, Pharmaceuticals and Nutraceuticals, and Agro-Biotechnology. Jarjis has also offered the country as a "test bed" for biotechnology companies to try out their ideas and innovations.

Praying to the biotech gods
This fever surrounding biotech seems to have a grip on the psyche of many. Leigh Turner of McGill University, writing in Nature Biotechnology, described this grip by relating biotechnology to religion: "Biotech, in a similar manner to many religious movements, has its charismatic prophets, enthusiastic evangelists and enrapt audiences. Like religions, it offers a comforting message of salvation. Instead of imagining a day of rapture when the dead rise from their graves to begin eternal life, biotech enthusiasts imagine the era when medical technologies provide a renewable, largely imperishable body," Turner wrote. "Biotech is not just an assemblage of research programs and techniques. In a scientific and technological era, biotech also offers a surrogate religious framework for many individuals."

Though few biotechnology companies actually make any successful medical breakthroughs, it is the promise of success that drives most. Should such a breakthrough happen, the return on investment would be tremendous. Take highly successful Amgen for instance; a $1,000 investment in Amgen at its initial offering in 1983 would now be worth almost $150,000.

But these are hardly reasons to paint a rosy picture of an industry that generates much concern and debate. The downsides to biotechnology, now emerging clearly after a few decades of existence, can no longer be ignored. Recent developments in the industry point to the fact that biotech is not as good an investment as was made to be believed. The number of companies retreating from the field of genetic engineering, which has become synonymous with biotechnology, is telling.

Uncertainty abounds
Monsanto announced in May that it had decided to "defer" all further efforts to introduce RoundUp Ready wheat, a crop that was genetically modified to resist the company's own herbicide called RoundUp. The reason cited was that the genetically modified (GM) wheat was "less attractive relative to Monsanto's other commercial priorities". But public protests and government policies are more likely the reason.

In 2002, Monsanto applied for the rights to commercially grow the GM wheat in the United States and Canada. However, the company announced last year that it would not try to commercialize its GM wheat in Europe. For six years it has failed to get GM crops approved for import or cultivation in Europe.

A few days after the announcement was made, a Monsanto spokesperson was quoted as saying that the company would stop its GM canola breeding programs in Australia, at least for 2004, after a series of state moratoriums on the practice that "have created an environment of commercial uncertainty".

After Monsanto's decision, another giant industry player, Bayer CropScience, also decided to pull out from planned genetically modified canola trials in the Australian state of New South Wales, citing growing resistance to the practice from the public, a year after the company decided to halt all trials on GM plants in the United Kingdom. Meanwhile, Novartis Seeds and Aventis CropScience have also joined Bayer CropScience in informing the UK government that no GM crops are being grown this year.

Large-scale commercial research into genetically modified crops in the UK will soon come to an end, after Syngenta, an Anglo-Swiss biotechnology company and another major industry player, said it would close its laboratories there because of poor business outlook for the technology. The company instead plans to move its operations to the United States, where there is a more favorable business and regulatory climate. Though its US research center will continue developing agri-chemicals, all its work on biotechnology will come to an end, resulting in a loss of 130 jobs.

Aside from environmental and health risks and questions over the financial viability of investing in biotechnology, there is growing evidence that the technology is not benefiting a large number of people whose lives depend on it.

Recent experiences of farmers in Kenya, Indonesia and India - whether they are growing genetically modified sweet potatoes or genetically modified cotton - have shown that for the majority of these people, the benefits of high yields, and thus better incomes, have not materialized.

But despite this evidence, it seems biotechnology is here to stay. The hope is that the enthusiasm surrounding this industry is accompanied with an awareness of the reality and the risks involved so that informed choices can be made.

(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact for information on our sales and syndication policies.)
Jul 31, 2004

Singapore takes biomedical road to growth
(Jul 9, '04)

Malaysia's new dream: Biovalley
(Dec 24, '03)

Singapore takes giant step into bio sciences
(Jun 18, '02)



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