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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 content@atimes.com for
information on our sales and syndication policies.)
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