Since researchers first mixed together genes from two species more than a quarter century ago, biotechnology companies have promised to revolutionize the pharmaceutical industry, and even disrupt centuries of farming practices.
Despite that promise -- and some very significant breakthroughs in treating cancer, diabetes and other widespread and deadly diseases -- the industry's combined losses continued to mount last year.
The biotechnology industry lost a combined US$6.4 billion last year, according to a new report from Ernst & Young. The industry's total accrued loss since its birth in Silicon Valley in the mid-1970s is more than US$45 billion.
The 93-page report was mostly upbeat: Federal regulators approved 20 new drugs created with biotechnology last year and 230 such medicines and other related products are now on the market. Ernst & Young is optimistic that biotechnology as a whole will become profitable by 2009, pointing to 365 drugs in the last stages of development compared to 290 in 2003.
Revenues worldwide grew 17 percent to US$54.6 billion based on Ernst & Young's study of 641 public companies and 3,775 private companies.
"What's remarkable about this industry is that you can lose money for many years," said Ernst & Young's Michael Hildreth. "But the whole nature of your business changes dramatically once a product is improved."
A handful of biotechnology companies have indeed hit it big after modest beginnings, making their initial investors wealthy.
The market capitalization of Genentech Inc, the south San Francisco biotechnology pioneer, recently surpassed several pharmaceutical giants like Merck & Co and biotech rival Amgen Inc.
For its part, the drugs that launched Amgen into profitability -- epogen and its successors -- rang up more than US$10 billion in sales last year for Amgen and three competitors who also market the drugs, which is used to treat anemia in many cancer patients and other with kidney disease.
Genentech earned in US$785 million last year while Amgen reported profits of US$2.4 billion.
Investors, meanwhile, continue to plow billions into biotechnology each year in hopes of getting in on the next Genentech, which shareholders value at US$83 billion.
According to Ernst & Young, the industry raised a total of US$17 billion from investors last year -- the highest total since 2000. Venture capitalists invested US$3.6 billion last year.
Yet there's no getting around the industry's continued losses. For every success like Genentech and Amgen, there are dozens of failures.
"It's a crazy industry to invest in," said John McCamant, a biotechnology investor and editor of a stock-advising newsletter. McCamant is nevertheless optimistic that biotechnology is poised for explosive growth in the coming years.
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