快猫短视频

LOOK at stock markets around the world and you will see a gloomy picture for biotech. Share prices in the sector plummeted in the first quarter of 2005, and so the immediate prospects for potential flotations look bleak. The fall was due partly to wider economic conditions, but a series of disappointments in biotech products has also given investors cold feet. The worst of these was the withdrawal on safety grounds of Tysabri. Approved in 2004 as a treatment for multiple sclerosis, the drug had seemed certain to be a bestseller.

But when the narrow stock market window starts to close, venture capitalists are ready to fill the investment gap. 鈥淔or VCs, it鈥檚 an attractive time to invest,鈥� says leading biotech investor Steven Burrill of Burrill & Company, San Francisco, credited by many as one of the sector鈥檚 early architects. 鈥淚n real terms, as opposed to stock market valuations, the industry is in fabulous shape.鈥�

US biotechnology raised a hefty $5.4 billion in capital in the first quarter of 2005, and where US investors lead, those in Europe and Asia tend to follow. 鈥淰Cs have got a lot of money to invest in biotech, and they are pretty excited about it,鈥� says London-based Nessan Bermingham of venture capitalists Atlas Venture, which has an equal investment split between Europe and North America.

Biotech companies are also receiving cash injections from the pharmaceutical industry: a record $3.5 billion in the last quarter of 2004 and a further $2.1 billion in the first quarter of 2005. Analysts say pharma鈥檚 reliance on biotech will remain as it struggles to fill its drug development pipelines. And far from being cap-in-hand poor relations, biotechs are gaining power in these interactions. This year the UK鈥檚 Arakis and Vectura scored a major deal with Swiss pharma giant Novartis to develop a treatment for lung diseases. One of the largest in European biotech history, the agreement is seen as a morale boost for the sector, and further evidence that pharma is willing to pay more to its biotech partners.

So what do investors rate as the hottest scientific areas in healthcare biotechnology? 快猫短视频 asked those on the inside where the smart money is going 鈥� and what is being left out in the cold. All agreed on one thing: investors are coming back to biotechnology because despite frequent setbacks, the sector is delivering compelling science that looks certain to transform medicine over the next decade.

Pharmacogenomics

One of the buzzwords among investors is personalised medicine or pharmacogenomics 鈥� the tailoring of drugs and doses to specific patients depending on their genetic profile or disease variants. After the human genome was sequenced, unrealistically high expectations of new medicines gave way to scepticism as it became clear how difficult it is to translate genetic information into practical targets for drugs and other treatments. But most analysts now believe that pharmacogenomics will become a part of mainstream medicine in a decade, regardless of criticisms of hyperbole from some commentators (快猫短视频, 11 June, p 42). 鈥淭he trend towards personalised medicine is beyond dispute,鈥� says William Powlett Smith of business advisers Ernst & Young in Reading, UK. 鈥淓very company developing diagnostics or therapeutics must have a strategy about where they will fit in to this.鈥�

Biotechs look set to be the major beneficiaries of this trend. Companies with technologies or products relating to personalised diagnostics or drugs will continue to attract investors鈥� attention, says Powlett Smith. One advantage of the approach is that clinical trials can be restricted to the subset of patients whose genetic profile makes them most likely to respond to the drug. This will make it cheaper to get the data needed for new drug approval and reduce the risk of expensive late-stage trial failure, which biotechs can ill afford. Uncertainty over how regulators would respond to such trials was lifted in March when the US Food and Drug Administration published its promised guidance on pharmacogenomic data submissions. This clarifies for the first time how such data should be submitted and how it will be evaluated. The FDA says it aims to make pharmacogenomic medicine part of every doctor鈥檚 prescribing practice, enthusiasm that should further stimulate investor interest.

鈥淭he trend to personalised medicine is beyond dispute鈥�

One company riding this wave is Perlegen Sciences in Mountain View, California, which raised $74 million in venture capital in February. Through its proprietary rapid DNA analysis technology it has created a database of 1.5 million single-nucleotide polymorphisms (SNPs) 鈥� single-letter variations in genetic code that can indicate people鈥檚 susceptibility to disease or their likely reaction to a drug. The firm uses the SNPs to identify groups of patients that can be targeted with a given drug.

Also capitalising on the pharmacogenomics buzz is Anglo-American company Solexa, based in Essex, UK. A specialist in genome sequencing technology, it has just raised $32.5 million in financing. Its technology, which is due on the market in early 2006, allows genomic DNA to be read directly, without the need for copying. This permits the rapid and affordable genome sequencing that will be crucial to making personalised medicine a reality, the company says.

Oncology

One sector likely to reap early benefits from pharmacogenomics is oncology, historically a minefield for drug development. Growing understanding of the genetic basis of different types of tumour has opened the way for drugs that target tumours with a particular genetic defect or mutation 鈥� Herceptin for breast cancer and Tarceva for lung cancer are examples already on the market. Combined with the steady trickle of products getting close to approval or the final phase III stage of drug testing, these successes are ensuring that oncology companies with a 鈥済ood story鈥� are making financial progress, says Powlett Smith.

Toll-like receptors (TLRs) have been drawing the interest of researchers for a while, and investors have caught the excitement coming from the labs. TLRs are proteins in the membranes of immune-system cells that recognise the molecular structure of invaders such as viruses and bacteria, and trigger the chain of chemical signals that leads to an immune response. Drugs that influence TLRs may be able to direct the body鈥檚 immune response to pathogens, allergens and cancer cells.

This March, leading TLR player Coley Pharmaceutical, based in Massachusetts, Germany and Canada, licensed ProMune, a cancer drug in development that works on TLRs, to Pfizer for an upfront payment of $50 million. Up to $455 million more will be paid in milestone payments if and when the drug reaches agreed stages such as human trials. In April Coley announced its intention to go public, with a product pipeline that contains TLR-based drugs for conditions including asthma, allergy and infectious disease. The market reaction to Coley will be a good indication of whether wider investor response to TLRs will match the hype.

RNA interference

RNAi was hailed by Nobel laureate Phillip Sharp as the most important biological discovery of the past decade. Short pieces of double-stranded RNA called small interfering RNA (siRNA) are engineered to degrade the messenger RNA produced by the target gene, thus suppressing the gene鈥檚 activity 鈥� a process that also occurs naturally. The technique could potentially treat any disease associated with over-active gene function, and researchers also aim to use it to block the replication of viruses. After three years of hype, there are no signs that the RNAi bubble has burst: all the investors 快猫短视频 spoke to cited this as one of the hottest areas in biotech.

No RNAi drug has yet been fully tested in humans. 鈥淲e are waiting to get true validation of this technology from a phase III trial, but the science that has come out is very compelling,鈥� says Bermingham. 鈥淭his was just a concept a few years ago but it garnered VC investment even before the full mechanism of action was known. It鈥檚 a good example of how VCs are looking for good technologies and are willing to put money into them at an early stage.鈥�

However, US-German Alnylam Pharmaceuticals, a leading RNAi player, raised less than anticipated from its initial public offering (flotation) in 2004 after falling victim to market wariness about biotech.

The first clinical data on an RNAi-based drug was released by US company Sirna Therapeutics in May. Its compound Sirna-027 aims to curb the overgrowth of blood vessels in the eye in a condition known as age-related macular degeneration (see Picture, right). Early results from a phase I human trial suggest that patients鈥� visual acuity has stabilised, say doctors working on the trial, with a possible trend towards improvement.

Stem cell research

One high-profile area that has so far failed to woo private investors is stem cell research. Investors are watching and waiting until more of the practical challenges of such work are resolved, according to Nessan Bermingham. 鈥淭his is an area VCs want to invest in, without question, but we think it鈥檚 premature to invest now,鈥� he says.

Companies most likely to attract investment are those with other sources of revenue, like Geron, California, which raised $12.5 million from a stock issue in January, or Singapore-Australian ES Cell International, which sells human embryonic stem cell lines.

In the US several states, including New Jersey, Wisconsin and Illinois, are bypassing federal government funding restrictions on embryonic stem cell work and providing cash to set up research centres. Biotech firms are hoping for some of that largesse, says Burrill. California is leading the pack and will hand out $300 million in research grants every year for the next decade via its newly formed California Institute of Regenerative Medicine. San Francisco has just won a hotly contested bidding war to host the centre, offering a $17 million package of perks in the hope that the institute will create the biotech equivalent of Silicon Valley. However, the institute faces lawsuits from groups represented by the Life Legal Defense Foundation, which objects to embryonic stem cell research on moral grounds. Until the lawsuits are resolved, California will not be able to issue bonds to finance the centre and may have to appeal to charitable foundations for initial funding.

Other groups should make the most of the delays, as the institute plans to snap up many of the patents in the area once it is established. 鈥淲e hope to maintain a lead against the rest of the world that will enable us to corner the key intellectual property assets,鈥� says Burrill, who was involved in the San Francisco bid.

Researchers in Europe can only look at California in envy. Differing attitudes to embryonic stem cell work among EU member states mean the union鈥檚 funding is frozen at just 鈧�500,000 per year. In the UK, where the regulatory climate is among the most favourable in the western world, a proposed charitable stem cell research foundation with both private and public funding is struggling to raise the 拢100 million it wants 鈥� chicken feed compared with the Californian money. Meanwhile researchers in China, Singapore and South Korea are receiving strong financial backing from their governments. The Australian government has allocated A$55 million (US$42 million) to its Australian Stem Cell Centre for 2006 to 2011, but some fear funding cuts to the country鈥檚 umbilical cord blood banks will hamper work on cord-blood stem cells.

Biodefence

Biotech companies appear well placed to get a slice of the $1.7 billion in R&D funding and the $5.6 billion released by new legislation called Project BioShield last year for measures against biological weapons (see 鈥淏iowar 鈥� Good for Business?鈥�). Some had already benefited from US government fears of bioterrorism before Project BioShield came along: in 2004 Avecia in the UK won a $50.7 million contract to develop a recombinant plague vaccine.

鈥淵ou鈥檙e not going to get investment unless you know somebody鈥檚 going to buy it鈥�

Private investors are eyeing biodefence with interest, but there are possible pitfalls if government policy changes. 鈥淭he crucial question is: 鈥榃ho is the customer and what will it buy?'鈥�, warns Burrill. 鈥淪aying 鈥榃e鈥檒l do the R&D and hope there is a customer鈥� doesn鈥檛 work as a business model; you鈥檙e not going to get investment unless you know somebody鈥檚 going to buy it.鈥�

New uses, second chances

One way to reduce the inherent risks in biotech is to work with drugs that have already made it all or most of the way through the development process. A number of firms are finding new uses for established drugs or giving a second chance to compounds that have failed clinical trials. 鈥淚nvestors are putting money into this strategy because the risk profile is greatly reduced,鈥� says Bermingham. 鈥淎 lot of biotechs are also focusing on new delivery technologies and are attracting significant funding.鈥�

Two companies successfully pursuing this strategy are the UK鈥檚 Arakis and Vectura, with AD237, a phase II treatment for chronic obstructive pulmonary disease. They used another company鈥檚 compound already approved for an unrelated condition, and have just licensed their treatment to pharma giant Novartis, sharing an upfront payment of $30 million and milestone payments of up to $345 million, plus royalties on eventual sales.

Many biotechs still struggle to get their share of the pot, but the industry as a whole appears to have convinced venture capitalists and pharma companies that it is worthy of their money. Each region faces its own challenges this year, however, and there鈥檚 no denying that stock market indifference is making things hard for the sector.

For European companies, especially outside the UK, a key problem is that relatively few VCs are active in biotech (see Graph). Meanwhile Australian biotech firms attracted somewhere between A$30 and A$55 million (US$23 to $42 million) in venture capital in the last financial year 鈥� 鈥渁 very small amount鈥�, according to Michael Vitale of the Australian Graduate School of Management, Sydney. Many Australian biotechs are now at a critical stage, he notes. 鈥淚f funds run short now, the effect may be similar to a food shortage during early adolescence 鈥� the organism survives, but may be developmentally stunted.鈥� However VCs, including Intersuisse and Burrill Australia Life Sciences, have between them over A$500 million to invest in Australian biotech in 2005, according to the Department of Industry, Tourism and Resources.

And while US biotechs continue to lead the world in terms of attracting investment, the sector there faces its own obstacles this year as the window for flotation appears to be closing. A series of lukewarm company valuations at flotation last year may discourage many VCs who rely on IPOs as an investment 鈥渆xit鈥�.

In 2005, companies globally will need to win back the trust of the stock markets and keep the loyalty of VCs and pharma companies. Wherever they are, biotechs will need to produce a steady stream of good news from the clinic to offset inevitable setbacks and keep investment flowing.