A favored alternative to pharmaceuticals due to higher growth and lower generic risk, biotechnology is considered “an industry that can’t be judged with a rearview mirror, because it’s moving forward so fast,” particularly focusing on cancer and other hard-to-treat diseases.

Between an impending couple of years of expiring drug patents, and Merck & Co. finding itself on the defense against a number of Vioxx-safety-related lawsuits, the traditional pharmaceutical industry — which has historically used chemical techniques to discover its products — had a rough year of 2005.

On the other hand, the biotechnology industry — which uses genetic techniques — is fairly new in its product offerings, so patent expiration is still decades away.

Of the latter, recently noted Medical Technology Stock Letter editor John McCamant, “You’re looking at an industry that can’t be judged with a rearview mirror, because it’s moving forward so fast.”

As the 2005 year ended, shares of the nation’s largest biotechnology companies were trading at or near record levels, the Washington Post acknowledged, “a payoff for investors in companies that have been putting intensive focus on cancer and other hard-to-treat diseases over the last few years.” Further, in fact, life-sciences company Burrill & Company prognosticates that the biotech industry will raise more than $35 billion in 2006. These companies, in the S&P 500, gained 16.2 percent in 2005, according to Thomson/Baseline, while traditional pharmaceutical companies fell about seven percent.

This is not to say that the biotechnology industry has not recently stumbled some. Indeed, the biotech sector “is likely to be volatile in 2006,” predicted Merrill Lynch analyst Eric Ende in a recent report mentioned by Forbes. There are lawsuits against California’s $3 billion stem-cell research institute. And last month Hwang Woo Suk, South Korea’s stem-cell-research pioneer, resigned after revelations that his lab had faked much of its work on human cloning, which was thought to be the best bet for curing many intractable diseases, and Korea’s ticket to a world-class biotech industry.

But “this isn’t hype,” RBC Capital Markets analyst Jason Kantor said in a recent CNN/Money article. “This is the real deal with products being sold, with earnings and sales coming in better than expected. What has driven the sector up has been the clinical and commercial success of a whole bunch of products.”

The biomedical and medical device industries (i.e., biotechnology) are expected to employ 3.6 million people and contribute $350.1 billion to the U.S. economy by 2014, according to a recent report from the Milken Institute, should such long-term predictions be considered accurate. The report noted that those figures include the “ripple effect” of jobs generated indirectly by the biotechnology industry, which includes cell-, tissue- and gene-based therapies, monoclonal antibodies and other emerging biotechnologies to diagnose, treat and prevent diseases.

And the leading companies have been able to sell such products at extraordinary prices, sometimes exceeding $50,000 a year for each patent. The Washington Post recently noted how this comes with “a string of spectacular drugs for specific diseases” — cancer, Crohn’s disease, diabetes, hepatitis C and serious staph infections — coming to market recently. Focus on these diseases will likely continue in 2006, experts predict.

The San Jose Mercury News further forecasted the following regarding biotech:

• Stem-cell research advances despite legal challenges.

According to the publication, biotechnology companies will “line up to harness the curative potential of stem cells” in 2006. Should the lawsuits against California’s $3 billion stem-cell research institute be thrown out, it is expected to “trigger a stampede of scientists and businesses seeking a piece of the action.” Major advances in understanding and using the cells were announced last year and more are expected this new year, with so many researchers flocking to the field. Despite recent announcements that South Korean researchers have faked their stem-cell data, most people think others will make progress in using stem cells to develop treatments.

• Biotechs target flu vaccines.

Further, proposed the Mercury News, biotech companies will step up to fight nature itself, working incessantly in 2006 to produce vaccines to thwart a possible worldwide bird-flu epidemic. “They’ll also look at better, faster ways to produce vaccines for winter flu.” Under President George W. Bush’s recently announced plan to spend $7.1 billion on bird-flu preparedness, an additional $3.6 billion would be allocated to develop vaccines and other treatments. (Chiron of Emeryville won a $62.5 million federal contract in October to begin making a vaccine against the most virulent strain of bird flu, dubbed H5N1, the Silicon Valley newspaper notes.)

To consider, however, is the concern about the broad market of biotech, particularly in regard to shares. In a recent report, according to the Washington Post, Merrill Lynch, Pierce, Fenner & Smith Inc. warned investors that with many new cancer drugs coming to market, competition is stiffening. “The increasing availability of new cancer drugs to treat a variety of cancers is great for patients, but the market is becoming more crowded and it is becoming more difficult” to design convincing studies that can supplant previous treatment regimens, the brokerage house said.

As such, smaller, undiscovered biotech companies with potentially valuable products under development may be the target of focused investment in 2006. Medical Technology Stock Letter’s McCamant has been urging his readers to focus their investments on these not-yet-discovered and smaller biotech companies. The index that tracks those smaller companies is up 71 percent since the biotech market bottomed out in mid-2002, a healthy gain but considerably less than the 110 percent gain for big companies, the Washington Post noted. McCamant figures that leaves the small companies more room to run in 2006.

Resources

Biotechnology Industry Organization
http://www.bio.org/

Council for Biotechnology Information
http://www.whybiotech.com/

Biotechnology@Nature
Nature journal
http://www.nature.com/biotech/index.html

Bioentrepreneur
Nature Publishing Group
http://www.nature.com/bioent/index.html

Science Daily: Biotechnology
http://www.sciencedaily.com/directory/Science/Biology/Biotechnology

Biotech Bets
BusinessWeek, Dec. 26, 2005
http://www.businessweek.com/magazine/content/05_52/b3965435.htm

MIT’s Technology Review’s “Best In Biotech for 2005″
http://www.technologyreview.com/BioTech-Diagnostics/wtr_16091,304,p1.html

References

But Biotechnology Bucks the Trend
by Justin Gillis
The Washington Post, Dec. 30, 2005
http://www.washingtonpost.com/wp-dyn/content/article/2005/12/29/AR2005122901438.html

Biotech Picks and Pans for 2006
by Kate DuBose Tomassi
Forbes, Dec. 19, 2005
http://www.forbes.com/markets/economy/2005/12/19/biotechnology-pharmaceuticals-mergers-1219markets15.html

Burrill’s Biotech Outlook for 2006 …and a Look Back at 2005
Burrill & Company, press release
Dec. 22, 2005
http://biz.yahoo.com/prnews/051222/sfth058.html?.v=37

Biotechs May Be a Good Bet for 2006
by Aaron Smith
CNN/MONEY, Dec. 21, 2005
http://money.cnn.com/2005/12/21/news/midcaps/biotech/

Top 10 Tech Trends for 2006
by Mercury News staff: Jessie Seyfer, Steve Johnson, Dawn Chmielewski, Matt Marshall and Michael Bazeley
The Mercury News, Dec. 25, 2005
http://www.mercurynews.com/mld/mercurynews/business/technology/13486960.htm

Bird Flu Hype Infecting Biotech Industry
The Associated Press, Dec. 7, 2005
http://msnbc.msn.com/id/10297604/

A New Wariness as the Risks Shift in Biotech Investing
by Andrew Pollack
The New York Times, Dec. 30, 2005
http://www.nytimes.com/2005/12/30/business/30venture.html

As Biotech Drug Prices Rise, U.S. Hunts for Solution
by Geeta Anand
The Wall Street Journal, Dec. 28, 2005
http://www.post-gazette.com/pg/05362/628983.stm

Storm Over Stem Cells
by B. J. Lee
Newsweek International, Jan. 9, 2006 issue
http://msnbc.msn.com/id/10682397/site/newsweek/