Ten years ago, biotechnology was the darling of Wall Street and venture capitalists. Investors threw money at projects aimed at finding cures for diseases or discovering more about the building blocks of human health.
That was then.Today, biotechnology companies face fierce competition for finite funds. The "dot-com" revolution has emerged as the next hot thing, and legions of investors have jumped at the chance to make a quick buck off the latest Internet IPO.
Yet the science and business of biotechnology continue. How? From whence does the money come?
"Ten years ago, the interest in biotechnology was fueled by the promise of novel products," said David Clark, spokesman for Salt Lake-based NPS Pharmaceuticals Inc. "Today, the ability to raise money on new techniques, on new technologies, is much more difficult than it was before."
Local industry pioneer Dale Ballard said times have changed dramatically since he founded Ballard Medical Products in 1956.
"I've never borrowed any money in all my life," he said. "We went directly to the public. In those days, you could do just about anything. So we got a license to sell the stock, and we went out and sold it ourselves. It's unbelievable how things have changed. It takes much more money than it used to, to build a company, and it is much, much more difficult to grow."
Several factors combined to form what has become the industry's obstacle course to financial solidity.
Sheryl Hohle, a consultant for the University of Utah's Office of Technology Transfer, said the central challenge is the eight- to 10-year product development pipeline.
"The crux of the problem for biotech is that it takes forever to get from the lab to the marketplace," Hohle said. "It's tough to get it there, and it's even tougher for it to survive. In the pharmaceuticals industry, there's about a 5 percent chance you'll get a marketable idea from the lab to a commercially viable product. It doesn't matter how good it is -- the risks are still the same."
The "dot-com" phenomenon also has taken its toll on biotech companies, luring investors away with its promise of quick returns.
"Certainly we are competing with the dot-coms," Utah Life Science Association president Brian Moss said. "Their pipeline is shorter, and investors are able to realize their rewards in a shorter period of time. The biotech industry has the discovery process, then the approval process, and then it must gain acceptance in the marketplace. So the barriers to what we're trying to do are significant compared to the dot-coms."
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Add to that the astronomical costs of research and development, and it's easy to see why, according to Hohle, "only one idea out of a hundred makes it."
"I think the average company spends $500 million to get through the eight- to 10-year pipeline," she said. "Most are just dropped along the way."
Where do the surviving companies find the money to bring their products to market?
Peter Meldrum, president and chief executive of Myriad Genetics Inc., said the two most commonly followed funding paths are venture capital financing and private placement financing. Myriad chose a different path, forming an early alliance with pharmaceuticals giant Eli Lilly and Co. Lilly not only pitched in to fund Myriad's research but also put together an equity investment package. Myriad went on to obtain private funding, then completed its initial public offering in 1995.
In its infancy, NPS Pharmaceuticals utilized government grants and venture capital money while it actively sought (and formed) alliances with companies like Pfizer and SmithKline Beecham. It went public in 1996.
But both Meldrum and NPS's Clark say that while it's one thing to get funding, it's quite another to keep it coming.
"It's absolutely a constant challenge," Clark said. "It's one of the greatest challenges we face, to generate product-based revenues before our resources are depleted."
Clark and Meldrum both stressed the importance of partnerships with larger companies, many of which pay their companies upfront and at key points along the way to market.
Kelvin Willoughby, author of a 1998 study of Utah's biotechnology industry, found that most companies funded their operations from the sale of products or services -- often in the form of contract research and development work.
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"The bioscience technology industry's ability to raise funds through selling products or services is its most important financing tool," Willoughby wrote. He also said the fact that Utah companies are making a greater proportion of their money from the sale of actual products or services indicates the industry is gearing up to be a legitimate wealth-generating vehicle for the state.
Excluding those revenue sources, Willoughby found that private equity investments from "angel" investors comprised the bulk of industry financing. Angel investments totaled 22.4 percent of total financing, the study found.
Revenue from collaborative arrangements is the next most important funding source, the study said. And Willoughby found that "firms active in pharmaceuticals (such as Myriad and NPS) have the heaviest dependence upon revenue from collaborative arrangements as a source of finance, and also make the highest use of angel investors (providers of private equity capital) as a finance source."
But only a small proportion of that funding is actually found within the state.
"Local institutions and individuals do not play a very important role, overall, as investors in Utah's bioscience technology industry," Willoughby wrote. "This conforms with the informal impressions we gained from managers, throughout this study, that one of the biggest frustrations bioscience technology companies face in Utah is gaining local access to finance."
Though such challenges continue to buffet biotechnology, industry insiders remain optimistic about the future.
"There are two ways to look at it," Utah Life Science Association's Moss said. "If you look at the absolute dollars, biotechnology still has the funds. But the field has become more crowded -- there are more people exploring more projects.
"Then there is the perception -- the reality, really -- that it is becoming more difficult to come up with the money, and that we are struggling very hard. But, with the money that does go into our industry, the potential for rewards is enormous. When you develop a drug or a procedure that may alleviate pain or save lives, the marketplace will respond excitedly."
"It would be sad if in fact biotechnology is left behind, because it is so important to us as a society," Hohle said. "I suspect it will continue. The actual investments might go up and down, but because the rewards are so great, eventually investors will end up going in their direction."