Join Date: Jul 2001
Location: New Brunswick, NJ, USA
Depressing times for biotech as key index hits 3-year low
Depressing times for biotech as key index hits 3-year low
Tom Abate Â* Monday, May 13, 2002
Biotech stocks broke an important psychological barrier last week when a leading index closed below 400 points for the first time since the sector took off in 2000.
The American Stock Exchange biotech index, a basket of 17 leading stocks, closed at 383.34 Friday. The index first passed 400 in January 2000, when biotech stocks soared on excitement over the imminent completion of the Human Genome Project.
The index, one of the best indicators of investor sentiment regarding biotech, had been languishing around the 200 mark in early 1999, reflecting what was then a general disenchantment with biotechnology.
By the end of the year, however, as Wall Street began to catch gene fever, the index charted a rapid rise in biotech's fortunes. The measure first closed above 400 on Jan. 7, 2000.
Ever since, despite the correction that followed the collapse of the 2000 bubble, the index never fell below 400. Even in the gloomiest days after last year's terrorist attacks, the index managed to hold the line at a respectable 415.
Last week, however, the index reflected Wall Street's defeatist attitude, as the measure fell below 400 on Monday and Tuesday, battled back above the line on Wednesday, only to surrender in two successive down days to bring the measure back to a level where it last stood in December 1999.
"There's a lot of pessimism in the market," said Tom Dietz, senior managing director at Pacific Growth Equities, an investment bank in San Francisco.
Just back from visiting institutional investors in Europe, Dietz said money managers seem to be looking for reasons to sell and are deaf to suggestions that they buy. "There are some real opportunities out there, but it takes a lot of antacid to move in that direction," he said.
Steve Burrill, who runs a biotech investment firm in San Francisco, said investors are waiting for the sector to deliver exciting news -- a string of drug approvals, positive clinical trials, or better yet, a sharp spike in revenue.
If anything, the news has been disappointing lately. The sector is still suffering from the scandal around ImClone, the New York firm that overhyped its cancer drug. Sector leaders like Genentech have suffered delays in getting drugs approved.
"I don't think there's a lot of reason Wall Street wants to be in the sector right now," Burrill said.
SEQUENCE OF EVENTS: An unusual lawsuit filed in federal court in Washington,
D.C., charges that the California Institute of Technology and Applied Biosystems of Foster City fudged a patent application and defrauded the federal government.
The case revolves around the invention of the DNA sequencer, the instrument that enabled scientists to map the human genome. The basic sequencer technology was invented at Caltech in the 1980s and ultimately patented by the university.
Caltech licensed its sequencer technology to some of the inventors, who included Mike Hunkapiller, now president of Applied Biosystems. The firm went on to further develop and commercialize the sequencer, an instrument that can be as large as a refrigerator and cost $300,000.
The federal suit alleges that Caltech and Applied Biosystems failed to credit the work of Henry Huang, then a post-graduate researcher at Caltech and today a professor at Washington University in St. Louis.
In essence, the suit says Huang originated the key concepts that led to automatic DNA sequencers. Huang, who still has his lab notebooks from his Caltech days, says he came up with the idea to tag DNA molecules with chemicals that could be quickly detected by optical scanners. At that time, in the late '70s and early '80s, scientists tagged DNA with radioactive chemicals,
which created a much slower sequencing process.
Caltech did patent the process of adding fluorescent tags to DNA and using optical scanners to read the sequence. But the university says Huang didn't invent the process because he experimented with ultraviolet tags, which failed.
And though he suggested fluorescent tags might be better, he left Caltech in August 1982 without creating a fluorescent tag.
"The key thing is he didn't get it to work," said Jim Asperger, the Los Angeles attorney representing Caltech. "Under patent law you can't just think of something, you have to get it to work."
If this were simply an aggrieved inventor looking for a slice of royalties this would be a run-of-the-mill case. But Huang didn't file the suit and says he stands to gain nothing beyond credit if he is deemed to be an inventor of the sequencer.
Instead, the federal fraud suit was brought by MJ Research Inc., a Massachusetts firm that competes with Applied Biosystems to sell DNA analysis equipment.
In a complaint unsealed April 29, MJ Research alleges that Caltech and the other defendants left Huang out of the patent to defraud the federal government. The suit says Huang received federal funds to do his research at a time just before Congress began allowing universities to patent inventions in which the underlying research received federal support.
"If he (Huang) was properly an inventor, and he was federally supported, then the U.S. owns the patent," said Allen Foster, the Washington, D.C., attorney representing MJ Research.
The Massachusetts company filed its suit under statutes that enable private citizens, who prove that the government was defrauded, to recover a share of any monetary judgments against the perpetrators. Foster says millions of dollars are at stake because if MJ Research wins, the business arrangements between Caltech and Applied Biosystems could be invalid.
Federal law requires private whistle-blowers to give the government first crack at filing any fraud actions, and when the Justice Department decided in March not to pursue the case after investigating the allegations, Caltech took that as vindication.
Foster said MJ Research considers its case "a slam dunk" and will ask for a jury trial. The suit is being handled by U.S. District Judge Colleen Kollar- Kotelly, who is presiding over the latest stage of the Microsoft antitrust case.
But Foster has not yet officially served Caltech or the other parties in the suit, and until he does, there is a chance MJ Research will deem the private action too costly and pull the plug on the litigation.
If the case does proceed, however, it will involve some of the luminaries of DNA instrumentation, including Tim Hunkapiller (brother of Mike) and their common mentor, Leroy Hood, a former Caltech professor who now leads the Institute for Systems Biology in Seattle.
Mike Hunkapiller said he considers the MJ Research suit "meritless" and little more than a form of retaliation for a patent infringement suit that Applied Biosystems brought against MJ Research over a different piece of DNA analysis equipment.
Michael Finney, who co-founded MJ Research in 1987 with his brother John, did not return a call for comment. MJ Research has countersued on the patent issue, accusing Applied Biosystems of antitrust violations. That litigation continues.
In a tale as twisted as the double helix, the next turn is up to MJ Research, which must either put up or shut up on the fraud suit.
Meanwhile, Huang says he would not like to see Caltech harmed by invalidation of its patents, but he does feel his ideas were central to the invention of the DNA sequencer and would like to receive credit.
"I'm sort of in a bind," he said last week.
THE END OF BIOTECHNOLOGY?: Francis Fukuyama is an intellectual who knows how to stir up a debate. People are still arguing about whether his 1992 book, "The End of History and the Last Man," paints Western liberal capitalism as the pinnacle of social evolution, or a pit stop on the way to a better future.
Fukuyama, a political economist at Johns Hopkins University, recently turned his intellect on biotechnology. His new book, "Our Posthuman Future: Consequences of the Biotechnology Revolution," argues that political control of biotech is necessary, the only questions being where to draw the lines.
For instance, Fukuyama believes our market-driven biotech industry will not be able to resist the temptation to "improve" human beings through genetic engineering -- reviving old debates about eugenics.
He rejects the notion that biotech scientists can police themselves. Although self regulation has worked in the past, he thinks there's too much money at stake today for peer pressure to determine which directions biotech should take.
"Scientists are strongly driven by ambition, and often have pecuniary interests in a particular technology or medicine as well," he writes. "Hence, the question of what we do with biotechnology is a political issue that cannot be decided technocratically."
The big biotech issue of the day is where to draw the line on human cloning.
Most political leaders want to ban cloning to make babies. Last year the House of Representatives went further, and also outlawed so-called research or therapeutic cloning. The Senate is poised to vote on the issue.
Most scientists want senators to pass California Sen. Dianne Feinstein's bill that would ban baby cloning but permit cloning research. Fukuyama said he favors the stricter ban offered by Sen. Sam Brownback, R-Kan., and modeled after the House bill.
"I am not a pro-life person," he said. "What I'm worried about is the slippery slope."
Fukuyama is scheduled to speak tonight at 6 p.m. at the Commonwealth Club, at 595 Market St. in San Francisco. There is a $12 charge for nonmembers.