BIOTECHNOLOGY

Revenues up as mergers boost innovation, sales

By Jeffrey Krasner, Globe Staff, 5/20/2003

Biggest biotech cos. All the charts

ith stock prices plummeting, capital evaporating, and promising drugs getting sent to the back of the line by the Food and Drug Administration, this is a good time to assess how far Massachusetts' biotechnology industry has come -- or failed to come -- since its inception some 20 years ago.

The two titans of the industry, Biogen Inc. and Genzyme Corp. of Cambridge, each posted 10 percent increases in revenues, and both exceeded revenues of $1 billion. But each faces unique challenges this year: For Biogen, sales of its flagship Avonex for multiple sclerosis are cresting, and the company must build a market for Amevive, its psoriasis drug, if it wants to continue its strong top-line growth. Amevive faces stiff competition from other drugs expected to win approval.

For Genzyme, much of the revenue growth this year will come from its Genzyme Biosurgery division. In a move widely criticized by shareholders, the company will reincorporate results of two tracking stocks back into its corporate reporting. The change will add about $270 million in annual revenues, paid for by the equivalent of about $100 million in Genzyme stock. (A second stock, Genzyme Molecular Oncology, is also included in the deal.)

More notable is that Genzyme Biosurgery's chief revenue generator, Synvisc, was not developed in-house. The company acquired the product, an injectable fluid to treat knee pain, when it purchased Biomatrix Corp. in 2000.

Indeed, for many on The Globe 100's list of biotech firms with the highest revenues, little of the revenues come from the sale of drugs or therapeutics developed inside the company. At Millennium Pharmaceuticals Inc. of Cambridge, about 45 percent of revenues last year came from sales of Integrilin, a drug used in heart surgery to prevent blood clots. But Integrilin was developed by COR Therapeutics Inc. of San Francisco, which Millennium acquired in a big stock swap last year. Most of Millennium's other revenues came from strategic alliances with big pharmaceutical companies. Velcade, a cancer drug approved by the FDA May 13, also came to Millennium via acquisition.

Many of the others on the list are so-called "tool box companies" that provide products, services, and supplies for drug discovery, yet don't seek to develop their own drugs. Charles River Laboratories International of Wilmington rose to prominence as a breeder of special mice for medical research; it has grown by acquiring other firms that provide preclinical testing services. Waters Corp. of Milford makes equipment used in the lab to separate and analyze molecular samples. Bruker Daltonics Inc. of Billerica makes lab equipment for an identification process called high-performance liquid chromatography.

At Vertex Pharmaceuticals of Cambridge, most of the firm's revenues come from research collaborations with big pharmaceutical firms. If those collaborations yield marketable drugs, Vertex will stand to earn royalties and other payments.

Sepracor Inc. of Marlborough stands out as an exception: Of $239 million in revenues last year, $190 million came from sales of Xopenex, an asthma treatment it developed and which it markets. An additional $49 million came from royalties on sales of drugs Sepracor had discovered and licensed to larger firms.

Why aren't there more drugs coming from Massachusetts biotech firms?

Some industry experts said earlier predictions haven't held up. "These companies are taking much longer and spending much more than anticipated in the path to becoming real companies," said Sam Isaly, portfolio manager of the Eaton Vance Worldwide Healthcare Fund.

One measurement Isaly uses to gauge the progress of individual companies is the period between a biotech firm's initial public offering and its first posted profits. On average, it is six to 10 years, he said. Millennium, which went public in 1996, will become profitable in 2006, according to Isaly's research. But there are always "accidents," such as the setbacks suffered last year by Transkaryotic Therapies Inc. of Cambridge: A promising drug for Fabry disease failed to show anticipated benefits in clinical trials, and the FDA instead approved a drug by cross-town rival Genzyme.

Others look behind the list and see success stories that have been erased by mergers. GelTex Pharmaceuticals Inc. of Waltham had successfully developed Renegel, for kidney patients treated with dialysis, and Welchol for lowering cholesterol levels. Genzyme, which had a deal to market Renegel, acquired GelTex in 2001. "This industry continually renews itself," said Stelios Papadopoulos, managing director in investment banking for SG Cowen Securities. "Because there are always new companies, there will only be a few companies out of the total that have achieved commercial success. Think of the biotech firms that have managed to join the ranks of the pharmaceutical industry: Amgen, Genentech, Biogen, Genzyme. GelTex could have been on this list if it hadn't been acquired."

Jeffrey Krasner can be reached at krasner@globe.com.

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