Biotech in Massachusetts Catching Up to Bay Area
Convergence of technologies drives growth
Lisa Eckelbecker / San Francisco Chronicle 6nov00

Worcester, Mass. -- Gene discoveries, computer advances and rising stock values are fueling a forward leap in the nation's biotechnology industry, a shift that could propel Massachusetts companies to the top of the heap, according to a new report.

At the root of the trend is ``convergence,'' a buzzword that can be used to describe the increasingly sought intersection of new information technologies and breakthrough biology, according to the report by accounting and consulting firm Ernst & Young LLP.

Although the San Francisco Bay Area area remains the country's most developed cluster of biotech companies, Massachusetts' relatively younger cluster stands poised in an era of convergence to expand and capture more investment, said Mike O'Hara, leader of Ernst & Young's life sciences practice in New England.

``We're primed for larger growth,'' said O'Hara. ``I could see Massachusetts catch and surpass the Bay Area in the next five years or so, and I think that's because we're a little less mature than they are. There's opportunity for growth.''

By conventional measures, the Ernst & Young report depicts an industry stronger today than it was a year ago.

During the 12 months that ended June 30, U.S. biotech companies raised $2.7 billion in initial public offerings of stock, more than 10 times the $246 million raised the previous year.

The hot market also benefited companies such as Genzyme Transgenics Corp. of Framingham, Mass., that were already public but issuing more stock. Genzyme Transgenics, which operates a farm for genetically engineered goats in Charlton, Mass., raised $80.5 million in February.

Venture capitalists, who put money into privately held companies, poured $1.7 billion into biotech during the year that ended June 30, compared to $1.5 billion the year before, the report stated.

In all, the biotech industry is on course to raise $30 billion this year, more than three times the previous one-year financing record, Ernst & Young reported.

Some of the passion for the industry's good fortune stems from the decline of Internet investments. Chastened by Internet losses, some investors began to shift their holdings to life science companies earlier this year.

``You are seeing an acknowledgment now that for an industry with upside potential, clearly life sciences is one of the handful of industries that has that going forward,'' said Marc E. Goldberg, managing director of BioVentures Investors, a Worcester, Mass., venture capital fund.

Yet it is ``convergence'' that is capturing the attention of investors, observers said.

At a time when the international Human Genome Project has produced vast amounts of data on human genes, new teams of specialists are assembling to mine for the gems that could become future drugs.

That means companies are pulling together computer engineers and mathematicians who work on multidimensional computations to complement the work of molecular biologists, said James P. Sherblom, president of Seaflower Ventures in Waltham, Mass., a venture capital firm that funds biotech companies. It also means that the biotech industry is moving down an entirely new path.

``For us, convergence is combining an understanding of advanced math with what is really doable today in the computer environment . . . and what is needed on the genomic side of molecular biology,'' Sherblom said. ``We're sort of back where the industry was when I joined the industry in 1983.''

Genomics companies hope that once they find gems, they can polish them to create drugs that treat disease at the genetic level. Yet other areas in which convergence offers promise include using biotech to improve chemicals manufacturing or industrial processes and using biotech to create new materials, Ernst & Young reported.

Other signs of growth cited by the report include drug sales. The top 10 biotech products posted $8.7 billion in sales in 1999, up from $8 billion in 1998, Ernst & Young reported.

Sales of Avonex, a multiple sclerosis treatment developed by Biogen Inc. of Cambridge, Mass., made one of the biggest jumps, going from $395 million in sales in 1998 to $621 million in sales in 1999.

Big pharmaceutical companies continued to snap up biotech operations through acquisitions, but biotech companies also chose to keep it all in the industry by merging with each other or creating alliances, Ernst & Young found. For example, Breeders Inc. of Worcester merged with ViaCord Inc. of Boston in April to create ViaCell Inc.

One other sign of growth: 283 products were in the pivotal human trials in late June, the final stage of testing before going to the Food and Drug Administration for approval or rejection.

In sheer numbers, O'Hara of Ernst & Young said, New England is home to the nation's largest biotech cluster. The region boasts 182 biotech companies compared with 176 companies in the San Francisco Bay Area.

But when measuring by market capitalization, or the value of all outstanding shares, California companies lead.

O'Hara said that could change in the coming years because the New England cluster, which is dominated by Cambridge and Boston companies, is maturing, with more companies going public.

``I think in areas of market cap and investment, we'll sort of surpass that area in the future,'' he said.

CHART:	
BIOTECH STOCK PERFORMANCE	 
                     12/31/99   9/29/00   10/31/00   Pct Chg  Pct Chg	 
Index                  Value     Value      Value    Month      YTD	 
Burrill Life	
Science Index         148.02     205.40     193.87  -5.61%    30.98%	 
Nasdaq              4,069.31   3,672.82   3,369.63  -8.25    -17.19	 
DJIA               11,497.12  10,650.90  10,971.14   3.01     -4.57	 
Russell               504.75    521.37    497.68    -4.54     -1.40	 

Note: The Burrill Life Science Index represents the overall market performance of companies involved in health care, agricultural biotechnology, animal health care and biomaterials. Burrill & Co. is a San Francisco investment bank that specializes in biotechnology. Source: Burrill & Co.