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Share slump brings biotech firms to government's door

(Saturday, June 28, 2003 -- CropChoice news) -- Erika Check, Nature 423,908, 06/26/03: [WASHINGTON] The biotechnology industry met this week in the seat of the US government - Washington DC - and the location couldn't have been more fitting. Because while entrepreneurs claim to shun government as a slow-moving dinosaur, observers say it is currently biotech's best friend.

The renewed interest in government money comes during a worldwide economic downturn. Analysts say that the funding desert has made smaller biotechnology companies - usually wary of the obligations that come with government financing - highly dependent on federal resources.

"Biotech companies are saying that they can't get start-up funding, so what can fill the void?" says Stephen Davis, an attorney with Heller, Ehrman White and McAuliffe in New York. "The only thing that can do it is the federal government."

The Biotechnology Industry Organization (BIO) engaged in an unusually extensive public-outreach campaign for its annual meeting, with a barrage of advertising in Washington newspapers and television channels, and a two-day festival on the National Mall. Carl Feldbaum, president of the BIO, says that the organization has staged large campaigns at its past three conventions. "But here in Washington we've extended that theme exponentially," he says.

Several factors have forced biotech firms to turn to the government, analysts say. Stock markets around the world have slumped, leaving companies unable to raise money through initial public offerings. Last year, only four biotech firms in the United States went public - a tenfold drop since 2000. In Europe, only three biotechs went public last year.

Davis points out that early-stage biotech firms - those less than three years old, without a product ready to go to market - are having an especially hard time. Venture-capital funding for such firms totalled only $65 million in the first quarter of this year - a 70% drop from the same period in 2002. "Venture capitalists used to fund preclinical work, but now they want things in late phase II clinical trials with good data," Davis says.

This has made federal agencies such as the National Institutes of Health (NIH) more popular. The NIH is mandated to spend 2.5% of its extramural budget - $560 million this year - on small-business awards.

In a speech to the BIO convention on 23 June, President George Bush backed even more federal investment in biotechnology. He called on Congress to pass a piece of legislation - Project BioShield - that would give $6 billion over the next ten years for research and development to counter bioterrorism.

As always in Washington, the money is flowing both ways. Republican legislators, in particular, have benefited from large contributions from biotech companies in recent years. In return, critics say, the legislators have worked to weaken the Food and Drug Administration, which regulates the industry.

But analysts say that an increasingly cosy relationship with the government won't save the biotech industry's skin. They point out that $6 billion over ten years isn't that much, next to what private sources used to invest.

"Venture-capital firms measure cash flows in the billions of dollars," says Joe Cortright, a consultant based in Portland, Oregon. "The government just cannot invest on the same scale."

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"An industry on the crutches of public subsidy for a quarter of a century, an industry that trembles in the face of the simplest token of precautionary research, is hardly an industry that deserves to carry the public trust, much less our best hope for recovery in a flagging economy. It would seem rational that our university - and the public - should strive to keep an independent source of advice on the wisdom of supporting such an industry. Rationality, however, must take a back seat when the university becomes grafted to a specific industry. Such has increasingly been the case at Berkeley and at other universities."
- Dr Ignacio Chapela, 26 June 2003