Biotech: the buzz, the business (page 1 of 4)

Do you want to live forever? Or clone your favorite pet? Biotechnology is a laboratory-based world packed full of weird and wonderful possibilities like these. Nexia Biotechnologies, for instance, has produced genetically engineered, cloned goats that make spider silk in their milk. Researchers have also found a way to produce spider silk in potatoes.

As bizarre as this sounds, spider silk is highly respected by materials scientists. Crafted through 400 million years of evolution, it outperforms the best synthetic fibers. Spider silk molecules are designed to be pulled, and silk thread can extend 30-50 percent of its length before breaking. Silk is stronger than
steel, as strong as Kevlar, but lighter. The US military is reportedly interested in its capabilities.

But while the biotech industry conjures up many fantastic notions, it actually produces far fewer products. This creates a minefield for the unwitting investor, attracted by the buzz but ill-informed about the business. However, a little research and a few investment parameters make the biotech industry a fully viable investment target.

That said, investing in biotech is not for the faint-hearted. In the long term, it will be an enormous industry, impacting everything, just like information technology and communications have changed life in the last few decades. As an industry in its infancy, therefore, it is understandably volatile.

In the late 1990s, when the dotcom bubble was building, alongside it was a biotech bubble. Thousands of dotcom firms had sprung up all over the world, mostly in Silicon Valley, California; biotech startups clustered in the same region.
At the time, thousands of individual investors - as well as some major venture capital funds - poured billions of dollars into dotcom and biotech startups, hoping to capitalize on what appeared to be industries with limitless growth potential.

One sector promised to revolutionize the way we communicate and do business; the other promised, in some cases, something approaching the Holy Grail. In both cases, there proved to be a great deal of fine print ignored by investors. Not surprisingly, one bubble burst, quickly followed by the other.

To make matters worse, some of the high-profile players in the biotech sector - such as ImClone - found themselves embroiled in highly embarrassing deals. ImClone CEO Sam Waksal was arrested for insider trading, after selling company stock just before the US Food and Drug Administration (FDA) announced that it would reject approval for a wonder drug in development that had led ImClone's share price to soar to extraordinary levels.

Waksal later pleaded guilty to insider trading, and is currently serving time in US federal prison. He'll likely be joined in the near future by Martha Stewart, the American homemaking billionaire, who was recently convicted of lying to investigators about the timing of the sale of her own ImClone stock.

Meanwhile, ImClone has been through two more CEOs and saw its share price slump to less than $6, about 90 percent off its peak price. However, a few months ago, ImClone had a dramatic turnaround in its fortunes. It finally won approval for its colon cancer drug, Erbitux, which went on sale for $2,500 a dose in February. The approval comes as a major shot in the arm for ImClone, which is recovering some of its lost sheen. Its share price has already climbed back up to $47, nearly the same level as two years ago.

Today, ImClone is not the only player in the biotech sector to have bounced back.