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Biotech poised to deliver on early promise

THE BALTIMORE SUN

The drawing outside Cabot Caskie's office at Univax Biologics Inc. in Rockville is a cartoon. But it says too much about Maryland's future to be a joke.

The picture shows Chief Executive Thomas Stagnaro, Chief Financial Officer Caskie, and other top managers riding a rocket representing the future of the company and the biotechnology industry.

The caption: "Tom, where did you say we're going next?"

After years of work and several conspicuous failures, that rocket-like future is tantalizingly close for Maryland biotech. Led by a half-dozen or more companies analysts believe will turn profitable by 1997 or 1998, Maryland's 19 publicly traded biotech companies (out of 68 in the state) are nearly ready to deliver on the promise of the cartoon.

But also, it seems, on its uncertainties.

The state has spent 10 years and tens of millions of dollars developing programs to nurture young biotech companies in an effort to create a "new base" that will lead the state's work force of 2.4 million in a prosperous Information Age. As the first crop of companies nears profitability, the state faces new challenges to keep the firms' growth close to home as the real money is about to be made. The stakes are very high indeed.

"You could have the discovery of a cure for AIDS, you could have the discovery of [specific] human genes," said James Fielder, deputy secretary of Maryland's Department of Economic and Employment Development. "All these things are being worked on right now, in addition to the creation of well-paying jobs our children can work on."

A 1993 state report estimated that Maryland biotech companies could create up to 40,000 jobs by 2000 just by keeping the state's share of the market as the industry grows. Currently about 5,100 work for state biotech companies.

Behind the state's biotech effort looms the shadow of Sparrows Point, the Bethlehem Steel mill in Baltimore County that once anchored the industrial job base Maryland hopes the life sciences will replace.

After employing nearly 29,000 people in 1957, the mill has shrunk to 5,400 workers today. Once the state's biggest private employer and the world's biggest mill, Sparrows Point accounts for 23 percent of the 101,000 manufacturing jobs Maryland has ** lost in the past 38 years.

But as Maryland's biotech industry approaches real success for the first time, the promise that it will be a major part of the state's post-manufacturing job base -- the next Sparrows Point -- is still open to question.

"I would love to say that would be the case," Mr. Caskie said. "But we believe we can produce substantial sales with a work force that stays under 1,000 people (Univax now has 130 workers). DEED doesn't want to hear that, but these are good jobs. We have no positions under $24,000 a year. The average salary is in the neighborhood of $75,000 a year."

For investors, the past six months have seen a steady stream of almost entirely positive news about Maryland biotech firms, news that brings anticipation of profits and jobs:

* Martek Biosciences Corp. of Columbia got its first product, a baby-formula additive that stimulates infant brain and eye development, on the market in Europe. Martek also disclosed that it had reached licensing deals with two top U.S. formula makers who are working with the Food and Drug Administration to get the product, called Formulaid, approved for sale in the U.S. Salomon Inc. last year called Martek "a stock that could explode."

* Univax got its first major product approved by the FDA in March, setting the stage for sales of up to $100 million by 1999. Analysts say WinRho SD will quickly supplant existing therapies for a common AIDS complication that causes the body to destroy its own blood platelets. The drug will help the body maintain its ability to stop bleeding and resist bruising. "We're a real business now," Mr. Caskie said.

* Guilford Pharmaceuticals Inc. of Baltimore plans to file for final FDA approval by fall for its Gliadel implant for brain cancer patients. Gliadel is a wafer soaked with chemotherapy drugs that surgeons can implant immediately after removing a tumor, allowing the drugs to work directly on the remaining cancerous cells without the side effects of today's chemotherapy. Analysts project $50 million to $75 million in Gliadel sales by 1998.

* MedImmune Inc. of Gaithersburg plans to reapply for final FDA approval this summer for RespiGam, which is designed to prevent a virus leading to infant pneumonia. Rejected by an FDA panel in 1993 because of flawed clinical studies, the drug's sales could reach $82 million by 1998, according to Morgan Stanley & Co. The company's 1994 sales were only $12 million.

* Genetic Therapy Inc. of Gaithersburg won rights to commercialize a key NIH patent for ex vivo gene therapy -- altering genes outside the body and then inserting the improved genes into a patient to correct a disease. The patent would en

title Genetic Therapy to royalties from any company using the method. In addition to that patent, Genetic Therapy could make millions more if any of the therapies it is developing for 11 diseases reach the market.

"I think what you have in the Baltimore area is the culmination of a lot of seeds that were planted in the last decade," said G. Steven Burrill, a San Francisco biotechnology consultant. "This is what should happen. It has been slower than people expected. People thought everything that went into clinical trials would be a billion-dollar drug."

Vagaries of the industry

Biotech executives warn that a lot can still go wrong between now and 1997 or 1998. Previously undiscovered problems can turn up even in the final stages of an FDA review, as MedImmune discovered in 1993. In many cases, there are competing technologies -- a particular problem for Genetic Therapy's NIH patent, which some analysts believe will be quickly overtaken by a method now in an earlier stage of research. Also, the companies must build sales and marketing forces.

Most critically, the late stages of commercialization demand enormous amounts of money to finish FDA review and build factories. The companies must raise these funds in a very skeptical market that has been badly burned by the near-collapse of biotech stocks since 1992.

The cash crunches could keep some products from getting to market. But a bigger threat is that money problems could force biotech executives to sell their companies, or at least lucrative manufacturing and distribution rights, to established drugmakers.

That could mean that major firms, located largely in the corridor between New York and Philadelphia, would reap many of the biggest rewards from the entrepreneurs' work -- and from Maryland's economic development dollars.

"It has been a risk that has been around for a long time -- the risk of cherry picking," said Charles McMillion, an economist who is president of a Washington consulting firm. "Cherry picking is when large companies -- pharmaceutical companies and others -- wait to see these biotech firms hit a gusher with a product and then buy them up and move them away."

Production moves out

Another threat is that Maryland biotech firms will do their manufacturing someplace cheaper, even if they stay independent. The fear is rooted in the state's spotty record of nurturing science from laboratory to market. Saccharin, Bufferin and the AIDS drug AZT all stem at least partly from research done in Maryland. But none is produced here.

Already, MedImmune has tentatively agreed to accept an incentive package to build a $30 million plant in Ohio. Martek bought a plant in Kentucky for $10 million -- less than half its construction cost. And American Type Culture Collection of Rockville, which distributes biological products to researchers, has announced plans to move its 230 workers to Virginia.

On the other hand, Guilford has built a factory in Baltimore to make Gliadel, and biotech suppliers such as Life Technologies Inc. of Gaithersburg and BioWhittaker Inc. of Walkersville also manufacture in Maryland.

"American Type and MedImmune aren't flukes," said Michael A. Conte, director of the Regional Economic Studies Program at the University of Baltimore. "We have to have the manufacturing jobs and we have to have the biotech-dependent jobs. Those jobs are annuities. Research is a one-time thing."

Industry officials say Maryland should not worry too much over whether it retains most biotech manufacturing for three reasons.

First, they say much manufacturing is bound to go out of state because of Maryland's high cost of living and elite work force, only 8 percent of which works in manufacturing jobs now. Second, they say the jobs that will stay in Maryland are the ones most worth having. Lastly, a biotech company generates more white-collar jobs than blue, especially because a big chunk of early profits is plowed back into research.

The commercialization of Maryland biotech companies, they say, could create up to 10,000 jobs in the state, with direct biotech employment growing 35 percent annually in the first years after products reach the market.

MedImmune is an example. It will add up to 100 production workers after building its planned suburban Cleveland plant, executive vice president David M. Mott said. But it will also add about 65 people to sales, research and administration on top of the 130 mostly white-collar employees the company already has, he said. Many of the new white-collar jobs will be in Montgomery County.

"If Maryland's advantage is brains and entrepreneurial activity, you can make the same claim about Boston and Silicon Valley and they're doing fine," Martek Chairman Henry "Pete" Linsert Jr. argues. "Maryland is filled with people in suburbia who have service and intellectually related backgrounds. That's us. Our standard of living is high because our per-capita income is high. Those are not the characteristics of low-cost manufacturing."

Knowledge is money

Genetic Therapy Chairman M. James Barrett says it's more important for Maryland to hang on to jobs in marketing and research and development of new drugs, because those jobs create the value consumers pay for. The drug business, he says, works a bit like the Grateful Dead.

"When you buy a CD, the disc is 12 cents and the packaging is a dime," Dr. Barrett said. "But you pay $15. The reason is the knowledge."

He says Maryland can hold on to the most important biotech jobs. "There's no reason for me to move that to West Virginia. I couldn't get the kind of people I want," he said. "You can't have all your jobs demand Ph.Ds, but you can't have thousands of people driving up to Sparrows Point in biotech."

Even a state rival admits that capturing manufacturing is not the main point, especially for a high-wage state like Maryland.

"If you had a choice between research and development, and manufacturing, you would take the R&D;," said Walter H. Plosila, former head of the Rockville-based Suburban Maryland bTC Technology Council who now leads the North Carolina Alliance for Competitive Technologies. "Maryland wants the R&D; because it pays the wages that let people afford to live in the state."

Outdated strategy

Nonetheless, biotech executives say, it makes sense for Maryland to try to keep whatever manufacturing it can. But they say state government makes it harder with what many in the industry believe is an outdated strategy.

Maryland concentrates its aid to biotechnology on very young companies that are years away from developing marketable products, the executives claim, instead of making bigger commitments to companies that are on the verge of living up to their early promise.

"We're the company the state should want, not the 50 companies that employ 12 people and have real long shots at ever getting to the other side," MedImmune's Mr. Mott said.

Mr. Caskie of Univax said Maryland's stance has shown signs of a change since Gov. Parris N. Glendening took office. He said the new administration has doubled the state-supported financing it is willing to offer when Univax is ready to build a factory, which the company hopes to place near Frederick.

Mr. Fielder insists DEED hasn't changed its policy. It just uses the right tools for the right stage of the industry's development, he says.

"We are targeting that [manufacturing] sector right now," Mr. Fielder said. "Five years ago that wasn't true, because five years ago the biotech industry, including MedImmune, wasn't ready."

The bottom line that counts depends on what an individual observer thinks is most important.

For investors like Baltimore venture capitalist Charles W. Newhall III, success is measured in the number of people who become millionaires as biotech companies explode into the next stage of their lives. By that measure, Maryland is on the cusp of making it big.

"An Amgen creates 45 millionaires. And that's 45 million-dollar homes. And there's probably 300 $250,000 homes. Then there's the service businesses. . . . These are the ripples in the pond."

But for economists like Charles McMillion, a big part of the bottom line is jobs. The fact is that biotech is not as labor-intensive as making steel. People who expect it to be are going to be disappointed, he said.

"There is enormous upside for profits, but not enormous upside for jobs," he said. "No more than a few thousand, and that's in a state with 2.4 million workers."

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