Guest Commentary
Redefining the biotech industry
In a Guest Commentary in BioCentury on May 30, Kenneth Ludlum, recently Vice President and CFO of RiboGene Inc., suggested that the passing of "technology infatuation" would find the biotechnology sector developing the main business and structural characteristics that are necessary for any industry to reach maturity and attract stable sources of capital. The following Guest Commentary applies a different perspective. By Stanley T. Crooke
Chairman and Chief Executive Officer
Isis Pharmaceuticals Inc.

I read with interest the thoughtful commentary of Ken Ludlum in the May 30, 1995 issue of BioCentury. The commentary provides a very useful perspective and encourages debate about the most fundamental of issues facing the biotechnology industry at a time when they must surely be addressed.

Ken concludes that the loss of effective capitalization of the biotechnology industry is not simply a result of investor disappointments due to product failures or concerns about health care reform, but is more fundamental, and capital will not flow into the industry until there are fundamental changes in the industry.

By analogy with other industries, Ken concludes that the biotechnology industry has progressed through the stage of "technology infatuation" and its leadership now must more precisely define the industry and requirements for success. He suggests several elements of the emerging redefinition of the industry and that the focus of leaders (either investors or managers) in the industry must be to reconfigure the industry so that capital will again be attracted to "this promising field." These points are well taken and timely.

Highest intrinsic value

My objective in responding to Ken's commentary is to encourage additional discussion about our industry and its future. Specifically, I will focus on the human therapeutic sector of the biotechnology industry. I believe that to redefine our industry, we must first better understand what sort of industry exists today. We should focus our energies on creating a future industry that meets an unequivocal need and, therefore, has the highest intrinsic value. By communicating that value more clearly to our investors, we will encourage the return of capital to the industry in a rational context.

There are, of course, many types of investors with differing investment strategies who participate in the biotechnology industry. One type is a product opportunity investor: an individual or fund that attempts to assess the potential for relatively near term product opportunities and to time investment to coincide with increasing valuations as the value of the potential product is more widely appreciated. Another type may invest in core technology, obviously assuming products will emanate and hoping that they emerge relatively quickly. For the former, the investment context and strategy are relatively clear: invest in companies that have near-term product opportunities and a more well-defined and achievable strategy for commercialization.

My comments are addressed primarily to the core technology investor. Such an investment strategy is complex and long-term, but because the investment is focused on the items of highest possible intrinsic value in the industry - enabling technologies coupled to product development capability - it offers the greatest potential long-term return.