The biotechnology industry tends to be overshadowed by the razzle-dazzle of high-tech companies like Apple, Facebook and Google, particularly in the Bay Area.
Now, though, the biotech business is experiencing an almost unprecedented boom of its own. Money is flowing into the industry as never before. Stock prices are high, and drug approvals are up. And perhaps most important, some of the new drugs represent major advances against diseases likecancer, hepatitis C and cystic fibrosis.
Buoyed by the recent success, some executives and investors are making the bold assertion that the industry has turned a corner and that improved scientific insights and new techniques are allowing drug developers to reduce their notoriously high failure rate and to take on some illnesses for the first time.
Others are skeptical, saying that the current boom is a bubble that will burst.
That mix of exuberance and anxiety characterized the J. P. MorganHealthcare Conference, the industry’s most closely watched investor event, for which 9,000 executives and investors squeezed into the Westin St. Francis hotel here last week, navigating congested hallways and overflowing rooms to hear presentations from 400 companies over four days.
“It is an incredibly exciting time for our industry,” Robert J. Hugin, the chief executive of Celgene, one of the largest biotechnology companies, said in the first presentation at the meeting. He later added, “This is not hype and smoke and mirrors.”
But some executives still worried that share prices would fall and the flow of funding would slow. “I have my seatbelt and crash helmet on,” said the chief executive of a biotech company whose stock has tripled in price since last spring. The executive spoke on the condition of anonymity because he did not want to affect his company’s stock price by commenting publicly on the state of the industry.
Biotechnology stocks have outperformed the overall market for several years. Last year the Nasdaq Biotechnology Index rose 35 percent compared with 11 percent for the Standard & Poor’s 500-stock index.
Over 110 companies in the industry went public last year, far more than in a typical year, raising a record $9 billion, according to BioCentury, an industry publication. The amounts raised in other stock and debt offerings were also at or near records. And the $5.97 billion invested by venture capitalists in private biotech companies in 2014 was up 29 percent from 2013 and about equal with the record set in 2007, according to PricewaterhouseCoopers and the National Venture Capital Association.
One factor lifting stock prices is the frenzied pace at which small drug developers are being acquired by larger ones. That is in part spurred by the need for big pharmaceutical companies to replenish their pipelines as top-selling drugs go generic.
The Food and Drug Administration also seems to be more willing to approve drugs, industry executives say, relaxing the ultra-cautious stance it took after the pain reliever Vioxx was removed from the market in 2004 for raising the risk of heart attacks. The F.D.A. approved 41 new drugs in 2014, the most since 1996.
But the increase in approvals also seems to reflect the industry’s success at developing effective drugs. New hepatitis C drugs from AbbVie and Gilead Sciences can cure most patients in 12 weeks. Drugs that help the body’s immune system attack cancer, two of which were approved last year, have generated tremendous excitement among oncologists.
Executives say new techniques for analyzing and manipulating genes and cells are leading to more insights about biology and innovative approaches to treatment.
“The science has never been better, and the pace of progress has never been faster,” said Jeffrey Leiden, the chief executive of Vertex Pharmaceuticals, which is selling the first drug that counteracts a genetic cause of cystic fibrosis. “I do think there has been a fundamental change.”
But others counter that drug development remains difficult, because human biology is extremely complex and largely unfathomable.
“I don’t think in any way that we have licked the problem,” said Dr. Roger M. Perlmutter, head of research and development at Merck. “Since we don’t know how the machine works, we don’t know what to do when it breaks.”
Even if the science is improving, investors might still be bidding up stocks too much.
“There are definitely areas and companies that seem to be ahead of themselves, for sure,” said Misha Petkevich, portfolio manager at V2M Capital.
Exhibit A, according to several investors and analysts, is the so-called CAR-T therapy, in which a cancer patient’s immune system cells are genetically engineered to attack tumors. There have been some substantial successes in treating leukemia and lymphoma. But the technique is still early in development and can cause severe side effects.
Juno Therapeutics, a leading start-up in the field, raised $300 million last month in the industry’s largest initial public offering in memory. It now has a market value of about $4.5 billion. Kite Pharma, another start-up that went public last year, has a valuation of over $3 billion.
Not surprisingly, others are scrambling to get into the field. Last week, two companies working together agreed to pay the MD Anderson Cancer Center $100 million in stock for technology that can be used in such therapy. They paid an additional $15 million in stock to persuade the cancer center to sign the deal in time for it to be announced at the J.P. Morgan conference.
Expensive as that was as a public relations strategy, it paid off, at least in the short run. Shares of one of the companies, Ziopharm Oncology, went up 55 percent on Wednesday, the day after the announcement was made. Shares of the other, Intrexon, rose 31 percent.
A setback in the development of CAR-T or other promising therapies could rapidly change sentiment. But the factor investors say could most curb enthusiasm is the increasing pressure from health plans and politicians to rein in what critics say are the exorbitant prices of drugs.
Biotech stocks took a hit last month when Express Scripts, the nation’s largest pharmacy benefit manager, said it would not pay for Gilead’s hepatitis C drugs for most patients — only for a competing medication from AbbVie, which provided a bigger discount.
That has set off a sort of price war as Gilead and AbbVie vie for the favor of other payers. Express Scripts next hopes to force such a face-off between two powerful new drugs for lowering cholesterol, which are expected to reach the market this year.
The last time the biotech industry was so flush was around 2000, when companies promised, and investors believed, that genomics, particularly knowing the human DNA sequence, would revolutionize drug discovery.
“We looked back at the slides we used in the I.P.O. — they are embarrassing,” said George A. Scangos, who ran Exelixis, a company that went public in 2000 based on the promise of its genomics technology.
Stock prices eventually collapsed when genomics did not yield the promised bonanza. Some life science venture capitalists had such low returns that they effectively had to close up shop a few years ago. Exelixis laid off 70 percent of its staff last year after its best hope, a drug for prostate cancer, failed in a clinical trial.
Mr. Scangos had moved on by then to run Biogen Idec, one of the industry’s most successful companies. This time, he said, is different, in that “a lot of the enthusiasm is based on substance” from clinical trials of drugs.
Some of the industry’s seemingly sudden successes stem from years of research behind the scenes. One example is gene therapy, which involves replacing defective genes in the body with healthy ones. Early trials were unsuccessful, and the field was dealt a severe setback in 1999, when a teenager died in a gene therapy test being conducted by a leading researcher, Dr. James M. Wilson of the University of Pennsylvania.
But techniques have improved, and there have been successes in various trials. So gene therapy has gone from pariah to rock star.
The stock price of Bluebird Bio, whose experimental gene therapy for beta thalassemia appears to have freed a few patients from the need for blood transfusions, quadrupled in 2014. At least four gene therapy companies went public last year. Even Dr. Wilson was in San Francisco last week, talking to investors about a new gene therapy company he helped start,RegenXBio.
“I would never have predicted what’s happened in the last 18 months,” Dr. Wilson said. Still, he said, investors and companies were underestimating the challenges.
“We’re in a bubble, and gene therapy is at the center of it,” he said. “One learns humility. That’s what I learned.”