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Biotech and biomed stocks lead followers on rollercoaster ride

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Most of the entrepreneurs owning, operating and investing in San Diego's growing roster of biotech and biomed companies are too young to remember when the best and wildest rides at Disneyland required an "E" ticket.

But, to be sure, they have learned lately that riding the stocks of these companies can be a real white-knuckle experience.

"The industry's market cap hit an all-time high of $488 billion at the end of November, surpassing the previous record of $475 billion reached in the summer of 2000," said G. Steven Burrill, who heads up a venture capital, banking and media company.

And, Burrill believes the roller coaster can still climb higher.

"With U.S. spending on prescription drugs projected to more than double in the next decade, to $446 billion from $188 billion, the future looks bright for biotechs," he said. "Drug sales, bolstered by Medicare coverage, is expected to keep rising and biotechs will certainly capture a significant portion of the increase."

Consider the case of Santarus (Nasdaq: SNTS). The San Diego company specializes in therapies for gastrointestinal diseases and disorders. It went to Wall Street for financing in 2004 and launched its initial public offering at $9 a share. Soon after, the stock soared to nearly $20 before dipping to $3. The shares currently trade around $7.

But, Santarus believes the commercial launch of its new product ZEGERID -- approved by the Food and Drug Administration in February -- will make the company a player in the market for swallowable, delayed-release proton pump inhibitors. Prescription sales for these products rose to $12.8 billion in 2005. "We plan to continue building on the ZEGERID brand recognition we have established in the marketplace," said CEO Gerald Proehl. The company has a team of 370 sales representatives targeting the product to 26,000 physicians in the United States that prescribe these inhibitors to patients.

According to a study from Ernst & Young, 2005 funding activities were led by an increase for medical devices companies, which generated more than $2 billion in capital.

"This likely was fueled by the positive public offering environment for medical devices companies during the past two years," cites the E&Y report. DexCom (Nasdaq: DXCM), a San Diego maker of medical devices, issued its IPO in April of last year at $12 a share and the stock has steadily climbed to its current price of $21.

The company recently received approval from the FDA for a new glucose monitoring system for use by diabetics. The American Diabetes Association says that there are 20.8 million people in the United States who suffer from complications of diabetes, the nation's fifth deadliest disease.

"We are very pleased the FDA has approved the DexCom STS Continuous Glucose Monitoring Product and we are hopeful this novel technology will improve the quality of life for people living with diabetes," said CEO Andrew Rasdal.

San Diego's reputation as a major center for diabetes research is growing. One well-established company, Amylin Pharmaceuticals (Nasdaq: AMLN), has been receiving the attention of Wall Street.

"We believe that Amylin is one of the highest-quality madcap biotechnology companies," said John Sonnier, an analyst for William Blair & Co.. "The combination of two first-in-class FDA-approved drugs, strong management, significant pipeline growth, a strong balance sheet, and a partnership with Eli Lilly distinguishes Amylin among its peers, in our view."

It hasn't always been that way. In 1999, shares of Amylin had dropped to just $2. The stock has been in a steady climb ever since, reaching its current price above $45.

But, the real funding of San Diego tech and biotech companies is being done on Main Street, not Wall Street. Venture capital investing in 2005 reached $22.13 billion, the highest level in four years.

"Overall, the year's positive outcome -- coupled with a dynamic acquisition market for venture-backed companies of late -- indicates that venture capital investors remain committed to funding entrepreneurial innovation in all its forms," said Stephen Harmston, director of global research for VentureOne.

San Diego and Southern California followed the San Francisco and New England markets in funding activities, with 203 deals valued at $2.09 billion.

To help new companies compete for those precious venture capital dollars, a new entity -- the San Diego Life Science Accelerator -- is being formed to fund and mentor new technology companies.

"In recent years, it has become increasingly difficult to fund early stage life science innovations due in part to federal and state grant funding moving toward basic research projects and venture capital funding being directed to later stage investment opportunities," said Art Benvenuto, chairman of the committee.

The project, a joint effort by Biocom and Connect, may be the link that will lead to the success of the next generation of companies that will improve the quality of life all around the world.

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