"It was 20 years ago today . . ."

Good morning ladies and gentlemen. As Sgt. Pepper's band once said, "It was 20 years ago today . . .." I'm gonna give you a bit of retrospective about our industry but I'm here today to report on the current state and trends in the U.S. biotechnology industry, to provide a portrait of where we are - or, perhaps to use a more precise metaphor, a single frame from a movie that's still only in its first reel, for we've really only seen biotechnology's first act.

It wasn't exactly 20 years ago today, but last month marked the 20th anniversary of the first FDA approval of a biotechnology drug, Genentech and Eli Lilly's recombinant human insulin for diabetics. It only took five months to get approved by the FDA. Ah, if that were only typical.

This was a signal accomplishment, especially when you think about the political controversies recombinant DNA technology sparked in the 1970s. Even in Cambridge, Massachusetts, where Mayor Al Vellucci once held sway and worried that scary things would "crawl out" of the laboratory. These are a few of my favorite quotes from that era.

And yet, as I said earlier, we have only just begun. Recombinant DNA - the industry's foundation technology - hits the 30-year mark next year, in 2003. The double-helix structure of DNA, which we now take as much for granted as the structure of our solar system - think about that for a moment - was elucidated less than 50 years ago - and we will celebrate the two scientists who discovered it next April on the anniversary of their revolutionary publication.

And a lesser anniversary, but for certain the bigger party, will take place in Washington, D.C., next June with BIO's 10th anniversary convention. The Biotechnology Industry Organization turns ten next year, and we have grown from a fledgling outfit in a manner and scale that mirrors the almost geometric growth of the industry we represent.

Most important, over BIO's first decade, our industry's impact on health care and the economy has soared. We've gone from 22 medicines and vaccines on the market to 141, and from a public-biotech market cap of $39 billion to - even at today's depressed valuations - $198 billion. The U.S. biotech industry has created hundreds of thousands of new jobs since BIO's inception, both inside and outside biotech companies. Ph.D.s in molecular biology have benefited, along with IT professionals, accountants and lawwyers. I can say that as I am a recovering lawyer.

Just a year ago, it seemed the U.S. biotech industry had finally achieved a measure of escape velocity from the boom and bust cycles that have characterized investment. After September 11, biotech companies appeared well positioned to weather a faltering economy; indeed, biotechnology was actually deemed a safe haven - because of its strong and growing pipeline and deep markets.

The industry was well-capitalized, having raised in excess of $50 billion in the previous 30 months. The record-shattering, $2 billion deal between ImClone and Bristol-Myers Squibb was hailed as evidence of the value of biotech products to big pharma. Then, a series of intra-biotech mega-mergers late in the year - Amgen and Immunex, MedImmune and Aviron, Millennium and COR - affirmed the U.S. biotech industry's maturity. While other sectors slumped in the fourth quarter of 2001, the NASDAQ Biotech Index actually jumped 22 percent.

But in 2002, the biopharmaceutical industry has proven vulnerable like many, many others to macroeconomic factors - general investor cynicism - as well as micro factors in our own industries:

On the pharma side, investors are concerned about slower growth, thinning pipelines and political pressure on pricing and access. Shares in large pharmaceutical companies have declined by an average of about 13 percent this year.

On the biotech side, despite solid earnings growth and positive projections for many of the group's top-tier companies, there has been a downturn as well. Exacerbating all this among the New York financial media which frequently sets the tone and pace for investors, is the matter of ImClone, involving a CEO arrest and guilty plea, plus photos of the loved and loathed American home-and-garden celebrity Martha Stewart splashed across the tabloids and newsweeklies. This has of course further bruised biotechnology, but also significant is our unusual string of product delays and setbacks. From January through October of this year, 30 biotech drugs missed primary endpoints in Phase II or Phase III clinical trials. All these factors have combined to decimate valuations in the biotech sector.

If we take a look at specific types of companies, we see that investors have punished biotech stocks indiscriminately: that's the even harder news. For the year to date, the top 10 U.S. biotech companies are down an average of 31 percent. Companies with successful Phase III trials are likewise down by about 30 percent on average. And companies with pending FDA drug-approval applications are off over 40 percent. There are exceptions, but very few. As of late October, more than 90 percent of biotechnology companies were down for the year, and almost 40 percent were trading at $2 or less. There is no sugar-coating this.

As worrisome as the current situation is, it's important to remember that biotechnology has endured financial troughs before and has not only survived, but grown right through them.

Industry watchers often measure biotechnology's appeal to investors by tracking the market for biotech IPOs. As you can see on this slide, from 1980 - when the Genentech IPO brought biotech to Wall Street - through 2001, the market for IPOs has followed a wave-like pattern, with each successive crest topping all its predecessors.

But while the IPO market has crested and broke over the past 20 years, revenues have grown consistently at five top biotech firms. As the slide indicates, we've used here the results from Amgen, Biogen, Chiron, Genentech and Genzyme.

And that growth hasn't been limited to biotech's Tiffany firms. From 1992 to 2001, a 10-year period encompassing two major industry slumps, revenues for all public U.S. biotech firms tripled, to $28.5 billion in 2001.

Sales more than tripled.

And these companies invested $93 billion in research and development over the course of the decade.

Direct employment has more than doubled, to 191,000 in the U.S.

Most importantly, although the curve is not quite as smooth as the others, drug approvals have risen dramatically over the years.

Those willing to publicly hazard a guess, and I'm not one of them, as to when the sector will decisively pull out of its current financial doldrums suggest mid-to-late 2003 or early 2004.

However, in the last two months, we've seen several promising signs. The Nasdaq Biotech Index has climbed 36 percent from its July 11 low point. We've seen a couple of new FDA approvals, of a Gilead breakthrough for hepatitis B, and a new version of interferon developed by Roche and Inhale Therapeutics. The summer drought in public offerings broke in the last two months, with Trimeris, Telik and Tularik all completing secondary offerings that raised a total of over $200 million. Perhaps most encouragingly, we've seen a spate of large partnerships between pharmaceutical companies and biotechs in the last few months. In October, GlaxoSmithKline alone completed three deals potentially worth upwards of $400 million. And in September, Amylin struck a $435 million deal with BIO member Eli Lilly for a diabetes drug and Kosan Biosciences, a young company that went public with the class of 2000, entered a $220 million cancer collaboration with Roche.

These are tough times for the industry, make no mistake, but if we take a broader view, it becomes clear that whether it's in 2003 or 2004, investment in biopharmaceuticals will almost certainly recover.

The fundamentals that led to such spectacular growth in the last decade are all present and accounted for:

• First, the industry has in the wings its deepest pipeline ever, with 371 late-stage drug candidates.
• And we are poised to generate many more candidates through a geometric expansion in innovative research tools that will eventually translate into new understanding of health and disease - and new products. Several computer and biotech industry gurus have observed that convergence of biosciences and informatics is creating trends that will transform drug discovery and medicine.
• First you have Moore's Law - which states that the power of a computer chip roughly doubles every 18 to 24 months while the cost falls. This has already taken hold of our industry, allowing individual scientists to do experiments that would have required large, institutional commitments 10 years ago.
• Our industry is also benefiting from Metcalfe's Law, which states that the utility of a network grows with the square of the number of users. We've seen the power of scientific networks with the Human Genome Project, which linked labs scattered around the world and posted data daily on the Internet.
• The Law of Finite Biology promises that the solutions to biomolecular puzzles will eventually come much faster than they do even today, much as the pieces of one of those thousand piece puzzles we work on during rainy vacation days fall into place more and more quickly as one approaches the full picture.
• And finally, I would be remiss in not mentioning Murphy's Law ("If anything can go wrong, it will."), which we all live and work with on a daily basis. It was named after Captain Edward A. Murphy, an engineer working on an Air Force project designed to see how much sudden deceleration a person can stand in a crash.

• Even given Murphy's Law, The vast array of products that could emerge from these efforts will find eager and growing markets as the baby boom generation marches toward retirement.
• And the companies developing those products will find a generally supportive federal U.S. legislative and regulatory framework to support the years in the lab and clinic each new candidate molecule requires. That framework has survived many controversies and will survive the occasional congressional firefight over patents and generics, or stem-cell and therapeutic cloning research.

Much of that framework was built in the U.S. industry's early 1980s infancy, when two legislative initiatives combined to create a regulatory and legislative climate in which biotechnology could flourish - an American biosphere, if you will. Those were the Bayh-Dole Act of 1980 and the Orphan Drug Act of 1983. Bayh-Dole soldered the intellectual property pipeline from academia to industry through technology transfer and licensing reforms, while the Orphan Drug Act created incentives for developing drugs for disorders afflicting fewer than 200,000 Americans. In the wake of these initiatives, more than 220 orphan drugs have been approved, and scientists and entrepreneurs have founded hundreds of companies to develop NIH research originating in universities and in our National Institutes of Health.

In the 1990s, as product flow grew, the industry worked with Congress to improve the regulatory process for new drug and biologic candidates, resulting in the Prescription Drug User Fee Act of 1992 and the Food and Drug Administration Modernization Act of 1997. In 1998, Congress and the Clinton administration agreed to double the budget of the National Institutes of Health over five years, a process that will be complete in fiscal 2003.

In addition to strong federal support, over the last few years we've seen a blossoming of state level economic development activity that shows no sign of slowing. Last year, a BIO-sponsored study found that 41 states of our 50 states were vying for a piece of the industry. Twenty-eight states have publicly funded venture or seed funds that can be used to invest in biotech, and 16 states have appropriated funds specifically to support biotechnology.

And we're not talking about grand ideas with nominal funding, but about meaningful investment totaling billions of dollars over the next decade, programs that include new university labs and incubator facilities, as well as direct investment in companies. I won't belabor these examples.

The desire to build local and regional biotechnology corridors is not just a U.S. phenomenon, of course. BioIreland, as well as conferences I've attended this fall in Amsterdam and Singapore, speak to the growing international impact of biotechnology. I won't delve into the ramifications today, but I will point out that our industry's global diaspora was a dominant theme at BIO's annual meeting in Toronto this past June, which brought together attendees from 52 nations; representatives from almost 100 unique geographic regions were on our exhibit floor. There were whole European, Asian and national Pavilions, stretched about as far as one's convention eye could see. Attendance more than doubled from Sweden and Finland, which sent 180 delegates. The Czech Republic, Turkey and Lithuania. And, for the first time, more than half of our meeting attendees came from outside the U.S.

Despite the turbulence of the markets, the mood on the convention floor was ebullient, and indeed there was much to celebrate.

This was actually a good summer and fall in Washington, if not on Wall Street, for our industry. In June, on June 12 to be exact, President Bush signed the second renewal of the Prescription Drug User Fee Act, under which the industry will pay more - but get more and better services from the FDA. Those funds will go toward the hiring of 600 additional highly qualified reviewers for biotech products over the next five years. Every step toward more streamlined and predictable regulation has a bottom-line impact on biopharmaceutical companies.

Just as importantly, the president has appointed a new commissioner for the FDA, after the post had gone vacant for some 20 months, compounding the slowdown in decision-making at the agency that has contributed to longer review periods and fewer approvals. The new commissioner, Dr. Mark McClellan, brings to the post a background - he holds a Harvard M.D. in internal medicine, a Harvard Masters degree in Regulatory Policy and a Ph.D. from MIT in Economics. We expect him to be well equipped to make the risk-benefit decisions inherent in drug development. Plus he grew up in Texas and he and his family have been friends of the Bushes for three generations, his brother Scott is the Deputy White House Press Secretary, although all that, of course makes no difference whatever in U.S. politics.

He joins the agency at a time of major transition. Not only is PDUFA implementation under way, but the FDA is revising its manufacturing rules to make them more consistent, and is consolidating pharmaceutical reviews, including therapeutic biologics, at the Center for Drug Evaluation and Research or CDER, as it is commonly called. The intent, to use the words of Deputy Commissioner Lester Crawford, is to ensure therapeutic biologics are reviewed "promptly and rigorously in an accountable and consistent manner." The move may also end some inconsistencies between the FDA's interaction with developers of biologics and drugs.

These are all positive signs that the FDA is emerging from its recent torpor and is re-energized and ready to work with our companies to bring safe, effective drugs to market as expediently as possible.

Although overall the biotech industry has fared well in Washington of late, this mid-term election-year summer brought some heat and pain. The U.S. Senate devoted the second half of July to giving the pharmaceutical industry a powerful spanking on pricing and patent issues with the debate over a bill that would have decimated innovator companies' intellectual property rights under the rather transparent guise of reform. The legislation was in reality a vehicle for senators to bash pharmaceutical companies on pricing rather than pass a comprehensive prescription drug coverage bill to cover senior citizens under the federal Medicare Program, a measure BIO supports.

That transparency punctured, what last week's elections showed is that such inflammatory tactics just haven't worked. Across the country, candidates who ran on this platform simply lost, bit-the-dust as we say out west.

Once Congress finally does pass Medicare prescription drug coverage, some of the political pressure on our industry will subside. Of course, we will still wrangle with states and the federal government over reimbursement levels. Right now, we are waging a campaign in Congress - alongside doctors and hospitals - to rescind draconian cuts in Medicare, the nation's public insurance program for retirees, that have sharply reduced payments for some innovative biotech drugs used in the hospital outpatient setting.

On the legislative side, as I mentioned earlier, we are also planning to push aggressively for biotechnology-targeted tax incentives, such as a refundable credit for net operating losses stemming from R&D and elimination of capital gains taxes for long-term investments in R&D-stage biotechnology companies.

As for the more immediate economic needs of the U.S. industry, BIO has stepped into a whole new pair of shoes, reaching out to the financial community more directly by meeting with buy- and sell-side analysts and fund managers at the nation's premier financial firms.

We're also sharing our industry's story with reporters and editors at publications like the Wall Street Journal and Forbes. And we're creating new investor and partnering opportunities for our members by expanding our meetings calendar. In all these initiatives, our message centers on the underlying fundamental strengths of the industry: a robust pipeline, mature management, eager and growing markets, and a supportive regulatory and legislative climate.

These fundamentals are much sounder than they were when Cambridge Mayor Al Vellucci was railing on, and 20 years ago almost today, when that first product - recombinant human insulin - was introduced. Over those two decades, we've gone through our share of the boom-and-bust cycles characteristic of any powerful new technology.

But over the long term, bioscience tends to pay handsome returns for breakthroughs that dramatically improve quality of life. Those breakthroughs won't happen on a quarterly Wall Street time frame, but they will happen.

Today, we are mired in a biotech financial slump that could last months more, but the overarching trend in this industry, through every downturn, has been one of continual growth that has taken us from a handful of companies to almost 1,500 in the U.S. developing and marketing medicines to improve and indeed, save lives - mine included.

Thank you, ladies and gentlemen for inviting me to Ireland. I am delighted to be here.