BIOTECH GOLDENBOY
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     "Science is not a precise discipline. It's really an art. Things go in and out of fashion." He cites the fact that three or four years ago U.S. physicians generally believed ulcers were caused by excess acid and routinely prescribed antacids like Zantac and Tagamet despite the fact that doctors elsewhere were prescribing antibiotics.

"The people who are senior management of pharmaceutical companies are chemists. The way they used to develop drugs is to randomly synthesize a series of compounds and see if they have some sort of beneficial effect."

     "In the past three or four years, the U.S. medical community has completely turned around. Now the prevailing treatment for ulcers is antibiotic therapy combined with H2 blockers."
     By way of another example, Kuo cites Interneuron, a company which, along with DLI itself, is in the portfolio of Paramount Capital. It managed to license its diet drug Redux from a French company that had been selling $60 million a year in France as well as in various other European counties.
     "The French company that developed it couldn't find anyone to license it," says Kuo. "So this little company based in Lexington, Massachusetts called Interneuron was able to license it. They took it through clinical development here in the U.S. Now it's the biggest launching drug ever in U.S. pharmaceutical history.
     "It's an inefficient market," Kuo sums up, "and pharmaceutical executives are very conservative."
     A large part of this inefficiency Kuo attributes to an industry paradigm shift of an epochal magnitude. The industry that began as an outgrowth of the chemical industry simply had trouble embracing biotechnology.
     "The people who are senior management of pharmaceutical companies are chemists," says Kuo. "The way they used to develop drugs is to randomly synthesize a series of compounds, then screen them and see if they have some sort of beneficial effect. If you're lucky, they did."
     "In the past 10 years we're able to do things like clone animals, cut and splice genes and put it into bacteria, grow the bacteria and grow pharmaceutical quantities of various proteins. Part of all this is looking at the genome and trying to understand exactly what roles all the genes have. It's a very different science from chemistry. You have a lot of senior management at major pharmaceutical companies not understanding DNA, what proteins are, how they interact with receptors. So they elected instead to buy and sell each other and do vertical and horizontal integrations. Only now are they starting to seriously consider biotechnology."
     The biotech industry, Kuo believes, is completely analogous to and about 5-10 years behind, the semiconductor industry which began emerging from the electronics industry 15 years ago.
     He cites Amgen which started only 15 years ago and is now in the top 20 of all pharmaceutical companies.
     "A lot of Asians are in the bio sciences but haven't really been involved in the managerial side as has already occurred in the computer industry. They're very similar in that technology has allowed entire industries to spring up and allowed the U.S. to take the leadership role in these two areas.
     "It's the classic technology paradigm shift," Kuo says. "A group of typically younger people are willing to take the risk and jump into a new and emerging industry. Usually the established companies are too complacent to make that change and are left behind."


     The successful among those rash young biotech upstarts are being richly rewarded by the investment community. Kuo cites companies he believes are comparable in the nature of their products and their stage of development.
     "Pathogenesis, which is based in Seattle, just completed Phase III trials for a cystic fibrosis drug and that's an inhaled antibiotic. Their valuation is north of $600 million. That's just one product. They also have a Phase I product but certainly not more than two products in development.
     "Another company called Alliance Pharmaceuticals in La Jolla, California, has a drug that's potentially competitive with our KL4-Surfactant called LiquiVent. Their stock valuation is somewhere around $400 million. They're in Phase II and announced negative results of their clinicals. They announced that their drug was safe and appeared to have some efficacy in the subsegment of patients below age of 55, but due to randomization error in that there were insufficient patients in the under-55 age group, their results were not statistically significant."
     The negative results doesn't necessarily spell doom for Alliance, says Kuo, probably just another couple of years of clinical tests. PAGE 4

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