Will This Experiment Work?

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James Mullen and the biotechnology industry arrived on the scene together by chance in 1980. That year he landed his first job out of college, as a chemical engineer for what is now GlaxoSmithKline, and at about the same time the pioneering biotech firm Genentech sold its first shares to the public. Now Mullen, 44, and the biotech industry are coming of age together--only this time it's no accident. As the CEO of Biogen, Mullen is helping force the issue with his proposal last week to merge his company with IDEC Pharmaceuticals in a $7 billion deal that would create the world's third largest biotech firm. The idea, says Mullen, is to "bring business discipline to science and medicine." In other words, he wants to inject a sobering dose of planning and budgets into an industry that has more hype than earnings in its bloodstream.

Mullen's vision didn't immediately play well with biotech investors, many of whom prefer the promise of blowout growth to steady profits. Shares of both companies dropped sharply. Who needs another giant drug company pumping out me-too pills, focusing on stuff it already makes and pinching pennies to deliver a steady income? Biotech's allure since the benchmark Genentech IPO 23 years ago has been its promise to deliver wonder drugs that will cure feared ailments like cancer and Alzheimer's. Yet with an exhaustingly long list of failed products and failed companies in its brief past, the industry each year grows closer to losing sway with the moneymen who fund its research. Even though biotech stocks have been moving up this year, among critical pre-IPO investors like venture-capital funds "there's a lot of fear," says Alan Crane, CEO of Momenta Pharmaceuticals, an early-stage drug-discovery firm. "There's a lot of concern about losing your money."

Mullen's focus on diverse products, production synergies and profitability at the proposed Biogen IDEC, where he would be CEO, is already part of the culture at top industry players Amgen and Genentech. So he's got a blueprint--and a lot to work with. Biogen's Avonex for multiple sclerosis and IDEC's Rituxan for non-Hodgkin's lymphoma each generate more than $1 billion in annual sales, and both companies are solidly profitable. Yet "the combination will create more value than either could as separate entities," says William Rastetter, CEO of IDEC, who would get the title of executive chairman after the merger. The focus on managing will probably spill down as more treatments reach the market and more biotech firms start writing in black ink. A wave of mergers could sweep the industry, though that might be several years away.