Will This Experiment Work?

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Now biotech is hot again. Since the stock market started to find its footing last July, biotech shares have risen 57%. Another bubble? Not necessarily. Many of the companies have marched steadily closer to bringing products to market. MedImmune's inhalable flu preventive FluMist was approved two weeks ago. In May, Genentech's colon-cancer drug Avastin stunned scientists with its effectiveness in trials and is widely expected to be approved soon. Dozens of other products are in the works. "We're starting to see the fruits of biotech research," says Kenneth Carter, CEO of Avalon Pharmaceuticals, which is working on three cancer drugs.

The excitement owes much to a friendly turn at the Food and Drug Administration (FDA) under new commissioner Mark McClellan, formerly a practicing internist and Stanford University economist who is on a mission to get lifesaving drugs through the review process safely and quickly. He believes that poor communication between the FDA and firms seeking drug approval adds months to reviews — and costs companies millions of dollars. He took over in November and immediately steered Millennium Pharmaceuticals' cancer treatment Velcade to a fast-track approval. One can't overestimate "how important the FDA's change in attitude has been," says Kris Jenner, manager of T. Rowe Price Health Sciences Fund.

The fear in speeding new drugs to market is that too little will be done to ensure that they are safe. But the cost savings of a smoother process leave more resources for monitoring drugs after they're in use — and for reacting quickly if problems arise. "We don't want to do anything that increases the risk patients face," McClellan says. "We're the gold standard for safety, and we're going to stay that way."

It all adds up to big changes in an industry prone to speculative excess. Investors still shouldn't touch these stocks outside a mutual fund or without diversifying across at least five companies. Given the sharp run-up this year, Weisbrod's hedge fund has cut its biotech holdings a third, and six top executives at Genentech recently sold $36 million of the stock. The relatively stodgy feel of the Biogen-IDEC deal has still other growth investors running for the hills. It's all part of growing up — and part of Mullen's plan.