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Biofuels industry sees returns straight ahead

From investors' vantage point, the beauty of the bio-fuels industry is its potential for profitability and for quicker returns on investment, compared with other biotechnology businesses.

High oil prices, low-priced corn and soybeans soaring demand for alternatives to petroleum-based fuels – all these factors, combined with Iowa's expertise in grain processing, have put the state "in the sweet spot" of the biotechnology industry, said Mike Ott, executive director of Biowa, a consortium of businesses intended to boost Iowa's bioeconomy.

"You do what you're good at, and this is what we're good at," he said.

Farmers and others flocking to invest in ethanol and biodiesel plants can expect to see a return on their investments within a few years.

The same cannot be said for most businesses based on biotechnology, a field that combines the wonders of biology with the precision and speed of technology. In fact, 30 years after biotechnology emerged as a new industry, most biotech businesses do not make money. That conclusion was drawn by participants in this month's BIO 2006, the annual international conference of the Biotechnology Industry Organization in Chicago. Ventures that prove profitable typically take 10 years or more to generate returns for investors.

The biotech industry's financial footing has grown since the 1970s. Globally, the industry's annual revenues topped $63 billion in 2005, with nearly $48 billion of that generated by U.S. businesses, according to Ernst & Young.

But the biotech sector also saw $4.4 billion in net losses last year globally, nearly half of that in the United States. Since its inception, the biotech industry has been focused largely on human health and medicine, and that was reflected in the lineup of speakers and at the trade show of BIO 2006.

But agricultural biotechnology and industrial biotech had a bigger presence at this year's gathering than in any of the 13 previous BIO conferences, organizers said. Part of the reason was the Midwestern venue. Also a factor was that biorenewables are such a hot topic.

"Beyond Borders," a global report on biotechnology issued by Ernst & Young at BIO 2006, said "biofuels clearly present an increasingly attractive picture by lowering dependence on precious fossil fuels and reducing environmental emissions."

"Industrial biotech and agricultural biotech, biotechnology's next 'waves,' can make significant contributions to building a bridge between the world's limited resources and the growing needs of its people," the report said.

But while investment in those sectors is soaring, small, entrepreneurial biotech enterprises still face tough sledding in attracting investment in states like Iowa, said investment bankers and other BIO 2006 participants. Investors are as averse to risk as ever, expecting 35 percent to 40percent returns, they said.

"It's a challenging time, just raising money at the appropriate valuation. You can raise money at $5 (or) $10 million valuations. But when you get up to $100 million valuations, it's difficult," said Ken Moonie, an Aptos, Calif.-based investment banker and a panelist at the BIO conference.

Kiran Mazumdar-Shaw, chairperson and managing director of Biocon in Bangalore, India, also was a panelist at the conference. She, too, believes biotech startup companies face funding challenges.

"I think around the world there's a lot of problems in funding startups, and I think the government has to step up," she said.

When she founded her biotech business in 1978, there was no venture capital available, much less government support for startups in her native India, Mazumdar-Shaw said. In recent years, that situation has improved, she said, "but we have lost a lot of time."

Doug Goetter, executive director of the Iowa Biotechnology Association in West Des Moines, said the future for Iowa's role in the biotech industry looks bright - not only because of its leading position in the biofuels business, but also because of the collective efforts by government, business and academia in Iowa to tap the vast potential of biotechnology.

"We're just scratching the surface of the potential," he said. "The tent of life sciences is so big there is plenty of opportunity. The challenge will be sustaining a focus and a commitment."

(http://desmoinesregister.com)

 
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