SAN FRANCISCO — For all the success the biotechnology industry enjoyed in 2013 — including record-breaking share gains — company leaders and investors who attended this week’s J.P. Morgan Healthcare Conference were frequently reminded of a blunt reality: Making life-extending drugs is a high-risk enterprise.
Ariad Pharmaceuticals Inc. chief executive Harvey J. Berger knows it firsthand. While other captains of biotech at the conference boasted about their stock prices, the best news he could offer was that his Cambridge company is relaunching the leukemia drug it had to pull off the market last fall amid safety concerns.
The problems with the drug, called Iclusig, cost Ariad more than $2.5 billion in market value and forced it to put 160 employees out of work.
“Yes, 2013 was sort of a wild ride at the end,” Berger conceded in a presentation to investors.
Ariad’s experience underscores what is sometimes underplayed in the heady world of biotechnology: If you want to pursue big wins by developing cutting-edge drugs, you have to accept the chance of spectacular failures. And as researchers try to conquer ever more complicated and elusive diseases, the risk of falling short rises along with the degree of difficulty.
Massachusetts drug makers — while increasingly the drivers of innovation — have not been exempt from these reversals of fortune.
Food and Drug Administration officials rebuffed Genzyme’s application for approval of a much-anticipated multiple sclerosis therapy already on the market in Europe and Canada, faulting the design of the Cambridge company’s clinical trials. Vertex Pharmaceuticals Inc. disclosed that sales of its pioneering hepatitis C drug were falling faster than anticipated, prompting the company to shed 15 percent of its workforce on the eve of moving to a gleaming new headquarters and research center on the South Boston Waterfront.
Executives at Aveo Pharmaceuticals Inc., a Cambridge company that appeared on the verge of launching an important new kidney cancer drug at last year’s J.P. Morgan conference, didn’t even show up this year. The FDA turned thumbs down on the drug, also citing safety risks and clinical trial problems. The deflated biotech had to scrap the program and eliminate nearly two-thirds of its staff.
With the share prices of 81 biotechnology companies more than doubling last year, Aveo was among the worst performing publicly traded biotechnology stocks, losing 77.3 percent of its value, according to data compiled by Burrill & Co., a San Francisco health care financial firm. Other big losers included Affymax Inc. of Cupertino, Calif., which dropped 95.9 percent of its value in 2013; Bio Lab Naturals of Tampa, down 97 percent; and Savient Pharmaceuticals Inc. of East Brunswick Township, N.J., which lost 98.4 percent.
The risks — of FDA rejections, the loss of revenue to competing drugs, the refusal of health insurers to pay for new drugs and devices — have forced companies and investors to proceed more cautiously and devise new business strategies.
“Over the years, clinical trials have become more risky, partly because we’re going after harder problems,” said Alan Crane, general partner at Waltham venture capital firm Polaris Partners and a former chief executive at Momenta Pharmaceuticals Inc. in Cambridge. “The reality is that a reasonable percentage of [late-stage] drugs fail. When we look at companies, we’re thinking about whether there’s something in the science and the business model that can minimize risk.”
Polaris, for instance, wants to invest in early-stage companies with “technology platforms” that can potentially generate multiple products. One such company that made a presentation at the J.P. Morgan conference was Visterra Inc., a Cambridge startup cofounded by MIT professor Ram Sasisekharan. Visterra makes a drug discovery tool that can identify which regions of a protein to target in pharmaceutical labs. That, in turn, makes it easier to pinpoint how to treat particular diseases.
“From a risk standpoint, this approach gives us more shots on goal,” Crane said.
Managing risk is also important in timing, in how money is spent, and in deciding how much funding to extend to how many startups — as well as how many co-investors to bring in to share the risk. As some venture capital firms have exited the life sciences arena, wary of regulators and the long road from drug discovery to approval and sales, those that remain increasingly look to take their chances with big pharmaceutical companies and seek to align themselves with corporate “strategic investors” as potential partners.
Michael Ringel, a partner and managing director at Boston Consulting Group who advises health care businesses, said the fear of a costly setback can make drug companies — particularly smaller ones relying on a single product — more risk averse than their financial backers, who can hedge their bets by investing in multiple startups.
“Management has all their eggs in one basket,” Ringel said. “Their jobs and their stock are tied up in it. Investors often prefer companies to do riskier things than they are willing to do themselves.”
Perhaps the riskiest thing the head of a company that has stumbled can do is to be anything but upbeat in discussing what happens next. That often means changing the subject.
Ariad’s Berger, for instance, talked of plans “to rebuild the confidence in Iclusig” through clinical studies aimed at using it to treat a broader group of leukemia patients, as well as people suffering from other diseases.
Vertex chief executive Jeffrey M. Leiden told investors in San Francisco that his company will shift its focus from hepatitis C antivirals to a portfolio of treatments for the rare genetic disease cystic fibrosis — and, later, to drugs combating other illnesses.
And spending little time dwelling on the FDA’s rebuff of his firm’s MS medicine, Christopher A. Viehbacher — chief executive of Genzyme’s parent company, Sanofi SA — earlier this week unveiled plans to buy a $700 million chunk of a smaller Cambridge company, Alnylam Pharmaceuticals Inc., which is developing a pipeline of drugs for rare diseases.
“There aren’t many companies that are going to grow over the next few years,” Viehbacher predicted. “Sanofi’s going to be one.”Robert Weisman can be reached at robert.weisman@globe .com. Follow him on Twitter @GlobeRobW.