PHILADELPHIA — They continue to churn out life-changing drugs while investors shower them with billions of dollars. But as more than 15,000 executives gather for the biotechnology industry's biggest convention, there is growing concern that the boom may be peaking.
"Everyone is terrified that this bubble is going to burst at any moment, so they're looking for signs of a top," said Michael Gilman, chief executive of Padlock Therapeutics Inc. of Cambridge and a venture partner at investment firm Atlas Venture. "People are starting to look over their shoulder now, and it won't take much of a scare to cool down investors' ardor."
Those worries were tempering enthusiasm for the industry's historic growth on the eve of the Biotechnology Industry Organization's annual meeting, which opens Monday in Philadelphia. Sales, mergers and acquisitions volume, and research outlays all climbed to new heights last year.
The number of US biotechs going public has slipped to 23 this year from 33 in the same period in 2014, according to research firm Renaissance Capital. This year's initial public offerings raised $2.3 billion, up from $2.1 billion a year ago, but that was mostly on the strength of a few big IPOs such as Blueprint Medicines Inc. of Cambridge and Spark Therapeutics Inc. of Philadelphia.
Meanwhile, a cost-containment push by health insurers, stung by last year's introduction of Sovaldi, a costly hepatitis C treatment, appears to be gaining momentum. Health insurers across the nation and the largest US pharmacy benefits manager, Express Scripts, are developing new payment plans that would tie the prices of drugs to how well they work in patients. Such plans have the potential to reduce profits from the sale of high-priced prescription drugs.
Perhaps most worrying are some recent high-profile deals that seemed to spotlight the frothy state of biotechnology transactions. Lexington's Synageva BioPharma Corp., a little-known drug company targeting rare diseases, was purchased last month for $8.4 billion. Just last week, an initial public stock offering raised $315 million for Axovant Sciences Inc., a New York biotech started by a hedge fund manager who paid $5 million for a dementia drug candidate abandoned by a pharmaceutical giant.
Much is at stake for Massachusetts, home to one of the largest biopharmaceutical clusters in the world. The quasi-public Massachusetts Life Sciences Center will occupy a 1,500-square-foot pavilion on the exhibition floor at the BIO convention. It will showcase the state's more than 600 life sciences companies and research organizations, with roughly 60,000 employees and a combined payroll topping $7 billion annually, according to the Massachusetts Biotechnology Council.
The trade group says Massachusetts companies have 1,400 drug candidates in their research pipelines, 13 percent of all drugs under development nationally.
Every biotech in the Bay State and beyond is chasing what consulting firm Ernst & Young calls the "Gilead effect," a reference to the Foster City, Calif., company whose sales more than doubled to $24.9 billion last year on the strength of Sovaldi, which can cure hepatitis C.
"Gilead was a bellwether for the industry," said Glen Giovannetti, the Boston-based global life sciences leader at Ernst. "It produced a product that cured most people, which is phenomenal. It was the most significant launch in the history of the industry. That was a signal to the market, and investors poured in."
Indeed, in a report set to be released Monday at the BIO convention, Ernst calculates that biotechs in the United States and Europe raised a record $54.3 billion in capital last year while profits for US companies surged 231 percent, to a record $14.9 billion.
Among other financial highlights, the stock market value of publicly traded biopharma companies globally surpassed $1 trillion for the first time.
But despite promising drugs expected to enter the market in the coming years to treat everything from cholesterol to cystic fibrosis to a range of cancers, it is far from clear whether other companies can follow the Gilead playbook. That will depend partly on their success in advancing drug candidates effective and safe enough to win regulatory approval. But companies must also sell the drugs at prices that patients and insurance companies can manage, while earning profits big enough to satisfy investors they count upon to bankroll development programs.
The slowdown in the number of IPOs may only mean the industry is pausing to digest and reallocate all the money that has flowed in since the start of 2013, said Giovannetti.
On the other hand, "There's also a feeling that this won't go on forever. It's not like you're going to go from euphoria to doom and gloom. But I think we may be off the peak," Giovannetti said.
Investment capital is considered critical to companies' ability to move their internal drug programs forward and their ability to buy drug programs through mergers or acquisitions of smaller companies.
"This is a business where the fuel is cash," said Matthew K. Hudes, the US managing principal for biotechnology at consulting firm Deloitte in San Francisco. "And if investments run dry, the industry could suffer."
Despite the cyclical nature of financial markets, Padlock's Gilman said the science behind the biotechnology industry continues to advance, offering hope for more groundbreaking therapies — if they can be priced in a way that reflects their value to patients.
"There have been breakthroughs," Gilman said, citing new precision medicines that act against cancers and other diseases by targeting genetic mutations. "We're starting to break the code of cancer. We've actually gotten a lot better at turning new science into medicines for people. I don't think that changes the market psychology, but it could put a floor" on a market downturn.
Genzyme senior vice president Richard Peters, who heads its rare diseases business, said the real lesson from Gilead's experience is that drug companies have to aim higher by avoiding drugs that provide only incremental benefits or treat symptoms but not the underlying disease.
"We have to raise the bar of innovation," said Peters, who will lead a BIO discussion on pushing forward drug development for rare diseases. "Our drugs have to have a huge transformational effect."