Biotechnology sometimes exists in a space-time continuum all it's own, with billions of dollars invested and hopeful promises made against a backdrop of products that typically take years to develop and usually fail—and markets that for three decades have swing wildly from exuberance to despair.

Every year, the peculiar physics of the industry can be felt in the annual J.P. Morgan life sciences meeting in San Francisco, always held at the St. Francis Hotel on Union Square. Old-timers still call this first and most important investor meeting of the year "H. & Q.," for the boutique investment bank that founded it, the now departed Hambecht & Quist.

The meeting long ago outgrew this space, but smashing through huge crowds and gridlocked hallways has become part of the experience one long-time attendee likened to a tribal ritual, with the hotel as the sacred hunting grounds.

The backdrop to this year's meeting: In 2007, investment surged in biotech, with more than $5 billion in venture capital committed to the sector, and more than $50 billion spent on research and development in pharma. Mergers, acquisitions and milestone-licensing deals soared, most of it fueled by Big Pharma as it continues to turn to biotech to rescue them as patents expire on blockbuster drugs and their own drug-pipelines falter.

A big one was announced here this past Monday, when Isis Pharmaceuticals revealed that Genzyme is writing a check for $175 million to partner with Isis in developing and marketing mipomersen, a drug that lowers bad cholesterol and is in late-stage clinical trials. The deal could be worth as much as $1.9 billion in potential milestone payments.

These macro-numbers for 2007 left a happy afterglow on faces waiting "under the clock," a huge timepiece hanging over the main St. Francis lobby where everyone meets to talk deals, gossip, and head off to parties.

But—and this is a huge "but" that most people here seemed to be waving off—the other big news this week for pharma is that the Food and Drug Administration approved a mere 16 new drug and two biologics, which are medicinal products like vaccines. That is the lowest number since 1983, and one-third the number of approvals annually during the 1990s. This means the country spent about $2.7 billion in research and development costs for each new successful drug.

Of course, the number of drugs approved and the amount spent on R. & D. in a given year are only loosely related. Drugs that succeeded or failed in 2007 were products of investments made over the last 10 or 15 years, while money invested in new therapies in 2007 will not translate into new drugs approved for years to come.

Still, the number of drugs out last year, and in recent years does make one take pause about the short and medium term prospects for this Industry. The dichotomy of money made and record-breaking deals and the rate of success guided several conversations I had as I navigated the packs of suits at the St. Francis.

The Investor

"The economics are terrible for biotech R. & D., and for getting a drug approved," proclaimed Richard Aldrich, a former biotech executive and now the head of RA Capital, a Boston-based hedge fund. Aldrich also sits on several boards, and helped found companies such as Sirtris, which has drugs in humans designed to treat the diseases of aging.

If the economics are so bad, why are you here? I asked.

"We have made money finding companies that are grossly under-valued," he said. "We have done well because biotech people way over react to small snags," when companies have inevitable setbacks with trials or the Food and Drug Administration. "They are too emotional," he added, believing the hype one minute, and bailing the next. His fund also shorts a basket of stocks, adding to a strategy that has worked for RA Capital, which has made a 40 percent internal rate of return since 2002.

Aldrich speaks for many investors when he says that the F.D.A. has slowed the approval process in the wake of the Vioxx recall and other drug-safety issues, a contention that the F.D.A. has denied.

The C.E.O.

"Biotech holds great promise," says Joshua Boger, C.E.O. of Boston-based Vertex Pharmaceuticals, "which we say every year." He smiles knowingly, coming from a company that after 19 years is about to enter phase 3 trials for its first independently marketed drug in the U.S.: telaprevir, a compound with a novel mechanism to shut down the virus that causes hepatitis C. Vertex also has two drugs it purchased that are already on sale, and brought in $30 million in the first three quarters of 2007.

Boger is troubled by the lack of drug approvals, he says. "But making drugs is incredibly hard, and investors have to be in it for the long haul. Many are not, and that's a problem. This is an industry still built mostly on hope, which causes a great deal of volatility—it's not for investors who can't deal with this."

The Profferer

Christopher Coborn heads up the technology transfer team at the Cleveland Clinic. He is at the J.P. Morgan meeting selling potential products developed by researchers at Cleveland. One is an Alzheimer's therapy he is a bit coy about, the other is a new cardiac stent coated with chemically treated bovine guts that he says resists clotting better than other stents.

Standing in a packed hallway near the big clock, Coburn told me that he was sensing a tinge of nervousness at the meeting given the current volatility of the stock markets and the economy in general, and the low number of drugs approved in 2007. He blames the latter on a fundamental reorganization going on with the science and technology of biotech.

"You have the human genome project and bioinformatics and other new developments that need to be absorbed. The industry is waiting for this to happen—and it will take a few more years."

The Patient Advocate

Greg Simon was chief domestic adviser to Al Gore when Gore was vice president; Simon now runs FasterCures, a non-profit group started by Michael Milken. "I'm here like to make sure that people are aware of what philanthropy in health care, and to keep a focus on patients," he said. Because lest we forget, he added, the ultimate purpose of this gathering, besides making money, is to help patients.

Simon also commented on the low rate of drug approvals, agreeing with Coburn that a fundamental shift is underway in the science of biotech. He adds that the diseases now being tackled—cancer, diabetes, obesity, and neural disorders—have proven to be more complex and difficult to understand and treat than diseases that dominated approvals in decades past. "In the '90s, most of the drugs were for heart disease," he said. "Now we're on to other diseases that we're still working out."

The meeting continues through tomorrow, with crowds thinning only slightly, along with the enthusiasm for an industry that may be short on success at the moment, but that most here seems to be willing to fund for at least another year.