By Maggie Shiels in California's Silicon Valley

Silicon Valley's hi-tech industry may be languishing in the doldrums, but the seeds of the next boom have already been planted.

Many industry observers believe that biotechnology will lead the next revolution, transforming the way drugs are developed and leading to fundamental breakthroughs in medical treatment and research.

The most bullish study comes from the California Healthcare Institute and PricewaterhouseCoopers, which says that the thriving biotech cluster in South San Francisco is still expanding operations and adding new employees and facilities.

According to the report's author, Tracy Lefteroff, the region's biotech industry is worth $4.1bn. It employs more than 225,000 people and is expected to grow significantly over the next two years as new pharmaceuticals and medical technologies move from the lab to the patient.

Biotech companies with product in their pipeline are commanding premiums in the market place

Tracy Lefteroff, PricewaterhouseCoopers

Mr Lefteroff says the boom is easy to explain.

"If you look at the worldwide demographics, you will see we are aging globally. Look at the first world countries and you can see there is a lot of investment going on in anticipating the demand for healthcare products.

"The fact is you might not buy the latest hi-tech gadget, but if you have a health problem you are going to spend the money to help find a cure or other product to combat that problem."

New wave of technology

Backing the upbeat message is a report from Joint Venture: Silicon Valley Network, which represents business and civic leaders.

Biotechnology seeks to harness our understanding of genes

It says that four major waves of technology innovation have shaped the Valley since World War II, and that the key innovations occurred during the bust periods, including development of the personal computer and the internet.

Biotechnology, the survey says, is the new new thing.

Further proof that the life sciences sector certainly seems to be in the strongest financial shape in its 25-year history comes from Venture Wire.

It says of the 286 funds created last year, 23 were exclusively investing in biotechnology, medical devices, health care and related technology.

The Bay Area Bioscience Centre, which is a non-profit organisation raising awareness about the industry, declares this "the biotech century."

The Centre's president, Sue Markland Day, agrees.

"South San Francisco is home to the world�s biggest biotech cluster. It runs on its own track and we are seeing a conservative growth of between 5% and 12%. Some of the companies are looking at 28% growth and we don't expect that to slow down as the future goes forward."

Change of strategy

For a company like Celera, which won the race to sequence the human genome, the future is one that has to be grasped quickly, according to Bill Newell.

"I think the notion that mapping the human genome represents a pot of gold is probably not the way we view it. That's a first step and we are a long way from taking that knowledge to where you have a drug on the market," he says.

Tracy Lefteroff: Biotech boom on the way

The company's decision to move away from its database business, which have not been as profitable as hoped, to developing drugs is seen as a wise one by industry watchers.

Celera's main emphasis will be on cancer drugs and , through recent acquisitions, therapies for osteoporosis and auto-immune disorders.

Tracy Lefteroff from PricewaterhouseCoopers says the success of any life sciences organisation is in drug development.

"The true key right now is that biotech companies with product in their pipeline are commanding premiums in the market place," he says.

Geraldine Cruz, from the financial analyst group Gartner, agrees, but adds a word of caution for investors looking for a quick kill.

"Some parts of the industry are vibrant, like those with product in their pipeline and on the shelves. Others are more volatile as they go through the long process of testing their drugs and awaiting approval before they can go to market. Investors have to be in this for the long haul."