Following the biotech sector is never dull, and 2007 was no exception to the rule. Genentech (NYSE:DNA), for example, retained its status as the leading biopharma by market cap, but it posted a lackluster year, thanks to regulatory woes with its Avastin compound. And No. 2 biopharma Amgen (NASDAQ:AMGN) suffered similar problems with its anemia-treating drugs. Yet thanks to the performance of a host of midsized biopharmas, the Nasdaq Biotech Index and the AMEX Biotech Index actually managed to finish the year with a gain, even after the Nasdaq index fluctuated from as much as 14% down to 7% up.

That's the way things go in the biotech world. Let's review what else happened in 2007.

Some baby biotechs grow up, and others bomb
Spectacular successes and large blowups both marked the year in biopharma. Stalwarts Millennium Pharmaceuticals (NASDAQ:MLNM) and ImClone Systems (NASDAQ:IMCL) experienced a resurgence, thanks to positive data on their lead drugs, while PDL Biopharma took a huge step back. It all came down to the data, just as it always does with biotech stocks.

ImClone's success in 2007 was the most striking. ImClone ended 2006 without a leader, taking a pounding from down lawsuits over the patents protecting Erbitux. Many onlookers, including me, were predicting a tough year for the drugmaker, especially with Amgen's competing colorectal EGFR inhibitor Vectibix just entering the market at the tail end of 2006.

But ImClone surprised everyone. It brought in a new CEO. It vanquished concerns over future sales growth with strong Erbitux data that will probably lead to an approval for treating lung cancer. It found the Vectibix competitive worries to be overblown. It settled the most serious lawsuits. And it advanced its pipeline nicely. The company was pretty much successful on almost all fronts, and ImClone's share-price gains this year prove it.

Unlike Millennium and ImClone, PDL BioPharma didn't have a good year. Its lead drug Nuvion failed in phase 2/3 testing as a treatment for late-stage ulcerative colitis. Its CEO got the ax after a drawn-out drama with hedge funds and other investors. And it's still looking for a buyer, since nobody has stepped up with an offer.

Other notable biotech stories this year included Dendreon's (NASDAQ:DNDN) failure to get FDA approval for its prostate-cancer treatment, Provenge, and Pfizer's utter marketing failure on inhalable insulin drug Exubera.

Drumming up a buying frenzy
In addition to the deals and collaborations we're used to seeing in this sector, hedge funds and activist investors such as Carl Icahn and Third Point's Daniel Loeb mixed it up in the biotech sector more than ever during 2007.

Icahn, for example, tried to orchestrate big-pharma interest in biotech. Sometimes, the results were positive, such as with AstraZeneca's $15 billion buyout of MedImmune. But other times, the results weren't as pretty, such as in Icahn's recent failure to help find a buyer for Stock Advisor selection Biogen Idec.

Investors also got to watch large-cap pharmas and biotechs make several multibillion-dollar biotech bets, including Celgene's $2.9 billion buyout of Pharmion, Schering-Plough's $14 billion acquisition of Organon BioSciences, and the closing of Merck KGaA's merger with Serono.

On the collaboration front, AstraZeneca and many of the other big pharmas jumped on the RNAi technology wagon, following Merck's (NYSE:MRK) $1.1 billion acquisition of Sirna Therapeutics in 2006.

When regulators and lawmakers attack
The FDA served up its annual dose of unexpected regulatory decisions. The Dendreon caper provided the biggest FDA fireworks in 2007, but there were plenty of other stories to follow in the world of regulations and regulators.

For one, in finally passing the new PDUFA regulations, Congress gave the FDA several new mandates, including a renewed focus on safety and more power to enforce phase 4 post-approval clinical studies.  

Congress also came close but couldn't agree on regulations that would have made approval easier for generic biologics (or biosimilars, as they are more accurately known). Drugmakers such as Momenta Pharmaceuticals (NASDAQ:MNTA) will probably feel the consequences of this Congressional non-decision for a while.

Meet the new year ...
Biotech has a particularly frenetic and exciting 2007. The sector kicks off 2008 with the JPMorgan health-care conference next week, and with all of the regulatory decisions coming up, the year ahead promises to be just as lively as the year we're leaving behind.

Millennium and Momenta are both active picks of our Rule Breakers newsletter service. You can check out all of our other recommendations with a 30-day free trial.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Pfizer is a recommendation of Inside Value. The Fool has an A-plus disclosure policy.