Hoping to Clone Some Profits

By Alexander L. Taylor III

After a slow start, bioengineering products head for the market

Since its founding nearly a decade ago, the biotechnology industry has become expert at cloning genes, but it has not cloned many profits. Despite investments in research and development that have exceeded $2 billion, only a handful of marketable products have emerged from the laboratory. But 1984 may be the year when biotechnology begins to live up to its vaunted potential. A number of new products are working their way through the arduous testing process. Some of the most promising substances that researchers hope will soon reach the market: a human growth hormone that combats dwarfism, a protein that may stop heart attacks in progress, substances that diagnose sexually transmitted diseases like herpes, drugs for treating AIDS, and a form of interferon that can be used on several types of cancer.

To keep the cash flowing until their products pay off, many biotechnology companies have been looking for fresh capital infusions and alliances with big chemical and pharmaceutical manufacturers. Cytogen (fiscal 1983 revenues: $383,000), a small Princeton, N.J., firm, for example, has developed a kit for diagnosing gonorrhea. But it sold the technology to Health Care Manufacturer Becton Dickinson of Paramus, N.J., which will actually make the product.

Such arrangements can be perilous for small companies because they limit future profits. One of the first big drug firms to license gene-splicing technology was Eli Lilly (1983 sales: $3 billion). Now it has assembled its own team of scientists and is rushing to develop a hormone that stimulates milk production in cows. Says Earl B. Herr Jr., president of its research laboratories: "If you're in a horse race, you have to win. The first company in the market will grab a big share, and each guy that comes later will grab a smaller one."

One young company doing all it can to go it alone is Molecular Genetics (1983 revenues: $6.9 million). Founded by two University of Minnesota professors five years ago, it has limited entangling alliances by searching for products it can develop by itself. In December it introduced in the U.S. a treatment for scours, an often fatal diarrheal infection in newborn calves. Some 25,000 doses of the substance have already been ordered, and the firm expects that it will generate sales of more than $1 million during the first three months of 1984. Says Company President and Co-Founder Franklin Pass: "This could be the second largest medicine in the world for animal sickness after foot-and-mouth-disease vaccines."

Not every new product immediately finds a big market. In July, Eli Lilly began U.S. commercial production of synthetic human insulin. The drug, Humulin, has about the same effects as conventional insulin and costs just as much or more (about 50-c- a dose). Nonetheless, Eli Lilly still has hopes for major sales.

Genentech (est. 1983 revenues: $45 million), one of the industry founders, remains the model for other gene-splicing firms. Started in 1976, the South San Francisco firm now employs 110 Ph.D.s. This year the company hopes to put on the market a human growth hormone that is said to enable abnormally small children to develop as large as normal ones. It also s expects to have two breakthrough products in human evaluation tests:

a gamma interferon designed to inhibit the growth of cancer cells as well as stimulate the immune systerm, and tPA, a product that is said to dissolve blood clots and might stop heart attacks in progress. In the field-testing stage is an interferon that can treat respiratory diseases in cattle.

Some other industry pioneers have not fared as well. Despite revenues of $28.8 million in 1983, Berkeley-based Cetus has been foundering. "It's a beached whale," says Analyst Scott King of San Francisco's Montgomery Securities. He maintains that the company went off in too many directions and spread its resources too thin. President Robert Fildes, a former Bristol-Myers executive who took over from Peter Farley, one of the company's founders, has sharpened Cetus' research focus. It is concentrating on products with commercial applications like substances to diagnose specific kinds of cancer.

William Bowes, one of the original Cetus backers, left and founded Amgen, in Thousand Oaks, Calif., which is developing several antiviral medicines and a product to fight kidney disease. The firm's first marketplace success may come from a less exotic product, biologic indigo dye used to color blue jeans. It could cost $4 per lb., only one-third as much as the chemical indigo now on the market.

Further in the future is a spectrum of products full of bright promise. Companies like California-based Hybritech are developing highly specialized diagnostic tools known as monoclonal antibodies.

These are already used to detect pregnancies and certain viruses and may eventually diagnose an even wider range of diseases. Researchers at Amgen have created a protein in the lab called consensus interferon that is 20 times as potent as other interferons in fighting viruses. Another area of research, oncogenes, may one day help researchers understand the basic mechanisms of cancer.

Despite the first signs of success, bioengineering remains a risky industry. But the overall development looks good. Says Jennifer Byrne, a vice president of Medical Technology Fund, a Pennsylvania investment firm: "The technology is progressing faster than anyone expected."

This year medical clinics and perhaps even some drugstores should be seeing the miracle substances produced from genetic engineering. --By Alexander L. Taylor III.

Reported by J. Madeleine Nash/Chicago and Dick Thompson/San Francisco

With reporting by J. Madeleine Nash/Chicago, Dick Thompson/San Francisco