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PART ONE DNA and The New Biotechnology Defined as the use of living organisms to make products for human use, biotechnology has been around for millennia. As far back as 6000 BCE, yeasts were used to make beer in Sumeria and Babylonia. By 4000 BCE, Egypt had learned how to use yeast to bake leavened bread. In China, yogurt was produced when lactic acid bacteria was used in the preservation of milk. Cheese production by molds and the use of acetic acid bacteria to make vinegar were also biotechnologies employed very early. Modern biotechnology is a new industry that uses plant and animal cells and microorganisms to produce goods and medicines. It is sometimes defined as the use of recombinant DNA, or genetic engineering. It combines the scientific disciplines of biology, chemistry, biochemistry, cell and molecular biology, genetics, chemical and process engineering, and computer science. The new era of biotechnology had its origins in 1953 with the discovery of the structure of DNA by James Watson and Francis Crick, who won the 1962 Nobel Prize for Physiology and Medicine (along with Maurice Wilkens, whose X-ray diffraction studies with Rosalind Franklin contributed to the discovery). Crick and Watson proposed the double helix model for DNA, deoxyribonucleic acid, a nucleic acid that encodes the genetic information found in most organisms. Today, we can say that the discovery of the DNA structure is as important to biology as the discovery of the atom was to physics. Understanding the structure of DNA opened up unprecedented possibilities for manipulating the living cell and producing new therapies to treat, and possibly cure, human disease. The DNA molecule is a continuous sequence of four nucleotide bases- A (adenine), G (guanine), C (cytosine), and T (thymidine)- linked via a deoxyribose sugar to a phosphate molecule. Its structure consists of two strands of DNA that run in opposite directions and are complementary, such that the A's biochemically bond only with T's, and the C's only with the G's. Thus, the base sequence of each single strand can be deduced from that of its partner. The bases are spaced along each strand so that exactly ten pairs occur in the length of a full turn of the helix. The pairs are stacked flat, with 3.4 angstrom units (about one and a third hundred-millionths of an inch) and a tenth of a revolution separating a pair from the one above or below. The total information content of the human genome consists of about three billion bases of DNA sequences divided into the 30,000 segments that represent individual genes. DNA is known in its entirety as a chromosome, which resides in a membrane-bound cell nucleus. DNA is the only substance that is able to reproduce itself. When a cell divides, the double helix unzips, separating each chromosome into two discrete strands, leaving the nucleotide bases along the strands without their complements. These stands then bond with unattached molecules of A, C, G, and T that are floating in the nucleus of the cell. Thus, each parent strands forms a double helix with its complementary daughter strand. Each human cell contains an estimated 30,000 genes on 23 matched pairs of chromosomes (22 autosomes plus a pair of sex chromosomes). A gene is a segment of DNA that contains the chemical instructions that direct cells to produce proteins. The production process is known as gene expression, and the resulting proteins determine the nature and function of cells and tissues in all living organisms. A gene produces protein through a two-stage process. In the first stage, called transcription, a gene is copied by an enzyme, RNA polymerase, in the form of a RNA molecule. RNA, ribonucleic acid, has a similar chemical structure to DNA, except that it is made up of a single strand and contains U (uracil) instead of T (thymine). The second stage, called translation, is a complex process in which a ribosomal RNA (rRNA) translates the language of DNA and RNA into the amino acid language of proteins. This process became known as the "central dogma" of molecular biology: DNA makes RNA makes protein. This led to the dictum: "one gene makes one protein," which has since been revised substantially because of mounting discoveries of a variety of post-translational modifications. In 1991, Thomas Cech made the discovery of RNA molecules that are able to cut and stitch DNA fragments without the assistance of proteins. These RNA molecules were given the name ribozymes. RNA's capacity to act as an enzyme led to a dramatic shift in the view of the evolution of molecules. It is now hypothesized that the RNA molecule was the forefather of all living things on earth, and that only later in the course of evolution did it pass over the function of being the repository of genetic information to DNA, which was better suited, and transfer its catalytic function to protein molecules. The genetic code is the formula by which the nucleotide sequence in DNA determines the amino acid sequence in proteins. The four DNA bases- A, C, G, and T- are organized into triplets (codons), of which there are 64 combinations. Most triplets specify an amino acid; however, three code for stop signals. The order of codons in a gene determines the sequence of amino acids in the resulting protein. The genetic code was determined in the 1960's by scientists at the National Institute of Health led by Marshall Nirenberg, who won the Nobel Prize for this accomplishment. The genetic code is universal and is the same in viruses, bacteria, plants, animals, and humans. It is this universality that permits, for example, a bacterial cell to express a segment of human DNA that has been incorporated into its genome. It represents the technology of genetic engineering and the production of recombinant DNA. Understanding the structure of DNA became the focus of molecular biology. However, after years of research there was no practical application of the knowledge amassed. What was missing were techniques for cutting the DNA at selected sites, removing the pieces, and reconnecting them. A number of breakthroughs came in the early 1970's. Researchers found that bacteria produce enzymes called restriction nucleases, which can cut double-stranded DNA into fragments of a defined size. Different species of bacteria make restriction enzymes with different sequence specifications, and it is then relatively easy to find a restriction nuclease that will create a DNA fragment that includes a particular gene. By 1978, some 50 restriction enzymes and their cleavage sites were known. Researchers also discovered a class of enzymes called ligases that had the opposite function of restriction nucleases. They were able to tie molecules together. Finally, the world of biology was shaken by a discovery that challenged the central dogma that DNA makes RNA makes protein. In 1962, Howard Temin and David Baltimore, working independently, discovered a group of viruses, called retroviruses, that convert their RNA into a DNA form. Viruses are much smaller than bacteria. They consist of a protein coat wrapped around a core of genetic material. They can reproduce themselves only when they invade and take over living cells. Retroviruses contain RNA as their genetic material. Once inside the cell, the virus employs an enzyme, named reverse transcriptase, that is able to convert their RNA into DNA. Because of the universality of the genetic code, this enables them to deceive the host cell into producing the proteins necessary for replicating new viruses. Biotechnologists were able to use these enzymes in vitro to convert human mRNA into the complementary DNA (cDNA) sequence, which enabled the isolation of a targeted gene. These discoveries were quickly translated into the basic tools of biotechnology: reverse transcriptase to make complementary DNA from RNA, restriction enzymes to cleave DNA, terminal transferase to make the ends of the DNA molecules "sticky," ligase to stitch it together, exonuclease to degrade it, and DNA polymerase to repair it.
In 1973, the first successful experiment to recombine DNA from one organism with that of another was carried out by Herbert Boyer of the University of California, San Francisco and Stanley Cohen of Stanford University. They removed a segment of DNA from an African clawed toad and inserted it into the genome of an E. coli bacterium. They found that the toad DNA was copied and passed along as the bacterial cells divided. The search for genes began in earnest in the 1970's. In 1973 only 219 genes had been mapped, with over 70% on the X chromosome, the female sex chromosome, because it was the easiest to map. In 1977, the first human gene that encodes beta globulin, the protein chain that is missing is sickle cell anemia, was identified. The following year, the biotechnology company, Genentech Inc., announced that it had cloned the gene for human insulin. It cloned the gene for human growth factor in 1979. The principles of genetic engineering are illustrated in this simplified account of the production of recombinant human insulin. To isolate the insulin gene, human pancreas cells are examined to find the mRNA molecules that had been copied from that gene as part of the process of protein synthesis. Mixing the reverse transcriptase enzyme with human mRNA produces the complementary DNA (cDNA) sequence for the insulin gene. The next step was to insert the gene into a bacterial plasmid (a small circle of DNA) which can serve as a vector that can introduce itself readily into its bacterial host cell, E. coli. It is stitched into place using restriction endonucleases and ligating enzymes. E. coli replicates rapidly producing millions of cells (clones) containing the same human gene, which can then transcribe and translate the gene to produce the hormone insulin. Humulin (human insulin), licensed from Genentech by Eli Lilly & Company, was the first product made by recombinant DNA technology to be approved by the Food and Drug Administration (FDA) for medical use. Other products of human genes, such as growth hormone and calcitonin, are being produced by similar methods.
Monoclonal Antibodies (MAbs) , which were to play a central role in the history and development of biotechnology, were first produced in 1975 by Cesar Milstein and Georges Kohler at the Medical Research Council Laboratory of Molecular Biology in Cambridge, UK. When foreign particles- bacteria, viruses, fungi, natural and synthetic chemicals in the environment- enter the body, the immune system responds by producing antibodies. When these antibodies, which are Y-shaped molecules known as immunoglobulins, encounter an antigen that matches its detector site, the two bind in a lock and key fashion. Antibodies are made up of four chains of amino acids, two light and two heavy chains, in the form of a Y. The variable region, which consists of the two light chains, is given its name because its shape differs from one antibody to the next so that it fits only its complementary antigen. Once tagged by the antibody, the immune system moves to remove the invading cell or chemical from the body. Since each antibody is unique, researchers realized that if a single cell line could be cloned, it could have widespread applications, including screening methods for early detection of disease, production of viral and bacterial antibodies, and tumor detection and selective elimination, among others. In the 1980s, monoclonal antibodies became a major focus of the nascent biotechnology industry. Because antibodies could not be successfully maintained in vitro, a method was invented to synthesize monoclonal antibodies. It involved injecting a mouse (or rabbit) with an selected antigen, which triggers the production of an antibody. The mouse's spleen is removed and the isolated spleen cells are fused with malignant myeloma cells. The resulting hybridoma undergoes rapid proliferation while producing the specific antibody, which is separated out and cloned to produce large amounts.
Another breakthrough in biotechnology came in 1983, when Kary Mullis, working at the Cetus Corporation, one of the first biotechnology companies, invented PCR (polymerase chain reaction). PCR was a technique for large-scale production of a selected DNA or RNA sequence in vitro from a single molecule. PCR made possible the production of large amounts of biological material (clones) for research purposes. In 1993, Mullis won the Nobel Prize for this invention.
PART TWO Rise of The Biotechnology Industry In 1971, the Nixon administration declared a "War on Cancer." The hope for a cure for cancer, and other diseases, was largely due to the promising new technologies of biotechnology. By the end of the 1970's, the federal government was putting 11% of all federally-funded research and development into basic biomedical research. In 1980, the nascent biotechnology industry was given a signficant boost when the Supreme Court ruled, in a vote of 5-4, that new life forms fell under the jurisdiction of federal patent laws. Prior to this ruling it was generally held that living organisms and cells were "products of nature," and consequently not patentable. This ruling gave incentive to new companies to raise the large sums of money needed to produce new biological drugs. The patent issue remains central to the biotechnology industry. That same year, Congress passed the Patent and Trademark Amendment Act, which was designed to encourage a cooperative relationship between universities, where most basic scientific research was taking place, and industry. Cooperative Research And Development Agreements, CRADAs as they came to be known, served to spur the development of private biotechnology companies. The scientist-entrepreneur became the key figure in this new alignment. Also, venture capitalists had embraced the growing enthusiasm for the scientific and technological advances to fund a number of start-up biotechnology companies. Between 1978 and 1981, the amount of equity investment in biotechnology companies increased from $50 million to over $800 million. The story of Genentech, Inc. exemplifies the story of the start-up biotechnology company. It was founded in 1976 by a 29-year old venture capitalist, Robert Swanson, and a university scientist, Herbert Boyer, who had developed recombinant DNA technology. Genentech's name stood for GENetic ENgineering TECHnology. In the mid-1970's, Eli Lilly and Co. was the leading supplier of insulin. It was purifying the material from pig glands. Its internal projections predicted that demand for its insulin would outstrip the material Lilly could produce by 1992. So it brought together a number of researchers to consider the possibility of genetically-engineered human insulin, which set off a race to clone the human gene for insulin. In 1978, Genentech won the race and signed an alliance with Lilly. This alliance marked a milestone in launching the biotechnology industry. On October 14, 1980, Genentech's highly publicized IPO (Initial Public Offering) was the first for a biotechnology company. Within an hour after the market opened, Genentech's shares rose from $35 per share to $89, one of the biggest run-ups ever witnessed, before falling back to $70/share by the end of the day. The following year, Cetus Corporation, the first biotechnology company, founded in 1971, rode the crest of the biotech wave, making the largest IPO by a new corporation in US history, selling 5 million shares at $23 per share, and raising some $107 million. In its prospectus, however, Cetus openly declared that the company would not be profitable until 1985 at the earliest. Yet few investors considered a realistic timeline for biotech companies to bring drug candidates through the rigors of clinical trials to receive FDA marketing approval. In the next several years, over 100 biotechnology companies- most of them research boutiques- would raise over $500 million in public funds. Biotech was hot. Still, the IPO market would remain modest. For much of the 1980s, most notably the years 1983, 1986 and 1987, the average IPO raised $20 million-$30 million and left company valuations at around $100 million. Later, as the markets opened up again and more biotechnology companies went public, there was a pronounced increase in total capital raised, but not necessarily in proceeds and IPO valuations. For instance, in 1991, although a record 35 IPOs were completed, the average $30 million per company was consistent with amounts raised in the 1980s. In 1980, Amgen, Inc. (an acronym for Applied Molecular GENetics) was founded, like Genentech, by a venture capitalist. Its President and CEO was George Rathmann, who later founded ICOS Corp. Like many of the new startup biotech companies, Amgen was focused on recombinant DNA. The company came public in 1983, raising $43 million @$18/share. Over the next three months, however, Amgen's stock fell by over 50%- despite the fact that it had cloned EPO, erythropoietin, a red blood cell whose recombinant version was developed for the treatment of anemia. It was one of the first commercial proteins cloned outside of Genentech. Desperate for financing, in 1984 Amgen entered into a joint venture with Kirin Brewery of Japan. The deal had a larger significance for the nascent industry in that it revealed the considerable value that a start-up biotech could demand from a large pharmaceutical company. The agreement gave Amgen rights to the US market (for a 5% royalty to Kirin), and Kirin the rights to the Japan market (for a 5% royalty to Amgen), with the rest of the world to be resolved at a later date. Kirin's $12 million was enough to allow Amgen to continue its development program. The following year Amgen licensed to Ortho Pharmaceutical (a Johnson & Johnson subsidiary) worldwide rights to EPO, with Amgen retaining US marketing rights for kidney-dialysis patients. However, just one year after the launch of EPO in 1988, the two companies started a legal battle over the distribution of the revenue from dialysis and non-dialysis sales. The ongoing lawsuits found their culmination in 2001 in a jury decision ruling that Amgen would get the rights for the EPO successor, NESP (Novel erythropoietin stimulating protein). Like most biotech startups, Amgen was focused on a single drug. Unlike, most biotech companies, Amgen succeeded. EPOGEN (recombinant human erythropoietin) gained FDA approval in 1988. Two years later, NEUPOGEN was marketed to treat chemotherapy-induced neutropenia. In 2002, EPOGEN and NEUPOGEN accounted for over $3 billion in sales. During the 1980's, the combination of hype and hope led to great expectations for a "magic bullet" to cure hitherto incurable diseases. At center stage was a race to clone Interferon, a protein produced by cells in response to viral infection. Interferon was discovered Jean Lindenmann as far back as 1956, when it was hailed as a "viral penicillin." It quickly fell into eclipse, however, when no one could purify it or produce it in quantity. By the late 1970's, the new tools of molecular biology were able to determine that interferon was a member of the cytokine family of molecules, which act as a chemical signal sent out by the cell to alert other cells about a viral attack. In 1980, the race to clone Interferon was won by the biotechnology company, Biogen, Inc. Several months later, Genentech also cloned the gene, and within weeks was able to get the gene expressed. By 1982, Genentech had cloned 8 other interferon genes. Studies in the interferon system were to open up a vast store of knowledge in many fields- signal transduction (cell-to-cell communication), gene regulation, and carcinogenesis. Therapeutic products, however, proved illusive, and required longer development times than expected- an enduring characteristic of the biotechnology industry that has often been ignored by investors. By 1986, alpha interferon was approved by the FDA for a rare form of cancer called hairy cell carcinoma, a tiny market that hardly justified the investment. Indeed, Interferon took far longer to develop than anyone had anticipated. It would not be until 1996 that Biogen received FDA approval of its version of beta-interferon, called Avonex, for the treatment of active relapsed multiple sclerosis. Avonex, which is still Biogen's most important drug, had 1998 sales of $395 million. Today, alpha-interferon has been approved in the US for use against seven diseases, including hepatitis, genital warts, Kaposi's sarcoma, hairy cell leukemia, and malignant melanoma. Worldwide sales of all interferons is over $2.5 billion. Therapeutic monoclonal antibodies (MAbs) became the next magic bullet. With its ability to hone in on a specific antigen, monoclonal antibodies seemed ideal for diagnostics. But this would only be the beginning. These same MAbs would be leveraged into therapeutic drugs, which is where the big payoff would be. The major recombinant DNA players- Genentech, Biogen, and Cetus- showed little serious interest in monoclonal antibodies or diagnostics. Three biotech companies emerged as the leaders in the field- Genetic Systems, Hybritech, and Centocor. Unfortunately, there were problems in getting the monoclonal antibodies to work in humans. When a mouse antibody was administered to a patient it sometimes triggered an immune response. Some patients went into shock; some even died. The immune system treated the mouse antigen as a foreign substance and reacted against it. The body developed a resistance to it, which eliminated the benefit of repeated administrations. Moreover, linking a drug or isotope to a monoclonal ran into unanticipated problems. Using monoclonals as a diagnostic tool produced much better results. However, the margins were slim and the competition fierce. Biotech stocks began to fall in 1985. Many companies ran into operational difficulties. They had not been able to match the great expectations generated just a few years ago. Moreover, they needed substantial infusions of capital to keep their R&D programs running. Hitherto, the large pharmaceuticals had sat on the sidelines, taking the measure of the new biotechnology. In the fall of 1985, Eli Lilly & Co. acquired Hybritech for $300 million. The acquisition symbolized Big Pharma's validation of the potential of monoclonal antibodies. Bristol Myers quickly followed, buying Genetic Systems for $294 million. The smell of takeovers sent investors back to the biotech sector. 1986 was hailed as a new era of biotechnology! The 1980s featured a number of magic bullets, therapeutics that would cure hitherto incurable diseases, especially cancer. In the early-1980's, oncogenes became the new focus of research and development. Oncogenes, usually a gene involved in the regulation of cell division that is permanently active because it has mutated and lost its normal regulatory sequences, sometimes due to transmission of retroviruses (RNA viruses), were claimed to be the cause of cancer. A number of biotech companies were formed to pursue this avenue. When oncogenes fell into eclipse, Interleukin-2 (IL-2), another member of the cytokine family, became the new cancer breakthrough. Cetus saw its market cap double. Unfortunately, when IL-2 was brought into the clinical it proved highly toxic, with chilling side effects. The next magic bullet was Tumor Necrosis Factor (TNF), another member of the cytokine family, which plays an important role in inflammation and cancer. TNF also plays a role in sepsis, a form of shock that comes from complications of severe burns and other acute injuries. Anti-TNF drugs were expected to be a breakthrough technology. Genentech had cloned the gene in 1984. The following year a number of biotech companies brought TNF into clinical trials. The results were a disaster, giving the biotech sector a black eye. Synergen went under, and Centocor and Xoma were badly wounded. Xoma Ltd was a typical example of the problems of biotechnology companies at that time. Its two monoclonal antibody products, E5 for the treatment of sepsis, and CD5 for graft versus host disease (GVHD), both failed and were withdrawn. In retrospect, it is apparent that Xoma's technology had not been perfected. Both sepsis and GVHD proved more complicated than expected. Moreover, Xoma's monoclonal antibodies were not fully humanized, its mechanism of action was not fully understood, and its knowledge of its disease target was not perfected. In 1987, the stock market crashed. Biotech stocks fell further than the rest. Little changed for the next few years. These were hard times for the biotech sector. Just when companies were entering products into the clinic they found it difficult to raise the substantial amounts of money needed to fund their programs. Few new issues (IPOs) entered the market. Confidence picked up in late-1989, and in 1991 the biotech sector reached a peak as a handful of biotech companies were able to bring patented recombinant proteins- interleukins, interferons, and growth factors- to the market. Over the next 12 months the market quadrupled. Some 36 biotech companies issued IPOs, including Affymax, Biomatrix, COR Therapeutics, ICOS, IDEC Pharmaceuticals, ImClone Systems, MedImmune, Regeneron and Sepracor. The following year, however, the biotech sector crumbled, falling some 43% between January 31 and September. In April, the FDA rejected Centocor's monoclonal antibody, Centoxin, targeting sepsis. The stock fell from 31-1/4 to 18-1/4 in a single day, hitting a market bottom of 5-1/2. The story of Genentech, which had assumed the premier place in biotech, was typical of the ups and downs of the biotech industry. In 1982, the company had cloned tissue plasminogen factor (tPA), and in 1987, Activase (tPA) received FDA approval for acute myocardial infarction. But sales of the recombinant product proved disappointing. Meanwhile, the company had lost its focus and was distracted by commercial concerns. There was an investigation of its questionable marketing practices in promoting human growth hormone to doctors. In 1990, Roche (Basel, Switzerland) acquired over 60% ownership of Genentech, with options to buy the remainder by July 1999. That year its CEO, Kirk Raab, was dismissed, and the company lost a number of key employees, including David Goeddel its leading scientist. (Several went on to found such second-generation companies as Cell Genesys, Inc and Tularik Inc.) Nevertheless, Roche allowed Genentech to maintain its identity and it was rewarded with a number of novel and successful new products. Today, Genentech remains one of the premier biotech companies. Cetus, too, had lost its way. It was poorly managed and unable to focus on commercially viable scientific programs. In early 1991, Cetus was in financial straits after the FDA had failed to approve Interlelukin-2 for renal cancer. That year it was acquired by Chiron Corporation, a smaller biotech company. Meanwhile, the evolution in the relationship between Big Pharma and biotech continued into 1993. Boehringer Mannheim paid $20 million to acquire a 15% stake in Protein Design Labs, a monoclonal antibody company with several products in Phase III clinical trials. The deal marked the largest corporate alliance with a biotech company that did not involve a change of ownership. The year 1993 also marked the year when the Internet began to supplant biotech as the speculative sector par excellence. The biotech sector had already begun to slump the previous year, due largely to the failure to produce on its promising technologies. Gene therapy, for example, had been a big disappointment, especially when contrasted with its early promise. The earliest attempts at gene therapy were directed at curing inherited diseases caused by a faulty gene that makes the body unable to produce some essential protein or enzyme. It was hoped that gene therapy for these diseases would be developed in about five years. However, gene therapy had not worked so far, mainly because of the difficulty in getting the gene into the desired cells efficiently, having them produce enough of the needed proteins or enzymes, and maintaining the production for a sufficient time to have a therapeutic effect. In 1992, Genetics Institute and Hoffmann-La Roche agreed to co-develop a promising molecule that each had cloned and patented separately. The new magic bullet was called Interleukin-12 (IL-12). The gene is more complicated than most, being composed of two subunits located on different chromosomes, both of which must be turned on for the gene to be activated. The p35 subunit is produced by a variety of cells; the 940 subunit by B-cells and by macrophages that have been activated by spotting an infection. The following year, Genetics Institute (GI) and Hoffmann-La Roche agreed to go their separate ways. GI, which was later to be acquired by American Home Products (now Wyeth), entered IL-12 into clinical trials, which ended in failure in 1995 when 15 of 17 patients suffered severe systemic side effects. The trials were terminated. A review of the protocols revealed that the side effects were the result of the dosing regimen, but the damage was done. Antisense was another technology that offered great promise but was frustrated in early clinical trials. Many diseases occur when a pathogen or a gene defect cause a cell to make aberrant protein. The genetic code is stored in DNA in the nucleus of a cell. In order to produce protein, its instructions are carried to the protein producing region of the cell by messenger RNA (mRNA). This single-stranded mRNA is known as the "sense" strand. Anti-sense drugs consist of a mirror image sequence of DNA, an oligonucleotide, that can bind with mRNA and thus prevent the production of protein. This technology has been given the name "anti-sense." A number of start-up companies were formed in the late-1980's and early 1990's to pursue antisense technology. This technology, simple and elegant in concept, proved difficult to carry out. Ordinary DNA could not be used as a drug because it is broken down by the body's enzymes, so oligonucleotides had to be chemically modified. There were problems getting the oligonucleotides to penetrate the cells. Finally, there were problems in targeting the correct DNA sequence to make the drug efficacious. Sense strands of DNA are typically 2,000 bases in length, while anti-sense oligonucleotides are about 20 bases. Targeting the wrong complementary sequence for the oligo would not suppress the gene's activity. Hundreds of oligos had to be screened to find the right target sequence. Frustrated, several anti-sense companies, including Gilead Sciences, Inc., terminated their programs, while others shifted their resources to less risky technologies. Isis Pharmaceuticals, Inc. was one company that persisted. Yet its first drug, a treatment for the human papilloma virus that causes genital warts, had to be withdrawn from clinical trials. By 1992, investors were disillusioned once again when the biotech sector could not match the hype that had been generated. A feeling of skepticism toward biotechnology arose which remains pervasive today- despite the advances they have made in moving their pipeline through clinical trials.
Biotech Success Stories. Despite the many setbacks, many biotech companies survived and continued to lay the scientific foundation for the promising technologies of the future. Today, a number of "first generation" biotech companies have marketed breakthrough products, and are very successful, with handsome market caps : Amgen ($78 billion); Biogen ($5.5 billion); Chiron ($10 billion); Genentech ($41 billion); Genzyme ($11 billion); Gilead Sciences ($12.5 billion); Idec Pharmaceuticals ($5 billion) and MedImmune Inc.($7 billion).
Genentech had struggled without a major product until 1997, although it still earned $129 million on revenues of $1 billion. The company continued to spend large amounts of cash on R&D to build up its pipeline. It also entered into a number of collaborations with other biotech and pharmaceutical companies to spread the costs of its product development program. In 1997, its R&D efforts began to pay off when the company gained FDA approval of Rituxan, developed by IDEC Pharmaceuticals, for the treatment of non-Hodgkin's lymphoma. Sales of Rituxan, the first monoclonal antibody indicated for cancer, totaled $162.6 million in 1998. In September 1998, Genentech received FDA approval of Herceptin, the first monoclonal antibody for the treatment of breast cancer. Herceptin, which targets the 30% of breast tumors that overexpress the HER2 protein, has been hailed as the most promising treatment of breast cancer in twenty years. Other humanized monoclonal antibodies in the company's pipeline included Xolair, an anti-IgE for allergic asthma and allergic rhinitis, approved in 2003; Avastin, an anti-VEGF for cancer (Phase II), anti-CD11a for acute myocardial infarction (Phase II), and anti-CD11a for psoriasis (Phase II). During the late-1990s, Genentech's stock price had been stymied by Roche's option to acquire the remaining shares outstanding. On June 30, 1999, Roche exercised its option, paying $82.50/share. One month later, on July 23, Roche sold 22 million shares of Genentech stock at $97/share, raising nearly $2 billion. Roche's ownership was reduced to 82%. Freed from its previous constraints, the shares quickly rose 24% to $118. They later reached a high of $179.50 before falling back. Roche later filed to offer 20 million shares at a price of $143.50. During 1999, however, a darker side of Genentech was revealed. In April, the company pleaded guilty of illegally promoting, from 1985 to 1994, its growth hormone drug, Protropin, which had sales of $1.2 billion during this period. The drug was approved for the treatment of children with a rare growth disorder called hypopituitary dwarfism, but the FDA argued that drug was prescribed for children who were short but otherwise healthy. The FDA had also investigated allegations that Genentech had given kickbacks to doctors who were big prescribers, but that issue was not included in the settlement. Genentech agreed to pay $50 million, one of the largest fines paid by a pharmaceutical company. It was also the first time a pharmaceutical company was found guilty of the criminal charge of promoting a drug for uses not approved by the FDA. In the summer of 1999, a trial was held concerning a longstanding patent suit brought against the company by the University of California at San Franciso, which sought some $400 million in damages. At issue was a patent issued to Genentech in 1979 for Nutropin, its recombinant growth hormone. At the trial, Peter Seeburg, a former Genentech scientist who joined the company from UCSF, testified that he snuck into the university's labs on new year's eve of 1978 to take DNA used in research on growth hormones. Afterward, Seeburg testified, he and Genentech scientist David Goeddel falsified data in a Nature paper to cover up the origin of the samples. Genentech admitted that the molecule had been stolen from the laboratory, but claimed that the growth hormone product was the result of a different DNA sequence than the UCSF clone. The company made public its notebooks upon which its 1979 Nature publication was based. Dr Goeddel and six co-authors of the 1979 paper denied Seeburg's accusations in an unpublished letter to the editors of Nature. Genentech also raised some troubling questions about Seeburg's credibility. In June, Genentech escaped by a single vote in a 8-1 decision. Faced with a retrial, Genentech, without admitting guilt, agreed to pay UCSF $200 million to settle the patent dispute. (Seeburg, who shared $17 million of the settlement with four former colleagues from UCSF, was censored by the Max Planck Institute for Medical Research in Heidelberg, Germany, where he currently works.) CEO Arthur Levinson has managed to steer the company through these difficult times. Genentech's stock showed little effect, rising dramatically during the second half of 1999. With more innovative products on the market than any other biotech company, along with a strong pipeline, Genentech remains one of the premier biotech company in the land. Another successful biotech company is Chiron (CHIR), named for the half- human, half-horse centaur of Greek mythology. The mythical Chiron was known for his healing skills, which he passed on to Apollo's son Asclepius, the Greek god of medicine. Chiron was brought public in 1983. The company had a broad range of programs and a sense of risk-taking that resulted in its acquisition of Cetus in 1991. At the time, Wall Street did not approve and stock fell precipitously. The move was vindicated, however, in 1993 when the Cetus product, Betasaron (beta interferon), which once had failed multiple clinical trials for cancer and viral infections, was approved by the FDA for the treatment of multiple sclerosis. The following year, Novartis paid $29 per share, or $2.1 billion, for a 49.9% stake in Chiron. In 1998, Chiron, which had restructured its organization by selling off Chiron Diagnostics and Chiron Vision, had income from continuing operations of $87 million ($.48/share) on sales of $737 million. Centocor was another of the early biotech companies that struggled for years before establishing itself as a successful company. Founded in the late- 1970's, it went public in 1982, raising $21 million. Its cancer diagnostic business generated some revenues but its therapeutic programs attracted little interest. Its lead drug candidate, Centoxin, for septic shock, was a disaster. In 1992, the FDA said it would not approve Centoxin unless the company conducted another clinical trial to prove the drug's safety and efficacy. Centocor's stock plummeted. The company's market cap fell from $2 billion to less than $500 million. The company dropped Centoxin and shifted its focus to monoclonal antibodies. Its lead candidate was, ReoPro, to prevent blood clotting in patients undergoing high-risk angioplasty. Its first strategic alliance, with Eli Lilly & Co, provided Centocor with $100 million, which it used to develop ReoPro. In December 1994, ReoPro became the first monoclonal antibody approved by the FDA for a cardiovascualar indication. A second FDA approval came in 1998, for Remicade, for the treatment of Crohn's disease. That year, Centocor was acquired by Johnson & Johnson for $4.9billion.
The revolution that inaugurated traditional pharmaceuticals was chemistry-based. Discovery was based largely upon a trial and error, or in many cases, pure serendipity. The discovery of the structure of DNA in 1953 inaugurated the biotechnology era. The early biotechnology companies, exemplified by Genentech, used recombinant DNA technology to produce proteins, large molecules that were used to treat diseases caused by missing or inadequate amounts of enzymes. Today's genetic- and biological- based drug discovery is moving from serendipity to predictibility. This new knowledge-based industry holds the promise of diagnosing the molecular and cellular basis of health and disease, and treating patients on an individual basis. The stimulus for the next biotechnology revolution was the work of the international Human Genome Project (HGP). Begun in 1990, the Human Genome Project was established to identify the 3 billion chemical bases that compose what was then estimated to be the 100,000 genes that make up the human genome, to store this information in publicly available databases, and to develop tools for data analysis. The consortium included the US Department of Energy, the National Institutes of Health, the Wellcome Trust of London, and a number of universities, institutions, and private companies in the US and abroad. Researchers also studied the genetic makeup of a number of nonhuman organisms, including the common human gut bacterium, E. coli, the fruit fly, and the laboratory mouse. In 1999 the race to sequence the human genome heated up when two public companies entered the field. Celera Genomics Group (CRA), was a joint venture of Perkin-Elmer (later Applied Biosystems) and The Institute for Genomic Research (TIGR). It recruited J. Craig Ventor, a former director of TIGR and one of the founders of Human Genome Sciences, to head the company. Celera claimed that it would complete the sequencing ahead of the Human Genome Project in 2001, about two years ahead of the public venture. Ventor was a proponent of a controversial alternative sequencing method known as "whole sequence shotgunning." This methods clones a genome several times and cuts the clones into millions of bits, each containing 2,000 to 10,000 bases. Each fragment is then fed into a computer which uses a sophisticated program to reassemble the genome fragments into the 23 human chromosomes. The work was aided by the work of the Human Genome Project itself, which deposits its sequences into the publicly accessible GenBank database. To speed up the process, Perkin-Elmer unveiled a new machine for analyzing DNA. The machine, which sells for $300,000, was said to offer a 50-fold increase in productivity and a five-fold decrease in cost per unit of genetic data compared with current sequencers. Each machine can run unattended for over 24 hours once an operator spends 15 minutes loading it with gene samples. In January 2000, the company held a press conference where it announced that it has DNA sequences that cover 90% of the human genome in its database. It claimed that its database contains greater than 95% of all human genes. Needless to say, the company's shares soared over $61 (after rising more than $25 the previous day). For the year, the company's shares have gone from a low of $14 3/16/share to a high of $251/share! While Celera's challenge was greeted with skepticism, the Human Genome Project accelerated its own sequencing program. As a result of the competition, the completion of the sequencing of the human genome was completed in the spring of 2000 and announced jointly by the Human Genome Project and Celera Genomics.
The key question for genomics companies was how to add value to the genome. Indeed, many genomics companies despaired of finding an adequate business model, abandoned the field, and turned to the discovery and development of therapeutic drugs. Celera Genomics was among these companies, which also included Incyte Corporation and Hyseq, Inc., which merged with Variagenics, Inc to form Nuvelo, Inc. For biotechnology companies the most fundamental question was how to turn genetic discoveries into drugs. Human Genome Sciences (HGSI) was the first genomics company to attempt to establish itself as an integrated genomics-based drug discovery and development company. The company was founded in 1992 with William Hazeltine as CEO. Dr Hazeltine had made a name for himself at Harvard studying DNA repair. HGSI used Ventors "shotgun" technology to discover and patent many Express Sequence Tags (ESTs), short sequences of DNA that contain important genes. Dr Hazeltine claimed that the company had ESTs for 95 percent of the human genes, and that its patent portfolio will make it the gatekeeper of the entire biotechnology industry. Today, these claims appear exaggerated. In 1993, HGSI signed a $125 million deal with SmithKline Beecham (now GlaxoSmithKline) that put genomics on the map and marked a shift from an industry based upon chemistry to an industry based upon DNA. HGS gave SmithKline exclusive commercial rights to produce small molecule drugs. HGSI will receive downstream royalties of as much as 20% on any resulting SmithKline profits. The deal left HGS free to develop drugs based on proteins, gene therapy, and antisense. HGS soon developed a promising pipeline with three drug candidates in late stage clinical trials: two proteins, one to protect blood-forming cells from the toxic effects of chemotherapy, a second as a wound healing agent, and a gene to stimulate angiogenesis in diseased hearts. Today, HGS has impressive intellectual property estate, drug discovery and development capabilities, a promising pipeline, and a state-of-the art manufacturing facility.
Millennium has the goal of becoming nothing less than a major biopharmaceutical company. It has used acquisitions to establish pipeline in oncology and cardiovascular diseases. The acquisition of Leukosite brought the cancer drug Campath, a humanized monoclonal antibody which was launched in 2001 for the treatment of non-Hodgkins lymphoma. In 2001, Millennium acquired COR Therapeutics, with its anti-clotting drug Integrilin, which has so far been something of a disappointment to the company. COR also has a promising pipeline of cardiovascular drugs. One of Millenniums most promising internally developed drug candidates was LDP-341, a proteosome inhibitor known as Velcade which was approved in 2003 for multiple myeloma in record time. Velcade represents a new class of drugs with broad potential. Another genomics company, Myriad Genetics (MYGN), was founded in 1991 by Mark Skolnick, a well-known gene hunter. In 1993, the company gained widespread attention when it won the race to clone the BRAC1 gene, a tumor suppressor gene that is involved in some ten percent of all breast cancers. The Utah-based company was aided by its access to the extensive Mormon genealogical records. Myriad Genetics developed and marketed the first real product based upon genomics, a genetic-based diagnostic test for the BRAC gene mutations. The company has added to its Utah pioneer population database, the databases of French-Canadian and Sardinian populations. This gives the company more than 50,000 DNA specimens and over 20 million patient records in its genealogical databases. These databases will provide significant advantages in discovering genes that play an important role in causing major diseases. The company has also developed a powerful proteomics technology called ProNet. Finally, Myriad has used its expertise in genomics and proteomics to discover novel targets for its promising pipeline. It currently has two drug candidates in Phase II clinical trials for cancer and Alzheimers disease.
The Nasdaq Composite Index, containing mostly technology shares, soared from 500 in April 1991 to 1,000 in July 1995, surpassing 2,000 in July 1998, and finally peaking at 5,132 in March 2000. The next few years confirmed suspicions that the numbers were unreal, as the stock market set new records for declines. In the next two years, $8.5 trillion were wiped off the value of the firms on Americas stock exchange alone- an amount exceeding the annual income of every country in the world, other than the United States. Not long after the breaking of the tech stock bubble, the fortunes of the real economy went into reverse and America experienced its first recession in a decade. The first two years of the new millennium saw still more records being broken. Enron was the biggest corporate bankruptcy ever- until WorldCom came along in July 2002. Stocks fell further, faster, than they had for years- the S&P 500, which provides the best broad-gauged measure of stock market performance, had its worst annual performance for a quarter of a century. The third quarter of 2002 alone saw more than $1.6 trillion wiped off household balance sheets. The ImClone scandal, in which the companys CEO was convicted of insider trading, cast a shadow over the biotech sector throughout 2002. Between July 2000 and December 2001, the nation registered the longest decline in industrial performance since the first oil shock in the 1970s. Two million jobs were lost in a mere twelve months. The number of long-term unemployed more than doubled. The unemployment rate jumped from 3.8% to 6.0%, while some 1.3 million more Americans moved below the poverty line, and an additional 1.4 million found themselves without health insurance.
The biotech bubbles of 1984, 1987, and 1991 were typically set in motion by exciting developments in the field. The same tide that lifted the sector quickly ebbed when the new discoveries delivered disappointing results, at least in the short term. While the mapping of the human genome was an historic development and will eventually lead to a new era of medicine, the achievement had little immediate value. From the announcement of Craig Venter that is company, Celera Genomics, intended to finish the mapping of the human genome years ahead of the Human Genome Project in November 1999, the biotech sector began to move dramatically. It wasnt just Celeras stock that shot up, nor was the excitement confined to genomics companies like Celera, but it spread to the entire sector. Companies that had languished in single or low double digits for years began to rise in tandem. The collapse of the biotech bubble of 2000 was sparked by a joint statement issued by President Clinton and British Prime Minister Tony Blair which hinted at the possibility of more stringent standards for the granting of genetic patents. Behind the collapse, however, was the preceding frenzy of speculation, momentum trading, and unreasonable optimism sparked by excitement over the mapping of the human genome. Many companies had become overvalued and all paid the price. Between March and April the Biotech Index (BTK) fell nearly 90%. But the bursting of the bubble caused only a brief downturn in the overall trend as the Index rebounded and by September the BTK had approached the high achieved before the recent collapse. By the end of the year, however, the Index had begun a downward descent that continued for the next several years. The brief boom had helped many biotech companies in the United States and Europe to raise a record $19 billion in public and private financing during the first quarter of 2000. Many companies had filled their coffers at prices that have still its shares have still not reached several years later. This provided the companies with enough cash to last beyond a one- or two-year horizon- enough the help bring product in their pipelines to market.
1. Amgen,Inc. 2. Genentech, Inc. 3. Chiron Corporation 4. Genzyme General, Inc. 5. Biogen, Inc 6. Agouron Pharmaceuticals 7. Centocor, Inc. 8. Immunex Corporation 9. Nabi Pharmaceuticals 10. NeXstar Pharmaceuticals
Selected Recombinant DNA Products Produced By Biotech Companies 1982-1998 Date - Company - Product Indication 1982 - Genentech/Eli Lilly - Humulindiabetes mellitus 1985 - Genetech Protropin - human growth hormone (hGH)deficiency in children 1987 - Genentech Activase - heart attack 1990 - GenentechActimmune - Chronic granulomatous disease 1991 - Immunex (now Amgen) - Leukineautologous bone marrow transplant 1991 - AmgenNeupogen - neutropenia 1992 - Chiron Proleukin - renal cell carcinoma 1993 - Chiron/Berlex Labs Betaseron - multiple sclerosis 1993 - Genentech Pulmozyme - cystic fibrosis 1994 - Genentech Protropin - hGH deficiency in children 1994 - Genzyme Cerezyme - Gaucher disease 1995 - Savient Pharmaceucitals Biotopin hGH - deficiency in children 1997 - Biogen Avonex - multiple sclerosis 1997 - Amgen/Yamanouchi Europe - Infergen chronic hepatitis C 1998 - Genzyme Corporation - Thyrogen detection/treatment of thyroid cancer 1998 - Immunex (now Amgen) - Enbrel rheumatoid arthritis 1999 - Seragen (now Ligand Ph) Ontak - cutaneous T-cell lymphoma
Date Product Developer Type Indication 1986 Orthoclone OrthoBio (J & J) murine Mab kidney trans 1994 ReoPro Centocor, Inc chimeric Mab prev bl clt 1997 Zenapax Protein Design Labs,Inc humanized (hMAb) trsplt 1997 Rituxan IDEC Pharm/Genentechchimeric MAb cancer 1998 Synagis MedImmune,Inc hMAb rsv infection 1998 HerceptinGenentech,Inc hMAb cancer 1998 Remicade Centocor, Inc chimeric Mab Crohns dis 1998 Simulect Novartis chimeric Mab transplant
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