Eyeing profits in genomics

Six years after the mapping of the human genome, biotech firms founded to harness this knowledge have yet to come out ahead

Friday, Aug. 18, 2006

Click here to enlarge this photo Photo illustration byDan Gross⁄The Gazette;Rendering of anthrax genome couresy of the Institute for Genomic Research; Eye image courtesy of SXC.hu Researchers at Maryland’s genomics companies, such as this one at Celera Genomics of Rockville, have turned their attention to developing other uses, such as diagnostics, for genome data. Click here to enlarge this photo David S. Spence⁄The Gazette Brian Feild (left), associate scientist, and Tao He, associate director, use a mass spectrometer in the proteomics laboratory at Celera Genomics in Rockville. Click here to enlarge this photo David S. Spence⁄The Gazette

Now, six years after researchers completed mapping the human genome, these high-profile companies founded in the 1990s have yet to show a profit. And few genomics companies — none in Maryland — have marketed any genome-derived products.

The companies that survived after the funding bubble burst several years ago have largely reinvented themselves, turning to more conventional drug development or applying genomics to another bioscience field, diagnostics.

Celera Genomics Inc. of Rockville, for example, is developing tests for patients at risk of developing heart disease, breast cancer and other illnesses. Human Genome Sciences, another Rockville company, whose name is synonymous with the genomics boom, recently announced it is working with pharma giant Novartis on a potential half-billion-dollar deal for developing and commercializing its experimental drug albuferon for chronic hepatitis C.

‘‘We found that selling [human genome] data was not a long-term proposal, because it was a finite data source of only 25,000 to 30,000 genes,” said David Speechly, a Celera spokesman.

‘‘Also we were in competition with the public agency that was giving it away for free,” Speechly said, referring to the Human Genome Project managed by the National Institutes of Health in Bethesda.

‘‘So you really have to have some justification for why someone would pay you for information they can access for free,” said Sharon R. Seiler, an analyst with Punk, Ziegel & Co. in New York.

It’s not just private money that was pumped into the genomics field, either.

Gene Logic Inc. of Gaithersburg and Avalon Pharmaceuticals Inc. of Germantown have both received state funding. The state invested $500,000 in Gene Logic in the mid-1990s and got back $17 million after the company went public in 1997, as it raised $24 million with its initial public offering, and $20 million in private funding, said Elizabeth R. Good, managing director of venture capital for the state Department of Business and Economic Development.

Montgomery County helped the four companies with site locations. In the late ’90s, it lured Gene Logic from Howard County with $198 million, requiring the company to move its 45 jobs to the county and add 95 more, said David Edgerley, director of the county’s department of economic development. In 2001, the company fell 36 jobs short of the goal and made a partial repayment, he said.

At the height of the funding boom in 2000, Celera — founded by genomics pioneer J. Craig Venter — raised $900 million in a public offering and topped $1 billion in cash with additional funding the same month. In the same period, Human Genome Sciences raised $1.5 billion in public funding. Overall, HGS has amassed more than $4 billion in public offerings, bonds and venture capital, said spokesman Jerry Parrott.

But in recent years, ‘‘pure genomics” has gone cold for venture capitalists, Good acknowledged.

Since 2001, many genomics startups have stumbled, said Patrick Huddie, an analyst with Evergreen Capital LLC who cited the example of Psychiatric Genomics Inc. of Gaithersburg. The company, which tried to use genomics to develop drugs to treat mental illnesses, raised $17 million in 2002. Shortly thereafter, it went belly up because of a weakened economy, said former CEO Richard Chipkin.

General misunderstanding

In the beginning — say, a decade ago — genomics companies started out to either sell genome data and analysis or to ‘‘mine” the data for drug discovery.

The public misunderstood the promise of genomics, Speechly said. Many thought that scientists were discovering that single genes were controlling disease, which would quickly lead to treatments.

‘‘That is not even vaguely true,” Speechly said. ‘‘For the great majority of diseases it is hugely complicated. So from a public perspective, getting to genomics treatments has not been so fast.”

Instead, the genomics survivors have used their pools of cash to transform themselves — in Celera’s case, four times — into more conventional drug and medical-device development companies, sometimes partnering with big pharma.

Celera now focuses on developing genome-based diagnostic tools that can home in on ‘‘constellations” of five to 10 genes that put people at risk for certain diseases. The most advanced work, Speechly said, is on developing tests for patients at risk for heart disease, breast cancer and psoriasis as a condition of hepatitis C, plus identifying stroke patients who can tolerate certain drugs.

In January, Celera Genomics more formally entered the diagnostics field when its parent, Applera of Norwalk, Conn., restructured its Celera Diagnostics joint venture in Alameda, Calif. Celera Diagnostics, formed in 2001, was held equally by two Applera divisions: Celera Genomics Group and Applied Biosystems Group of Foster City, Calif. Celera Genomics bought out Applied Biosystems’ interest in the diagnostics division.

The move was necessary to please investors, Speechly said at the time.

‘‘Last year our diagnostics business had phenomenal growth of 30 percent in user sales,” Speechly said in January. ‘‘That business developed enormously at Celera, and the drug discovery was costing us a lot of money. Cash flow was too high, said our investors.”

Shifts at Gene Logic

Gene Logic recently reported that revenue for its genomics division, once its driving force, would be ‘‘significantly lower” than expected for 2006 and the company withdrew guidance for the year.

Contracts and subscriptions with biotech and pharma companies have slowed for Gene Logic’s gene-expression and toxicogenomics databases, said CEO Mark D. Gessler, adding that the company will complete a ‘‘thorough review” of the division by the end of September. The company is cutting 80 of its 430 jobs in the division and related administrative staff.

‘‘We are never happy to see any of our companies lay off 80 people,” DBED’s Good said, ‘‘but maybe they will be replaced by 80 others they can hire in the other parts of the company.”

Spokesman Chris Culotta said last week that the company will rely more on revenues from its other genomics services and pre-clinical data for drug development, plus its drug repositioning work, in which the company works with pharmaceutical companies to find new possible treatment uses for existing drug candidates that have failed to get Food and Drug Administration approval. Gene Logic is working on repositioning drugs from Pfizer of New York, Roche of Switzerland, Millennium Pharmaceuticals Inc. of Cambridge, Mass., and Organon USA of Roseland, N.J.

At least one analyst isn’t too impressed.

‘‘OK, Gene Logic provides software for mining the data and they analyze data from Affymetrix,” said Un Kwon, an analyst with Infinium Capital Corp. in Chicago, referring to a California biotech. ‘‘But, it is still speculative. It is very hard to get visibility into what pharma is really thinking.”

When it comes to genomics, there’s information, and then there’s useful information, Huddie said.

‘‘Many people thought that knowing the genome would give you information that would be of immediate value,” Huddie said. ‘‘That is not necessarily enough. You need biological functional data for a genome, what does it relate to in the physiology of the body.

‘‘One company created with this idea that you need functional genomics was Avalon,” he said.

Avalon was founded by former Human Genome Sciences executive Kenneth Carter and others in 1999, when the blush was still on the genomics investment rose.

The company, with 43 full-time employees, uses its patented suite of gene-expression technologies to develop small-molecule cancer therapeutics. The company entered clinical trials this year for the first time with its lead product, AVN944, on patients with blood-related cancers.

Avalon also signed collaborative agreements this year with MedImmune Inc. of Gaithersburg and with ChemDiv, just last month. ChemDiv will help Avalon with medicinal chemistry analysis with three of its oncology programs.

‘Transformation,’ no profits

Human Genome Sciences, which built a large genomics database in the mid-1990s to help provide novel cures for a host of diseases, still has no products on the market and has yet to show a profit.

In June, president and CEO H. Thomas Watkins announced that HGS had morphed into a drug-marketing company, at least in principle. HGS signed a partnership agreement with Novartis of Basel, Switzerland, that could eventually bring HGS $507.5 million in milestone payments for developing and commercializing its experimental drug albuferon for chronic hepatitis C.

Watkins called the agreement ‘‘a strategic move” in transforming HGS from a discovery-based company ‘‘into the development⁄commercialization-focused company that we are today and in the future.”

But Edward Tenthoff, a biotech analyst with Piper Jaffray, cautioned that the deal could backfire and discredit HGS if further trials fail to meet expectations, following failures of the first two HGS drugs that failed in phase 2 trials earlier this decade.

HGS may be close to marketing a drug to treat deadly anthrax.

Two weeks after announcing the Novartis deal, HGS agreed to sell 20,000 doses of its anthrax drug, still being tested, to the federal government for $165 million.

Tests on the drug, called ABthrax, have shown efficacy in multiple preclinical studies in laboratory animals and, in a phase 1 clinical trial, 105 healthy adults tolerated it safely.

But HGS is still proceeding with what would be its first genome-derived drug: LymphoStat-B, now entering phase 3 trials, a potential treatment for lupus.