San Francisco Chronicle - Monday, October 29, 2001
Tom Abate, Chronicle Staff Writer

"There's a whole generation of biotech firms in Northern California that are rounding the corner toward profitability and getting significant products on the market," said Alex Zisson, senior biotech analyst with J.P. Morgan H&Q. Gilead exemplifies that next wave. Founded in 1987, the company went public in 1992. Around that time, Gilead scientists began experimenting with what would become Viread. They studied the drug in animals before starting human clinical trials in 1996.

By then, first-generation AIDS drugs had already helped patients get HIV infections under control. But the disease wasn't licked.

"It's a molecular battle between HIV and the pharmaceutical companies," said Gilead Vice President John Milligan. "The virus sees what we throw at it and it fights back."

But Viread will throw HIV a new curve. The virus copies itself by grabbing chemical building blocks out of infected cells and stringing these blocks together. "Think about toy trains with a hitch in the front and a hitch in the back," Milligan said.

Viread resembles those chemicals. But it only has a hitch at one end. "The virus gets fooled into thinking it's a building block when it's a dead end," Milligan said. .

LONG ROAD TO PROFIT

But creating new medicines is only a part of the biotech battle. Achieving profitability involves years of planning to create the sales force and manufacturing operations needed to take the product from the lab to patients. Two years before government regulators approved the drug, Gilead was so sure it had a winner that it acquired a Colorado biotech firm that had an international sales force. Now Gilead won't have to surrender any profits to buy promotional assistance from one of the drug companies, a trap that often befalls young biotech firms.

"We're unlike many of the first-generation companies in that we decided to go into Europe early," Milligan said. "Genentech still doesn't do that and Amgen is just beginning."

Other Bay Area biotech companies are also demonstrating the scientific and commercial acumen needed to succeed.

Sunnyvale's Scios recently won approval for Natrecor, a new heart medicine and its first drug in 20 years. While it took Scios far longer than usual to get a drug on the market, the company was savvy enough to create its own sales force to sell Natrecor, avoiding the revenue split that prevents shareholders from realizing the full value of a new medicine.

Behind Genentech and Chiron, which broke into the black years ago, a select group of Bay Area biotech companies have survived the experimental stage and evolved into profitability in recent years.

South San Francisco's Cor Therapeutics broke the profit barrier thanks to Integrilin, a treatment for cardiovascular disease. Foster City's Applied Biosystems Group is another of the region's biotech profitmakers -- and industry leaders. Applied makes the DNA sequencing machines that allowed scientists to unravel the human genome years ahead of schedule. Palo Alto's Genencor is another money-making biotech firm. A Genentech spin- off, it uses biotechnology to create the sort of industrial enzymes that help detergents get out those greasy stains. Genencor competes with Novozymes Biotech in Davis. .

THE NEXT STAGE

Beyond these few profitable firms, a larger number of Bay Area biotech companies are nearing the end of the long development cycles that make this industry a marathon.

"There's a whole tier of companies that could make it over the next two or three years," said Jim McCamant, an analyst for San Francisco's Moors & Cabot Technology Research. "These are companies with compounds in late stage clinical trials or technology platforms that lead the industry." The Peninsula is the heartland of these late-stage biotech hopefuls. In San Carlos, Inhale Therapeutics is trying to nail down the last nagging safety issues so it can win U.S. Food & Drug Administration approval for an inhalable version of insulin that would give diabetics an alternative to the needle. In a similar fashion, Mountain View's Aviron is trying to address FDA concerns in hopes of getting approval soon to sell FluMist, a vaccine that can be administered as a nasal spray.

Switching to a different research track, Foster City's Cell Genesys is testing medicines that involve gene therapy. Biotech scientists have been trying for more than a decade to devise ways to take a gene, deliver it into a patient's bod and activate it for some medical purpose.

Progress has been slow and gene therapy remains an experimental field, but McCamant said Cell Genesys is slowly amassing the efficacy and safety proof the FDA requires to approve a new medicine. Last week, for instance, the company reported encouraging results from a Phase II study of a gene therapy treatment for prostate cancer.

"They still have to go through Phase III studies, but good Phase II results are where investors start to pay attention," McCamant said. .

FROM FUTURISTIC TO MAINSTAY

One of the biggest medical and financial success in recent biotech history has been the development of antibody medicines. Our immune systems rely on naturally produced antibodies to fight disease. Biotech scientists spent more than 20 years trying to design and produce antibodies that would target specific diseases.

Once again, Genentech was the pioneer that proved antibodies were safe and effective when it won FDA approval in 1997 to sell Rituxan, a treatment for non-Hodgkin's lymphoma. A year later, Genentech obtained FDA clearance for a second antibody medicine, Herceptin, to treat one of the deadliest forms of breast cancer.

Five years after Genentech paved the way, antibodies have become one of the biotech industry's mainstay products. Two Fremont firms, Abgenix and Protein Design Labs, are in the forefront of antibody development by working with other biotech firms to create antibodies for specific illnesses. Antibody therapy may also prove useful in countering bioterror. Abgenix is working with the Department of Defense on possible antibody treatments for smallpox, Ebola virus and other potential threats.

BRANCHING OUT

While some Bay Area biotech firms concentrate on creating medicines based on proven approaches like antibodies, others aspire to blaze new therapeutic trails. In Richmond, Onyx Pharmaceuticals is pursuing a Phase III, or end stage, study of a novel anti-cancer treatment.

Onyx has created a virus that only replicates inside tumor cells. Once inside a tumor cell, however, the virus reproduces uncontrollably. In earlier studies the Onyx virus kept on making copies of itself until it exploded the tumor cells from the inside out. It's a promising approach, conceptually as simple as overfilling a water balloon until it bursts. But until Onyx wins FDA certification, it remains a speculative and experimental approach. One of the biggest currents to sweep biotechnology in recent years has been the effort to map the human genome. Palo Alto's Incyte Genomics was one of the earliest gene discovery firms. Most pharmaceutical companies subscribe to its gene database, which they use to generate leads for new drugs.. However, Incyte recently trimmed more than a third of its workforce in a bid to restore profitability.

Other Bay Area firms have carved out different gene discovery niches. South San Francisco's Exelixis is a leader in comparative genomics. Humans have a high opinion of themselves, but at a molecular level, they share many of the same genes and proteins as fish and fruit flies. Exelixis exploits these comparisons to come up with clues to the causes of human disease. If a particular, gene abnormality affects, say, a fish's heart, there's a good chance that there is a corresponding human gene that also plays a role in heart development or disease.

Deltagen Inc. takes a different approach to comparative genomics. The Redwood City company alters mice by adding or removing genes and observing resulting physiological or behavioral changes. Mice are a favorite tool in drug research; scientists use them to mimic human diseases or predict human reaction to potential drugs. Deltagen is creating genetically altered mice on a large scale to hunt for disease-causing genes. .

MIXED WITH SILICON

Bay Area companies have also fused biotechnology with electronics technology to create new tools to analyze and manipulate DNA, proteins and the other molecules of life.

Santa Clara's Affymetrix is a pioneer in making "gene chips," slivers of glass or other materials embossed with fragments of known genes. Scientists use the chips to figure out which genes are active in a tissue sample. They place a drop of sample on the chip. The active genes in the sample are grabbed by matching fragments on the chip. These matches are disclosed when the chip is placed in an electronic detector.

Two Mountain View firms, Aclara Biosciences and Caliper Technologies, are rivals in the effort to perform experiments using a drop of liquid placed on a single chip.

Another Mountain View firm, Ciphergen Biosystems, is developing devices to automate the identification of unknown proteins. Across the Bay in Hayward, privately held Zyomyx is working on doing protein identification on a chip. And so it goes, with biotech companies around the Bay Area studying the complex mechanisms of life, health and disease. Discoveries spawn startups. This spring, Alameda's Genteric unveiled a patented technology for putting insulin genes into a pill. Gene therapy experts were stunned. Conventional wisdom held that our digestive juices broke down any DNA we swallowed. Is Genteric on track to creating gene therapy pills? Check back in a decade. .

THE BIOTECH BREWERY

The Bay Area biotech industry remains a paradox. On the one hand, it's maturing, getting serious about products and profits. It has to -- shareholders demand it. Yet, at the same time, curious scientists continue to find financial backing to run risky experiments that can run for years, even decades.

Larry Grill, vice president for research at Large Scale Biology in Vacaville, is pursuing a hunch that could solve one of the biotech industry's fundamental problems: how to grow biotech medicines quickly and economically. Today, the state of the art in biotech manufacturing is represented by the Genentech facility in Vacaville, where medicines are brewed in giant stainless steel vats in a process that looks a lot like beer fermentation -- only with cleanliness standards of the highest order.

The process is a modern marvel, but the facilities cost tens of millions of dollars and can take years to build. Since the early '90s, Grill has been trying to show that biotech medicines can be grown in plants.

His concept sounds simple. It begins with a virus that infects tobacco plants. Grill has engineered the virus to carry an extra gene -- a gene that creates a desired medicinal protein. (For more on this, see story on Page X8.) In theory, by brushing a bit of the altered virus onto the plant, Grill can turn the plant into a protein factory. The virus hijacks the plant's cells and forces them to produce the desired protein. Large Scale Biology has shown that it can use the virus to create plants that produce a harmless fluorescent protein. But that's merely a parlor trick. .

CUSTOMIZED MEDICINES

The acid test is under way now. Large Scale Biology is growing a medicinal protein that Stanford professor Ron Levy has been producing in his lab to treat non-Hodgkin's lymphoma. What makes the treatment unusual is that Levy tailors each batch of protein to each patient. Current techniques can't do custom manufacturing economically.

"It (now) takes up to a year to get enough protein to treat a patient," Grill said. He believes that 400 plants, brushed with the altered virus, could grow enough sufficient protein for a treatment in about 10 days. This spring, Large Scale Biology began a Phase I clinical trial.

"We'll get some safety and some efficacy data in Spring 2002," Grill said. Only time will tell if Grill's experiment will prove to be a low-cost technique for growing biotech medicines or just another of the many dead ends that make this such a tough industry for those who work in it, invest in it or await its products. This is an experimental field, and experiments often fail.

But given the breadth, the quantity and quality of the Bay Area's biotech innovators, the odds favor that the best is yet to come.

E-mail Tom Abate at tabate@sfchronicle.com.

THE INDUSTRY'S EPICENTER

The area around Genentech's South San Francisco headquarters remains the world's strongest concentration of biotech firms. During the past 25 years, industry pioneers like Genentech and Emeryville's Chiron Corp. have inspired many new firms throughout Northern California. By most measures, the Bay Area remains the world leader in biotech. But other regions are copying its success.

-- Distribution of jobs

11.6% - Wholesale trade 15.3% - Academic research 31.5% - Biopharmaceuticals 39.2% - Medical devices, Instruments and diagnostics 2.2% - Lab services -- -- --

Bay Area biotech profile (1998) - Biomedical companies: 747 - Reported worldwide revenues: $8 billion - Direct employment: 84,819 - Reported private investment in research and development: $1.6 billion - Exports: $1.4 billion-- Wages and salaries paid: $5.6 billion - NIH grants awarded: $608 million

-- -- --

Spin-off companies from academia

Stanford 64 UC Berkeley 32 UC Davis 11 UC San Francisco 56 UC Santa Cruz 2 Lawrence Livermore Nat'l. Lab. 5 -- -- -- --

Health care technology exports Total Biopharma- Surgical and Lab ceuticals medical equipment instruments '89 $477 $95 $135 $247 '93 $800 $131 $202 $467 '98 $1.4(x) $393 $404 $568 '10 $2.3(x) $883 $795 $631 (projected)

x=billions --

BAY AREA BIOTECH UNIVERSE (2001)

1. Stanford 2. UC Berkeley 3. UC Davis 4. UC San Francisco 5. UC Santa Cruz 6. Lawrence Livermore Nat'l. Lab.

SAMPLING OF Market capitalization LOCAL COMPANIES as of 10/26/01 7. Gilead Sciences, Foster City $6.4 billion 8. Large Scale Biology Corp., Vacaville 86 million 9. Genentech, South San Francisco and Vacaville 29.6 billion 10 Chiron Corp., Emeryville 10 billion 11. Cor Therapeutics, South San Francisco 1.35 billion 12. Scios, Sunnyvale 1.09 billion 13. Abgenix, Fremont 2.71 billion 14. Protein Design Labs, Fremont 3.19 billion 15. Cell Genesys, Foster City 637 million 16. Onyx Pharmaceuticals, Richmond 96 million 17. Genteric, Alameda not listed 18. Applied Biosystems, Foster City 6.41 billion 19. Affymetrix, Santa Clara 1.83 billion 20. Incyte Genomics, Palo Alto 1.07 billion 21. Novozymes Biotech, Davis not listed 22. Genencor, Palo Alto 692 million 23. Aclara, Mountain View 182 million 24. Caliper Technologies, Mountain View 329 million 25. Ciphergen Biosystems, Fremont 98.4 million 26. Exelixis, South San Francisco 635 million 27. Deltagen, Redwood City 276 million 28. Inhale Therapeutic System, San Carlos 1.06 billion 29. Aviron, Mountain View 1.13 billion 30. Zyomyx, Hayward not listed

Sources: UC BioSTAR Project; UCSF web site; Stanford University Office of Medical Development; Lawrence Berkeley National Laboratory; California Healthcare Institute, Employment Development Dept., 1998; U.S. Department of Commerce

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