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Tuesday, 30 May, 2000, 16:06 GMT 17:06 UK
Making money from the genome
NY exchange
Exploiting the human genome is big business
Only the big dipper of internet stocks has given investors as many ups and downs as biotechnology.

But whilst the biotech industry is older and wiser than the upstart start-ups on the net, the sequencing of the human genome means in many ways that the ride is just beginning.

"For the last century biotech has worked on a total of 450 biological targets for drugs," says Erica Whittaker, European biotechnology analyst at Merrill Lynch. "But genomics will provide a further 5,000 - that is a huge opportunity.

"Biotech was classed with general technology stocks but the hype around the human genome project is warranted. We have been an erect species for 500,000 years but this is the first time we will have all the content our genetic information."

So away from the frantic rumouring of the biotech stock chat rooms, who is going to make money, and how?

According to analysts, the safest bets are the hardware companies. Genetic analysis is not going to go away and so the people making the machinery have a long-term market. These include Affymetrix and PE Biosystems.

Blockbuster products

But however rosy their outlook, hardware does not harbour the chance of the exponential growth that comes with a blockbuster drug.

US Biotechnology Industry
Market capitalisation
1999 - $97bn
1994 - $94bn
1999 - $13bn
1994 - $7bn
1999 - 153,000
1994 - 97,000
1999 - 1283
1994 - 1272
Deriving pharmaceuticals from the genome is far from straightforward, but there are plenty of companies trying. The industry giants such as Smithkline Beecham, Eli Lilly and Glaxo Wellcome are all there but it is the newer, smaller groups which are making the running.

Genentech, Human Genome Sciences (HGS), Millennium Pharmaceuticals and Isis Pharmaceuticals are among those trying to turn the rambling code of life into profitable treatments for disease.

"HGS and Millennium already have drugs in the clinic," says Erica Whittaker. "And if they get a blockbuster product they are going to do very well."

In between the hardware companies and the drug companies are the "software" companies - those firms who collect and start to interpret the data.

Gene therapy

Craig Venter's Celera Genomics is the most prominent of these - in February it raised $1bn in a day on the New York Stock Exchange. But Incyte and DoubleTwist are both creating commercial databases for sale to drug companies.

One of the key things they can do to add value to the raw data is make preliminary identification of genes. This can be done by looking for the RNA molecules which genes copy their instructions on to, or, increasingly by using computer software which looks for DNA sequences that resemble known genes.

The drug companies take up this information to determine which genes are implicated in which disease and are therefore biological targets.

Even the field of gene therapy, much troubled by adverse publicity, has received welcome recent boosts with news of successes.

The French-based company Aventis has said that it will have its first gene therapy product on the market by about 2004.

Soft money

But despite the apparent wide-open spaces of opportunity ahead, some analysts believe there will be a further shakeout in the biotechnology industry.

For example, in Germany, lots of soft money has been pumped into start-up biotech companies, in the form of matching funds from the government.

This has stimulated the creation of over 100 small companies. But many will run out of money before they are far enough forward with their research to float on the stock markets.

Another less happy area will be patent disputes. There has been considerable controversy over the awarding of patents for gene sequences and it is not clear what the future holds.

What is clear is that such disputes are expensive. Nine years ago, the University of California accused Genentech of infringing a patent held by the university for a sequence of DNA relating to a human growth hormone.

Legal fees

The case was only settled after five visits to the US Court of Appeals, three trips to the US Supreme Court, 1,000 days of deposition and a mistrial.

Genentech agreed to pay the University of California $200m - the largest settlement ever in the field of biotechnology patents.

And Affymetrix filed a complaint against Incyte in 1998 over alleged infringement of patents relating to technology which detects gene expression.

In turn, Incyte have filed a patent infringement suit against Gene Logic. Still unsettled, millions of dollars have already been spent on legal costs for these cases.

So, whilst the prospects for the biotechnology industry overall look bright, it seems the sun may also shine on lawyers too.

By BBC News Online's Dr Damian Carrington

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14 Mar 00 | Business
Biotech stocks plunge