Dollars for DNA
Biotech finally seems near to living up to its hype
Say the word biotech and most people think of high-risk start-up companies searching for wonder drugs. Well, think again. Consider these three business developments last week:
DuPont decided there was more money to be made in genes than in oil. The industrial giant announced Monday that it would sell up to 20 percent of its $22 billion Conoco subsidiary and plow the proceeds into its life-sciences businesses, which use biotechnology to develop genetically engineered crops, new drugs, and innovative methods for manufacturing chemicals.
The same day, Monsanto Co. moved still further from its origins as a chemical company and into a biotech future by buying DeKalb Genetics and the Delta & Pine Land Co. The two seed producers had previously been partners with Monsanto in producing genetically engineered crops.
Finally, Perkin-Elmer, a manufacturer of scientific instruments with $1.4 billion in sales, announced that it wouldn't wait around for the federal government to unravel the mysteries of human DNA. In a joint venture with J. Craig Venter, who heads the nonprofit Institute for Genomic Research (TIGR), Perkin-Elmer is forming a new company that it hopes will be able to decode the entire human genome by 2001. If the new company, which doesn't yet have a name, meets its deadline, it will beat the $3 billion federally funded Human Genome Project, which is engaged in the same task, by four years. Such an achievement would allow the company to earn enormous profits by selling exclusive information about how human genes work and can be manipulated.
After years of hype and overpromising, biotechnology is becoming part of the day-to-day business of industrial America, and the potential profits are huge. One measure of that potential is the premiums that companies are paying to buy into biotech. In gradually shedding Conoco, DuPont is divesting itself of a division that provided nearly half of its $45 billion in revenues in 1997. Monsanto paid $2.3 billion for DeKalb, a corn and soybean seed producer, or $100 a share, which was fully three times DeKalb's share price in February. Losing out in a bidding war for DeKalb was rival Novartis, a Swiss company with similar drug, agriculture, and chemical businesses. DeKalb's final price reflects projections by biotech analysts that worldwide sales of agricultural biotechnology alone will reach more than $300 billion in the next 10 years.
"Biotech is as pervasive in the life sciences as the transistor is in the information sciences," says W. Leigh Thompson, head of Profound Quality Resources, a biotech consulting firm in Charleston, S.C. "It is going to totally transform life on this planet in one generation."
Improving nature. Pronouncements like Thompson's don't sound at all hyperbolic to Monsanto's Robert Shapiro, who saw genes in the company's future when he became chief executive in 1995. Shapiro began accelerating Monsanto's transformation from a stolid chemical producer to a cutting-edge bioengineering outfit. He sold Monsanto's chemical business and went on a shopping spree to build up the company's agricultural biotech sector. One of the first purchases was Calgene, which had a technology for creating low-fat soybeans and corn. The company's latest purchases of DeKalb and the Delta & Pine Land Co., which cost a combined $4.2 billion, bring Shapiro's total tab to $6.7 billion. Wall Street isn't complaining, though. Monsanto's stock price rose to 56 1/8 by the end of the week, up nearly $3.
Monsanto has focused on bioengineering agricultural products that improve so-called input traits, which are characteristics that make crops and livestock easier and more economical to grow. The company's improvements on nature, however, haven't always been flawless. Its first bioengineered product, Posilac, a hormone that boosts a cow's milk production, ran into trouble when it was launched in 1994 because it increased udder infections in dairy herds. And consumers weren't eager to buy milk that contained even trace amounts of a hormone that many feared could be harmful. After losing money for several years, Posilac broke even in 1996 and has been profitable since.
The company hopes for greater returns with its Roundup Ready line of soybean, canola, and cotton seeds. These seeds are resistant to Monsanto's own herbicide, Roundup, which is the world's biggest-selling weedkiller. Making crops that are resistant to Roundup will allow farmers to use the herbicide not only before planting but also after the seeds have sprouted. The company is hoping sales of the new seeds, which will command a premium, can offset losses expected when Roundup goes off patent in the United States in 2000.
Super soybeans. DuPont, by contrast, is emphasizing so-called output traits, which are characteristics that make crops healthier, more productive, or tastier. Two years ago, the company bought a 20 percent stake in Pioneer Hi-Bred International, the largest seed manufacturer in the world and a well-established user of biotechnology. DuPont's collaboration with Pioneer has already yielded a bioengineered soybean that's lower in saturated fat. Coming next is a new version of corn and soybeans that will make it easier for livestock to extract phosphorus from their food, thus eliminating the need for farmers to give them supplements. Also in the works are feed corn and soybeans containing more high-quality protein. When fed to livestock, these products will result in cheaper meat that is lower in fat.
DuPont has made a commitment to use biotechnology to make cleaner--perhaps even cheaper--chemicals. Such chemicals could replace oil as the source of raw materials for products like nylon and plastics. Company biologists have also bioengineered a plant that can absorb and break down oil in dirt contaminated, for example, by a spill from an underground tank. DuPont researchers have even spliced a gene from a spider into a bacterium that produces a polymer similar to the spider's web. The polymer could one day be spun into fabric like nylon. "This is not the world of science fiction 10 years down the road; this is now," says Kurt Landgraf, executive vice president for life sciences at DuPont.
At the heart of all these biotech marvels are genes, and that's where outfits like Perkin-Elmer's new venture come in. Called genomics companies, such businesses focus on finding genes, understanding what they do, and selling the information to somebody who wants to exploit it. In the past five years, dozens of genomics firms have sprouted up around the country to supply big drug companies, little biotech start-ups, and agriculture manufacturers with the raw information they need to be able to bioengineer their new products.
Companies are willing to pay top dollar for the information. Pioneer entered a $16 million deal with a genomics company called Human Genome Sciences, in Rockville, Md., in an effort to sequence all 80,000 genes that serve as the blueprint for corn. With that blueprint in hand, says Rick McConnell, director of research at Pioneer, "We can see exactly which genes control productivity and boost it. If farmers make more money with our products, then we are going to be around for a long time." If Perkin-Elmer's new venture delivers on its promise to sequence the entire human genome in three years--and even competitors are betting it can--it will accelerate the pace at which drug companies can transform genes into dollars.
Gene hunting. The Perkin-Elmer start-up will be run by TIGR's Venter, a molecular biologist with a track record of innovative techniques for gene hunting. Venter and Tony White, Perkin-Elmer's chief executive, plan to industrialize the process of sequencing human DNA using a battery of more than 200 high-speed machines specially manufactured for the project, slashing the price of decoding DNA to a tenth of what it is today. The pair expects to make money practically from the start, by putting their raw data on the Internet in monthly or quarterly installments and charging academic scientists a small fee to use it. Venter and White will charge a premium to drug companies for more complete information about the 100 to 300 genes that are likely to be important in human diseases. "We have no debt. We can write a check for this whole venture," says White. "We have a great business opportunity." Once they have finished the human genome, he says, they will begin sequencing the DNA of other organisms such as livestock and crops.
What's next? Look for genes in Silicon Valley, where DNA may one day serve the same purpose that silicon chips do today. Motorola is exploring the possibility of letting the four chemical units that make up DNA carry digital information that is now represented by on and off switches inside a computer, and academic labs have built crude DNA computers that can perform a few simple calculations. If this was the century of the chip, the next will be the century of the gene.
This story appears in the May 25, 1998 print edition of U.S. News & World Report.