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Once Promising Proteomics Market Sags

The once white-hot investment climate for proteomics has cooled, sending companies scrambling to recast themselves. Biotech analysts and investors say interest in proteomics companies peaked about a year ago with a rash of them competing in the technology and database sectors. In Europe, proteomics companies have also experienced a downturn, with biotech stocks falling 40% from their peak in 2000. Developing a new generation of technology and digitally mapping the proteome was, relatively speaki

By | April 15, 2002

The once white-hot investment climate for proteomics has cooled, sending companies scrambling to recast themselves. Biotech analysts and investors say interest in proteomics companies peaked about a year ago with a rash of them competing in the technology and database sectors. In Europe, proteomics companies have also experienced a downturn, with biotech stocks falling 40% from their peak in 2000. Developing a new generation of technology and digitally mapping the proteome was, relatively speaking, the easy part.

Investors now dismiss such technology and database products as low-profit commodities. These funders, including large drug-making corporations, increasingly turn to companies directly involved in the difficult work of finding a potential drug or bankable diagnostic product from the proteomics data. "There is always money for high-class stories," says Stephen Parker, chief financial officer of British-based Oxford GlycoSciences. "But the general climate is poor. Fortunately, OGS presently does not need to tap the market."

Other companies are also still enjoying long-term investments that allow them to hire staff and develop academic collaborations to get products ready for licensing to drug companies for large-scale clinical trials. The collaborations may give scientists freedom to explore interesting protein structures or functions without pressure to produce a blockbuster drug, says Janice Reichert, senior research fellow at the Tufts Center for the study of drug development. "They can start out with basic questions of what proteins are produced, how they interact without having to put in the equation the value of that."

The Hunger for Drugs and Dollars

Investors are still interested in an equation that equals profit. "There was a lot of hype associated with proteomics a year ago. Like a lot of things in biotech, it has a lot of promise, but the commercialization process is going to take a long time and investors tend to be fickle," says Dan DiPietro, vice president of equity research at SCO Financial Group, a New York City health care research company. "The thing confronting proteomics right now is the need for products—some sort of tangible therapeutic or diagnostic product that can be tied to advances in proteomics," he adds. "At this point there's really nothing,"

The biggest customers for biotech products are large pharmaceutical companies, which spent $1.9 billion (US) on biotech alliances with 100 private biotech firms through the third quarter of 2001, up 14% from the same period the prior year, according to Recombinant Capital, a San Francisco biotech-consulting firm. Pfizer, for example, spent $185.2 million on alliances in 2000, up from just over $80 million in 1998.

Drug companies are growing more selective, says DiPietro, but with a raft of major patent expirations scheduled to hit in the next few years they are hungry for promising results. "The companies don't want targets. They don't even want validated targets. They need drugs. They're desperate," says Cynthia Robbins-Roth, a partner in BioVenture Consultants in San Mateo, Calif. "Scientists love to know things just because they want to know them," she says. "But for clinicians, especially in today's health care environment, if that information does not generate some significant changes in how they're going to treat the patient, they can't use it."

No More Dollars in Pure Knowledge

An example of a company now focusing on development over data is none other than Celera Genomics Group, of Rockville Md., the enterprise that helped ignite the genomics craze with its human genome database. But Celera's proteomics strategy is different. "Our business model is moving from being an information and content business to being a drug discovery, therapeutic business," says Rob Bennett, director of investor relations.

In January, J. Craig Venter, known for promoting human genome mapping, retired as Celera's president and chief scientific officer; a move that reflects the company's shifting emphasis. "Our board of directors, Craig, and I all agreed that Celera's ongoing best interests would be served by making room for additional senior level management experienced in pharmaceutical discovery and development," says Tony L. White, chairman and CEO of Celera's parent, Applera Corp. White took Venter's title of president while the company looks for new executives.

When it comes to developing a promising compound, Celera would likely partner with a large pharmaceutical with clinical capacity, Bennett adds. Celera has also borrowed a move from the Big Pharma playbook. Two of its most promising products, now being developed with Merck & Co. and Aventis Corp., were obtained in an acquisition. Bennett says large pharmaceutical companies are still shopping for good proteomics companies; they are just looking under the hood before buying. "I suppose they're more selective than they were," says Bennett. "But I think that's a good thing for everybody."

Another player is Myriad Proteomics, of Salt Lake City, a $185 million venture founded by Myriad Genetics, Oracle, Hitachi, and a Swiss investment fund. The company recently moved to a new facility in Salt Lake City and expects to grow from 60 to 100 employees by the end of the year.

With heavy investment from its computer partners, Myriad began as a database developer, but is now shifting focus. "We no longer view ourselves as a company that is solely going to discover interactions and sell subscriptions," says Sudhir Sahasrabudhe, Myriad Proteomics' chief scientific officer. "Increasingly that model is not quite as popular mostly because people have difficulty linking the information with anything that will be commercially successful. Our strategy now is to go all the way to becoming a fully integrated pharmaceutical company, not a database company."

Parker says that British OGS is analyzing proteins to develop biomarkers or targets for chemical entities or monoclonal antibodies, to be developed in-house or with large pharmaceutical partners. It has collaborations on Alzheimer disease with Pfizer and with Bayer for respiratory disease.

Doug Tsao, an investment banker at SCO, says the OGS, Celera, and Myriad strategies illustrate the next buzzword: "integrated." Integrated companies blend new data with an understanding of the role of certain proteins that could pay off in drug development, he says. If they're not integrated, companies formerly known as proteomics firms, are spelling out more clearly what exactly it is they do. "We've talked to analysts on Wall Street and they're sick and tired of hearing the word 'proteomics,'" says Michael Becker, vice president and investor relations officer at Cytogen Corp., the Princeton, NJ, parent of AxCell Biosciences.

Becker says his company stopped using the term proteomics to refer to AxCell. Now the company is referred to as a signal transduction firm looking at proteins that could be linked to diseases, including Alzheimer's. AxCell will farm out much of the scientific work to academic partners. Becker also says AxCell has a critical partnership with researchers at Mount Sinai in New York, which can take promising candidates through testing in mice and rats, before seeking buyers among Big Pharma or other biotechs. "We're taking on a virtual biotechnology role where we have established collaborations with academic institutions where essentially we provide them with a subset of our database that the researcher is interested [in]," Becker explains. "It means AxCell doesn't spend money on basic research; [academic institutions are] doing the heavy lifting."

New Name Old Money Game

Whatever they decide to call themselves, proteomics companies will continue to draw interest from drug companies with money to spend and pipelines to fill, says Mark Edwards, managing director if Recombinant Capital, the San Francisco biotech consulting firm. "Proteomics today, from a deal-doing point of view, is probably closer to gene therapy than it is to gene identification," Edwards says. "It's got more to prove," he says, but biotech firms with sound intellectual property will continue to attract Big Pharma: "What's up for grabs is what the moniker on top of those successful pairings will read 'SNPs,' 'Genomics,' 'Biomarker,' or some other headline I don't have yet."

Edwards conducted an analysis of $9.2 billion in biotech deals among 100 pre-commercial firms from 1997 to third quarter 2001 and found that new technology platforms accounted for 63% of the transactions. Of that, first-generation genomics represented 35% and second-generation genomics represented for 24%.

But Edwards found the second-generation companies are gaining momentum. In third quarter 2001, second-generation genomics companies pulled ahead of first-generation companies, earning 33%, or $170 million, compared to 31%, or $161 million, of the total $518 million earned by all technology platform companies. In the second quarter, the two types of companies were tied with 32% each.

Looking back, Robbins-Roth of BioVenture Consultants says Celera and other companies were aware from the beginning of the genomics era that ultimately raw date would become a commodity. "What's happening now and will continue to be the next stage of evolution is that they're going to have to tie this back to real world biology," she says. "Proteomic and genomic data all have to be tied back to someone looking at living tissue and correlating the pathology."

Robbins-Roth says the companies have not failed, but are simply developing. "Companies evolve just like organisms evolve particularly when a new area of science is being transferred form academia to the corporate world," she says. "Somebody's got to be willing to step up to the plate and put the time and the money and the people to work to make that transition."

Susan Warner (swarner@comcast.net) is a freelance writer in Philadelphia.

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