New Biotechs Take On The Chemical Pesticide Industry

SAN DIEGO—It is a rare scientist at Mycogen Corp. who makes it through the day without checking a small, hand-scribbled sign posted in the main hallway of the startup’s laboratory. The unassuming notice lists the bid, ask, and closing prices of Mycogen’s over-the-counter stock—and everyone in the company owns stock. “There are a lot of people who have a lot of money riding on what those numbers do every day” says Kathryn Nette, director of fermentation for the young company. So far the sign suggests, to paraphrase the old adage, that a closely watched stock never rises. But the scientists still have every reason to hope that they are sitting on a gold mine. Mycogen is one of the most promising of a handful of new startups conceived to apply recombinant genetics techniques to the protection of agricultural crops. Though less well-publicized—and often less well-funded—than their pharmaceutical counterparts of a decade ago, these young companies are taking on a formidable foe: the $15 billion worldwide chemical pesticide industry. In doing so, they are breaking new ground— slipping into a potentially lucrative niche that the traditional chemical companies have been reluctant to enter for fear of undercutting their own business. “We have an oppor- tunity to change a whole industry with a whole new technology” prophesies Mycogen president Jerry Caulder. Tighter Restrictions At a time when the dangers of chemical pesticides are becoming increasingly evident, such claims are being met with a great deal of interest. After several decades of use, residues from such pesticides as aldicarb and alachor are building up in groundwater and in the food supply; the EPA has tightened restrictions on the use of chemical pesticides—and completely banned many, such as DDT and chlordane; and as many as 450 major pests have already developed resistance to all major pesticides. So given that 20% of the crops produced in the United States are being destroyed by pests each year, there is a tremendous opportunity to produce new pesticides that are safe and effective. The most promising alternative is natural biotoxins—proteins produced by microorganisms commonly found in the environment that are poisonous to insects but affect neither humans nor other animals. The best known of these microorganisms is the bacterium Bacillus thuringiensis (Bt), which is found in soil. But the few pesticides that have been produced based on naturally occurring strains of Et have a serious flaw; they break down too quickly. Susceptible to the ultraviolet light of the sun, digestion by nontarget microorganisms and other enzymes found in the environment, the natural toxins just don’t last long enough to protect the crops economically or effectively. An Obvious Application Enter the wonders of biotechnology. Recombinant genetics tech- niques, many scientists saw, offered the promise of manipulating genes for agricultural purposes. And one obvious application was to build on the earlier work done in the 1960s and 1970s on biopesticides such as Bt by enhancing the genes that produce natural toxins, and then somehow delivering these toxic proteins to the crops in need of protection. The idea was fertile enough to spawn several startups, which are using a variety of techniques to combat agricultural pests (see chart on page 8). In Langhorne, Pa., for instance, five-year-old Ecogen is inducing Bt to reproduce sexually, in the hope that the natural recombination of genes will strengthen the species’ ability to produce toxic proteins. Seven yearold Hanover, Md.-based Crop Genetics, on the other hand, is inserting Et biotoxin genes into endophytes—harmless insects that live in the vascular system of plants—in the hope that the insects will make the plants toxic to real pests. Several other young companies—and even some of the more progressive large ones, like Monsanto—are now developing transgenic plants. They are inserting the toxin genes directly into the plant genome, with the result that the plant can produce the toxic proteins itself. Among the first scientists to spy the enormous potential of biological pesticides were chemical engi- neer-cum-businesaman Andrew Barnes and organic chemist-turned-venture capitalist, David Rammler. In 1982, when the two met at Stanford University, Barnes was just completing his MBA—aftar having worked for G.D. Searle. Rammler, who had served as a director of research at Syntax Corp. for 16 years, was winding up his third biotach deal as a partner in a venture capital firm, the Vanguard Group. Both were itching to start a new biotach company. The pharmaceutical biotach arena, they knew, was already overcrowded—and fraught with the regulatory pitfalls of getting products to market. So they cast their eyes on agricultural biotachnology. “The science was here and the regulatory process had been streamlined,” explains Barnes, because so many of the naturally occurring Bt toxins had already been approved for release into the environment. Having identified a niche, and with $300,000 in seed funding from the Vanguard Group, Barnes and Rammier founded Mycogen in 1982. They leased a small suite of labs in San Diego and hired a skeleton scientific staff anxious for new challenges. Kathryn Nette, for example, left American Hoechst for what she perceived as the “opportunity to really move the field for- ward, as opposed to taking three months to accomplish anything.” Nette also became one of the first scientists eligible for Mycogen’s stock option and stock purchase incentive programs, available to all employees. Two New Strains Within a year, aided by an additional $2.5 million raised in a first round of private financing, the team developed a process for surveying and screening different Et strains for high insecticidal activity. Two new strains were identified. One is active against the Colorado potato beetle—the major potato pest worldwide, and an increasing threat because of its grow- ing resistance to chemical pesticides. The other is toxic to caterpillars, like gypsy moths, that feed on vegetable plants. The scientists then isolated the bacterial genes responsible for making each of the toxins. Equipped with products and potential markets, the Mycogen team still needed a delivery system to get the biotoxins to the plants without exposing them to the degradative environmental factors. In search of such a system, the team of scientists inserted the anticaterpillar toxin gene into Pseudomonas fluorescense.,, a microorganism that lives on plants instead of in the soil like Bt. The idea was to spray the organisms over the crops, where they would live and continue producing the toxin right on the plants. But here Mycogen ran into a regulatory roadblock—the formidable restrictions on the release into the environment of genetically engineered organisms. “It was clear to us at the time that we weren’t going to be able to solve [the regulatory problem]” recalls Barnes. ‘That’s not a science issue, that’s an emotional, social, and political issue that’s going to take years to work out. And we didn’t have the money or the desire to fight those political battles.” At an apparent dead end just one year after founding the company— which by now had grown to 20 employees—Barnes recalls that he was in a meeting of the scientific staff when, in exasperation, he blurted, “So if we can’t release [the live organisms], why don’t we just kill the damn things?” The suggestion was disregarded by most of the people in the room as ridiculous— theyknew that ina dead organism the cell walls degrade and decomposition occurs very quickly. But one member of the technical staff, Sue Cummings, was intrigued with the idea. Within a couple of months, Cummings proved that the idea was practical. By using a combination of heat and chemicals, she was able to kill the organism and stabilize the cell walls without causing degradation of the biotoxin inside the cell. The fruit of her labors was a product that Mycogen dubbed “MCap” (“M” for Mycogen, “Cap” for the fact that the toxin is encapsulated in the cell wall). And the preparation neatly bypassed the restrictive regulations on live recombinant organisms because it was dead. As a result, progress was swift. In 1985 Mycogen received the EPA approval to field test MCap—the first field test license awarded for a pesticide created with recombinant DNA techniques—and the tests have confirmed that Mycogen’s proprietary delivery system is a winner. Encased in its own natural polymer “capsule” (the cell wall), the toxin lasts two to five times longer in the environment than it would otherwise. Mimicking the gelatin capsules used by the pharmaceutical industry, the cell dissolves when ingested by a pest. The toxin is then released, and the insect is killed. The MCap technology has proven effective for all three of the biotoxins it has been tested with to date—and earlier this year Mycogen received two patents on the system, which give the company broad claim to any pesticide delivery system that involves stabilization of the cell wall. Viability Although MCap will not reach market until 1990, Mycogen did receive full EPA registration earlier this year for its first product, M-One, a concentrated preparation of the Et strain effective against the Colorado potato beetle. M-One has a potential market of $10 million, Mycogen claims, although it suffers from the same degredation problems as other Bt products. But what’s most important about M-One, says Caulder, is that it proves the viability of his company’s technology. “To invent and get to market a new chemical [pesticide] takes about $80 million and seven to 10 years,” he says. “We did M-One in about three years and less than $5 million in total cost.” Still, the Mycogen staff hasn’t struck gold yet. After reaching an all-time high of 11-1/2 soon after the company went public in the summer of 1987, the stock has languished at around seven since last year’s stock market crash. And, though the company is attracting some attention on Wall Street, where several analysts are recommending Mycogen stock as promising “over the long term,” many in the field think that biopesticide startups as a group need to be better understood and leap more regulatory hurdles before they can enjoy the popularity of the pharmaceutical biotechs. “Anyone who thinks that biological pesticides can replace chemical pesticides in the next 10 to 15 years in any significant amount is crazy,” cautions Caulder. “But I think that over time we will replace a large part of the chemical pesticide business with our products. Somebody is going to create pests this way. I hope it’s us.” And so, needless to say, do his scientists watching the daily sign on their laboratory wall.

New Biotechs Take On The Chemical Pesticide Industry

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