The Race Is on for the Gene Scene
BY LISA M. KRIEGER
Mercury News
It is the Gutenberg press in this Renaissance of molecular biology, printing for mass distribution the entire contents of the human genome.
This DNA sequencing machine, a gray box the size of a small refrigerator, quickly translates and publishes the language of life -- an accomplishment that not only transforms modern medicine but gives manufacturer Perkin-Elmer Applied Biosystems the monopoly position in this galvanic field.
Conceived and assembled in Foster City, this gray box is enabling scientists to complete a draft of the human genome within the next two weeks, crossing the finish line years ahead of the initial 2005 deadline. In the coming years, it will also help them read this rough draft and comprehend what it all means as the mapping leads to a myriad of new therapies.
``Perkin-Elmer Applied Biosystems instruments dominate the market and are largely responsible for the rapid progress that has been made in the sequencing of the human genome,'' according to a report from biotech analyst Thomas Hancock of U.S. Bancorp Piper Jaffray Inc.
Much as 15th-century Europe's awakened desire for learning created a huge demand for books, the genetic revolution has created a rapidly growing market for genomic research instruments and chemicals that is currently valued at $2.7 billion worldwide, said Winton Gibbons, an analyst with William Blair & Co. It is expected to grow 22 percent a year for the next three to five years, he said.
It was this machine that scientists used to complete, for the first time, an entire human chromosome. It also identified the gene for baldness and biological clocks. It found the subspecies of chimpanzee that was the source of the AIDS epidemic. It identified the skeletal remains of an unknown American serviceman buried at Arlington National Cemetery. And it traced the origins of a $5 sample of whale meat sold in a Japanese fish market to one specific whale harpooned off the coast of Iceland in 1989.
In a field long hindered by expensive and labor-intensive procedures, PE Biosystems' newest machine has cut sequencing time 60 percent and labor costs 80 percent. Its round-the-clock automation of once-tedious tasks has been embraced not just by the giant labs working to complete the huge human genome but also by the average scientist, who can undertake more focused projects that were once off-limits due to cost and time.
``Without automation, it would have taken 30 years to do all the (human gene mapping) work, in my estimation,'' said Elaine Heron, vice president and general manager of the Applied Biosystems division of PE Biosystems. ``There weren't enough people to do it faster . . . from the beginning, we realized that automation was essential.''
A little competition
Celera created to beat Human Genome Project
PE Biosystems stepped on the gas in another way, as well, by creating a sibling company Celera (Latin for ``speed'') Genomics. Celera's mission: beat the international Human Genome Project in the race to map the human genome -- and not coincidentally, build business at the same time. Celera devised some shortcuts. The government project suddenly had competition. Deadlines quickly moved up.
Around the clock, PE Biosystems' machines churn out data in the Celera labs, turning the decade-long decoding marathon into a last-minute sprint. It is a project akin to identifying the letters of the alphabet, arranging them in correct order, then printing out copies as eloquent as Gutenberg's famed 42-line Bible.
Its machines are equally hard at work at three-fourths of all labs in the federal Human Genome Project.
Whatever the outcome of this race -- described as the biggest mission in science since putting a man on the moon -- PE Biosystems is already, in the business community, considered a winner.
Although the company does not release specific figures on the number of machines produced, analysts estimate that 40,000 labs in 100 countries rely on PE Biosystems instrumentation. In the United States, nine out of 10 university-based genetics labs use the company's equipment. When its newest and most automated machine, the 3700, was introduced in 1999, staffers worked seven days a week to fill orders for the tool, which came at a price tag of $300,000.
Over the last six years, PE Biosystems revenue has grown at about 20 percent per year. It reported $1.2 billion in sales in fiscal 1999, up from $940 million in 1998 and $767 million in 1997.
Like other biotech stocks, PE Biosystems shares have been highly volatile, spiking early this year from $30 to $40 a share to about $150 in March. Then the stock swooned, losing more than half of its value, until leveling out at the current mid-$60 range.
But because completion of genome sequencing is increasingly recognized as the beginning and not the end of the genomics revolution, the company's long-term prospects look good. Increasingly, the practice of medicine will be influenced by genetically derived data.
PE Biosystems already dominates the market in many post-genomic innovations, such as so-called ``sequence detection'' with its ABI Prism 7700 TaqMan system, used to identify a known sequence of a DNA and then measure DNA translation into proteins. Such measurements are important when evaluating the severity of disease. Its only competitor in this arena, the Light Cycler from Roche Molecular Biochemicals, uses an approach that scientists say makes integration into standard lab processes more difficult.
It has begun explorations into the next frontier in life science: proteomics. In its Proteomics Research Center in Framingham, Mass., company researchers will be able to sequence a million proteins a day -- and then study these proteins in an effort to better understand complete biological systems.
The company also dispatches more than 800 scientists and other professionals in sales, marketing, service and application support roles throughout its North American field organization -- and has an equally large international presence.
For years, the DNA part of PE Biosystems was not only a diamond in the rough, it was in danger of being buried by a mudslide.
Founded in the early 1930s by astronomy buffs Richard Perkin and Charles Elmer, Norwalk, Conn.-based Perkin Elmer had a long tradition of eclecticism -- building everything from bombsights to engine coatings.
But it had the rights to several hidden gems of bioscience, tools such as polymerase chain reaction (PCR), the process for copying DNA. The company introduced the first high-sensitivity protein sequencer in 1982, a DNA synthesizer in 1983, a protein synthesizer in 1984, and the first automated DNA sequencers in 1986.
In 1993, it bought Foster City's Applied Biosystems, a company founded by Cal Tech's revered Michael Hunkapiller after he failed to obtain outside funding for his innovation to improve sequencing.
Central to Hunkapiller's success was a premise that is routine in most factories but not biomedical instrumentation: Standardize equipment, unify the process, then churn out conforming data.
But profits at the newly merged Perkin Elmer Biosystems were being dragged down by the burden of lesser lab instruments. Struggling with high costs and undistinguished products, its earnings were unremarkable and sales were sluggish.
Tony L. White changed all that. Spurned for the top job at pharmaceutical research company Baxter International, he arrived at Perkin Elmer Biosystems in 1995 and quickly refocused the company purely on life sciences -- transforming it into the leading provider of tools and information resources for that market.
Makeover pays off
Invigorated company sets ambitious goal
Genomics, still in its infancy, was hardly a hot field at the time. But White recognized the value of its rights to polymerase chain reaction. He dumped the Perkin-Elmer name and its old instruments, selling them to the Wellesley, Mass.-based EG&G. He cut payroll. With a new image and focus, the aging relic was transformed into an Internet-era company.
The newly invigorated company set its sights on becoming the world's genome equipment company. The millions of dollars generated from the DNA-based arm of the company were re-committed to genomic research and sales.
While its sequencers fit the bill for traditional research projects, company scientists quickly realized that an ultra-fast automated instrument was needed for what Heron calls ``information factories.''
``The timing was right,'' said Heron. ``We did the calculations and saw that people were buying 30, 50, 100 of our machines (to get their projects done). We figured that was a pretty good indication that they didn't have what they needed. The (3700) was designed exactly the right way.''
By then, Human Genome Project scientists were stampeding with all the speed of a herd of turtles. PE Biosystems searched for someone to accelerate the effort -- someone who could stage not only a scientific coup but a commercial one, since it would boost interest in the new sequencer.
J. Craig Venter was that person. His new approach to gene sequencing called the ``shotgun'' method, although criticized for imprecision, was nothing if not fast. Impressed by PE Biosystems' 3700 sequencer, Venter signed on.
With Venter on board, White remade the company into a two-track business. PE Biosystems in Foster City is the DNA machine unit. Celera Genomics, based in Rockville, is its sibling and largest customer. PE Biosystems makes money; Celera, at least for now, loses it.
In a show of incredible drive, Venter and the Celera team announced April 6 that it had completed the sequencing phase of the Human Genome Project. But it still must assemble all the fragments in order to produce a completed draft of the genome by the federal government's anticipated June 15 completion date.
``If one were to set foot in any lab conducting molecular biology research in the nation, one would likely find at least one PE Biosystems instrument,'' Gibbons said.
The company has recently had to fend off criticism that the federal government overpaid millions of dollars to purchase sequencers. Federal officials, led by the Department of Health and Human Services inspector general's office, are currently investigating whether the government paid too much for its machines, saying that federal funds may have been used to develop the machine in the mid-1980s at the California Institute of Technology. Under law, the government is owed a discount on the products of federally funded research.
PE Biosystems denies any wrongdoing. ``The patents are not disputed in any court of law -- and even if they were, our revenues would not be adversely affected,'' said PE Biosystems spokesman Jay Rhodes, who added that the government already gets a discount on the technology.
Looking ahead, analyst Gibbons predicts that ``the imminent completion of the sequencing of the human genome, far from marking the end of the need for sequencing, will open the door to numerous new applications for PE Biosystems.''
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Contact Lisa M. Krieger at lkrieger@sjmercury.com or (408) 920-5565.
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