From Proteins to Profits
DECEMBER 26, 2002
NEWSMAKER Q&A:TECHNOLOGY
From Proteins to Profits
Former Bayer CEO David Ebsworth explains how he intends to restore Oxford GlycoSciences' luster with biotech investors
Three years ago, investors were agog over genomics stocks. Oxford GlycoSciences (OGSI ), created by biochemists at England's Oxford University, emerged as the leader in proteomics, a field of genomics-based drug research.
Proteomics is the study of human proteins, the building blocks of life -- and the culprits behind diseases. Oxford was arguably the first to tackle proteomics on a large scale. By understanding the tens of thousands of proteins in the body and the millions of interactions among them, researchers can better devise ways to treat disease. The biggest drugmakers quickly partnered with Oxford. Pfizer (PFE ), GlaxoSmithKline (GSK ), and Merck (MRK ) all bought its technology. In 1999 and 2000, Oxford raised more than $230 million in the stock market, becoming one of the hottest genomics companies in a burgeoning industry.
Then, in mid-2000, investors realized that genomics companies didn't have strong enough business models. Companies such as Oxford, Human Genome Sciences (HGSI ), and Celera Genomics (CRA ) were able to sell their technology, but not at a profit. They also would need to develop drugs themselves if they ever expected real earnings. Since then, genomics stocks have plummeted, Oxford's being no exception. Says Stephen Bent, biotech expert and lawyer for Washington, D.C., law firm Foley & Lardner: "Companies that cast themselves as genomics or proteomics businesses have had to turn themselves inside out, basically, to avoid a drought."
Now, the former chief of one of the world's largest pharmaceutical companies is trying to resurrect Oxford. Some six months ago, the board hired a new CEO, Dr. David Ebsworth, who used to run the worldwide pharmaceuticals operations of Bayer (BAY ), the German drug and chemical giant. Ebsworth has wasted no time in implementing changes. He has hired new management and broadened Oxford's focus to proteomics, cancer research, and a niche drug market known as "glyco-lipid storage disorders." The goal: profitability within three years.
Still, Oxford is far from healthy. It has a market cap of only $138 million, with the stock down 77% from a one-year high. (Oxford is listed only on the European exchanges, but in the U.S., it trades as depository receipts that have fallen in value from $11 to $2.50 in the last year.) In the first half of 2002, Oxford reported a loss of $31.25 million on $9.3 million in revenues, vs. a loss of $11.5 million on revenues of $13.9 million in the year-earlier period. Yet it has the benefit of $240 million in cash -- more than almost any small-cap biotech company -- to help Ebsworth in his turnaround quest.
BusinessWeek Online Reporter David Shook sat down with Ebsworth on Dec. 18 in New York to discuss the changes at Oxford and the future of proteomics. Edited excerpts of their conversation follow:
Q: What role does proteomics play in discovering potential drugs?
A: The proteins we study come from human tissue. We compare diseased tissue and healthy tissue, and look for systematic patterns in the proteins of diseased tissue. We may find that certain proteins always are present in high concentrations in diseased tissue, whereas they're not prevalent in healthy cells. This allows us to hypothesize which proteins may be involved in a disease. This is a crucial step in identifying new drugs.
Q: What makes you a leader in proteomics?
A: We have built what I would call the best industrialized proteomics facility in the world. There are various ways of splitting up proteins, which is done to help us identify [and classify] them. And we have a proprietary software system that tells us which proteins are known and which are newly discovered. So, for example, we're doing contract work for Pfizer, GlaxoSmithKline, and Bayer, among others. It might be fee-for-service, in which Glaxo hands us 200 tissue samples and asks us to analyze them.... With Bayer, we're studying asthma.
Another way proteomics works is that we might try looking at which potential drug compounds might be toxic to the liver. If you can predict for liver toxicity -- one of the biggest reasons drug compounds fail -- early on, then you know whether you should further develop an investigational drug or drop it.
Q: How many proteins are in humans?
A: We're actually building a "protein atlas" through a subsidiary. Our scientists are having a healthy philosophical debate about the actual number of human proteins. But I've heard them talking about something on the order of 28,000.
But remember, there are millions of interactions among all these proteins. A lot of processes in the body happen in more than one place. That's a big reason why drugs have side effects. The drug may work in one area, but it may also do something undesirably to proteins in another area. So one of the things proteomics tries to do is to prove the specificity of a drug compound on a specific target or action in the body.
Q: Many other companies are using proteomics. How is your work unique?
A: A number of companies are using technology that's probably in violation of our intellectual property.... We're in discussions, saying to them, "Please pay us a royalty." I would characterize these talks as our general counsel talking to theirs. This isn't to the point of formal litigation.
Q: Investors want to see biotech companies put real drugs on the market. Where does Oxford stand?
A: We have one drug on the market in Europe, and that makes us one of the few companies from the Genomics Era that has put a drug on the market. Our drug Zavesca, which is used to treat Type 1 Gaucher disease, has been approved in Europe. It has not been approved in the U.S. as we had hoped. We're working with the U.S. Food & Drug Administration and hope to have the drug on the market in the near future as a secondary treatment for Gaucher, after producing more clinical evidence of the drug's effectiveness.
Q: What is Gaucher disease?
A: It's one of many glyco-lipid storage disorders. These are very serious, but rare, genetic disorders in which the body doesn't produce enough of an enzyme that's responsible for flushing out waste cells. There are a whole host of these inherited storage diseases. In many cases, there's no therapy at all. Because many of these diseases have only a few hundred or a few thousand potential patients worldwide, this is a true niche marketplace that the big pharmaceutical companies have largely ignored.
Q: Can these drugs can be profitable with so few patients?
A: Most of the therapies we're developing for these disorders could be classified as orphan drugs -- drugs for extremely rare diseases. And there are laws that allow us to charge prices for these drugs that would enable our company to generate a real return on our investment. Genzyme, for example, has a drug for Gaucher disease that generates $600 million in annual revenues.
Q: Cancer, on the other hand, is a much larger market. Is that why you've made it one of your areas of concentration?
A: Cancer is a huge market -- probably $26 billion market as far as industrywide therapeutic sales. It's also very competitive, and yet there's so much unmet medical need. We feel that our background in proteomics gives us a strong start in oncology. We plan to have our first cancer drug in human clinical trials in 2003.
Q: What other financial or clinical objectives have you set?
A: We plan to make our proteomics unit profitable in 2003 and to have the company profitable by 2005. And we're reducing our spending from about $66 million annually to roughly $50 million next year by canceling certain research programs unrelated to our three areas of concentration.
Edited by Patricia O'Connell
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