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Green Genes



Companies, Investors See a Profitable Future for the Products of Genetic Research

When the final results of the Human Genome Project became public last year, it was big news in biotechnology centers such as San Diego, fueling interest in companies that were commercializing the discipline of genomics.

Orange County, while possessing an active medical device industry and a few large pharmaceutical companies, hasn’t yet achieved prominence as a genomics center. Nonetheless, there is a sprinkling of companies here with relationships to genomics, or the science of deciphering genes to understand and stop disease. They include medical labs like Quest Diagnostics Inc.’s Nichols Institute near San Juan Capistrano and Irvine-based US Labs; Oncotech Inc., Tustin cancer diagnostics company; NeoGene Technologies, an Irvine company that’s working on drug discovery platforms using human genes; and Beckman Coulter Inc., the Fullerton-based company that manufactures biomedical testing instruments and systems.

Genomics may eventually have a large effect on America’s pharmaceutical industry because it is expected to lead to the development of drugs that are specifically targeted to fight various diseases.

The human genetic code itself is massive,containing 30,000 genes and the blueprints for some 100,000 proteins. Analysts have predicted that it could lead to the commercialization of some 6,500 gene- and protein-based testing assays and new sources of profits for medical laboratories.

Several types of companies fall under the genomics umbrella.

Technology providers build equipment, such as DNA chips, in order to test specific regions of DNA. For instance, RNature Inc., a subsidiary of Hitachi Chemical Inc. in Irvine, develops technology platforms and automated tools for gene expression and functional genomics analysis. Information providers develop software and databases for cataloging and analyzing genes.

Other categories include genomics-enabled research providers, which specifically examine human genes in collaboration with pharmaceutical and biotechnology companies and genomics-enabled drug developers, which use information to help develop pharmaceuticals.

Genomics, which is still in an evolutionary stage, is also considered a precursor to an era of personalized medicine, where tests can predict a person’s predilection for diseases and determine the best course of therapy. If that turns out to be the case, Nichols Institute could be considered a literal testing ground for the coming era.

Nichols, which employs around 1,400 people in Orange County, concentrates on highly specialized, complex tests that give doctors in-depth clues about certain cancers, hepatitis C and the HIV virus.

“Genomics is our fastest-growing businesses,” said Gary Samuels, a Quest spokesman, earlier this year. Gene-related testing accounted for $225 million of Quest’s $3.4 billion in revenue last year and is growing at a 25% annual rate, according to Samuels.

“The industry is evolving with the genome. That’s where Nichols comes into play,” said Bob Parente, an analyst with Leerink Swann & Co., a Boston investment bank.

Laboratory providers, however, have a challenge relating to genomics,convincing parsimonious insurance companies and healthcare providers of the benefits of advanced testing. Analysts estimate that gene-based diagnostic tests could cost hundreds of dollars per person, while a routine blood test or Pap smear might cost $10 to $40.

Moves toward gene-based testing are expected to benefit Quest and rival Laboratory Corporation of America Holdings of Burlington, N.C., said David Lewis, an analyst with Thomas Weisel Partners LLC in San Francisco. In a research report, Lewis estimated that the $1 billion yearly gene testing market was growing at a 30% to 50% annual clip.

Also, smaller companies, such as US Labs, Irvine, are expected to profit from the emergence of genomics. US Labs, which recently received $9.5 million of venture and debt financing in two separate deals, plans to use its new funds to expand its gene-based testing efforts.

“There’s a revolution going on,” said Michael Danzi, US Labs’ chief executive, speaking of genomics.

Industry sources have estimated that privately held US Labs has annual revenue of more than $20 million, and Danzi has said that the company experienced a 38% growth rate from February to March. US Labs, as a result of its growth, is relocating to a new building near John Wayne Airport. The company, founded in 1996, provides screening, diagnostic and prognostic cancer testing services to hospitals, physicians’ offices, surgery centers, biopharmaceutical companies and research institutions.

At Oncotech, genomic technology allows the company to gain more information about cancer and “relate that information in a manner to help us create new diagnostics and therapies,” said Frank Kiesner, the company’s chief executive. Among other things, Oncotech uses genetic technology to identify patients who may be at high risk or in a difficult diagnostic category, he said.

Laboratories that are involved in genomics-related testing are in need of equipment, and that’s where Beckman comes in. Beckman’s products for genomics companies include DNA sequencers, machines for protein analysis and equipment for cellomics, a related science that involves cell study, said Jay Steffenhagen, the company’s vice president of corporate development and strategic planning.

“We’re excited about the area, the pathway to genomics, proteomics (protein study) and cellomics,” Steffenhagen said, noting that Beckman expects genome-related testing eventually to become part of routine patient care.

Meanwhile, NeoGene Technologies, a two-year-old subsidiary of NeoTherapeutics Inc. of Irvine, is approaching genomics from the drug-discovery end, said Olivier Civelli, the company’s chief scientist.

NeoGene, Civelli said, is working with so-called G-protein-coupled-receptors, which direct human physiological functions, and that could lead to the development of future drugs.

“There are about 300 of these that are really of interest to (pharmaceutical companies). We are looking at 140 receptors,” Civelli said. Eventually, NeoGene plans to go to other drug companies and promote its research as a way to develop new treatments.

NeoGene already has made some inroads with Big Pharma, signing a licensing deal with New York-based Pfizer Inc., the maker of Viagra and other drugs, in March. Pfizer is using an orphan receptor identified by NeoGene for drug development, NeoGene will receive an initial payment and milestone payments for any potential products.

“We are a boutique company,” said Martyn Gunning, NeoGene’s director of licensing and corporate development. “Pfizer is a very strong company and they see something of great value” in affiliating with NeoGene, he said.

Much of NeoGene’s work is done out of laboratories close to the Gottschalk Medical Plaza at the University of California, Irvine, through a joint venture agreement. Civelli, besides his NeoGene duties, is a pharmacology professor at UCI. NeoGene also has some well-known backing,it received a $2 million investment from Societe Generale, the French banking giant, this year.

Orange County’s also had some degree of genomic involvement from a venture capital standpoint. For example, Oxford Bioscience Partners is active in early-stage life-science investing “and has had quite a few hit companies, especially in the areas of genomics and gene-driven companies,” according to Ned Olivier, an Oxford general partner that works out of the firm’s Costa Mesa office.

Olivier also said, however, that Orange County has yet to reach its potential as a life-sciences hub in all categories of companies, not just genomics. He noted that concentration and coordination are needed to bring the OC-Los Angeles area up to the life-sciences pace set by San Diego and the Bay area. n

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