BUSINESS
Bio-Response Set To Exploit Biotechnology's Move to Market California firm, primarily a contract cell-culture producer, sees profitable role as midwife between laboratory and marketplace David Webber, C&EN New York
Cloning cells that can manufacture products with potentially important medical uses still garners most of the headlines in the biotechnology field. Analysts of the business aspects of biotechnology, however, believe that the truly pivotal technology for companies that want to make money from this young science will be the ability to culture cells on an industrial scale. In particular, they think the ability to culture mammalian cells—which can often produce a more natural form of the protein being sought than can microorganisms—will be key as biotechnology makes its transition from the laboratory to the marketplace. Bio-Response, a 13-year-old firm based in Hayward, Calif., is a leading member of a small group of contract cell-culture companies, which, along with a number of large, established drug and chemical corporations and genetic engineering firms that want to be integrated pharmaceutical operations, have developed or are working on such technology. The company believes it is positioned to play a crucial and profitable role in getting promising clones past the obstacles of production scaleup and ready for commercialization. Bio-Response considers itself the technology leader in mammalian cell culture. Its core technology, which it calls the mass culturing technique system, can be adjusted 10
July 22, 1985 C&EN
to use a wide variety of cell substrates, culture chamber configurations, and growth media and can continuously grow and harvest the products of any mammalian cell line, says Sarason D. Liebler, the company's chief executive officer. This is a telling advantage, he says, over competitors using either fermentation batch processes or different continuous systems, which he believes are less effective than Bio-Response's. In August, a group of culture chambers in the company's production facility will record their first anniversary of continuous production from one cell population, a longevity milestone Liebler thinks is unique. "The clearest advantage we have is that we have this continuousperfusion, continually running system," he says. "Can others make one? No doubt they can. We would not pretend that we have the patent coverage that would prevent people from making another form of a continuous system. But in our case, we have a combination of some
patent coverage and a tremendous level of know-how and experience. We've got as much or more experience as anyone in the culturing of a wide variety of cells. We've grown over 30 different cell lines successfully, none unsuccessfully." Some analysts agree with Liebler's assessment of his company's technology position. "I've thought for the past two years that BioResponse has the superior technology in industrial cell culture," remarks Scott King, who follows biotechnology-based companies for Montgomery Securities in San Francisco. The company's chief competitors in contract cell culture are generally considered to be Celltech and Damon Biotech, which use batch processes; Invitron, which has a continuous process; and, to a lesser extent, Charles River Biotechnical Services, which grows only monoclonal antibodies in mouse body cavities. Most of Bio-Response's revenues other than interest income so far— the company reported sales of just under a half-million dollars last
Liebler: company has tremendous level of know-how and experience
year—have come from two agreements, a production contract with Ciba-Geigy Ltd. of Switzerland and a research contract with the U.S. Department of the Army. Together, the two clients accounted for 69% of Bio-Response's sales in 1984, and Liebler expects additional work from the two in the future. For the Swiss company, for example, Bio-Response is producing a cellular protein secreted by a mammalian cell line provided by CibaGeigy. The material's identity has not been disclosed, but observers think it almost certainly is tissue plasminogen activator (TPA, a substance that dissolves blood clots in heart attack victims). Bio-Response says it will be used in clinical trials beginning this fall. Bio-Response is producing the substance under a $2 million contract, which was awarded in March and superseded an initial $550,000 purchase order placed by Ciba-Geigy a year earlier. The company is also performing joint development work on the cell line and other matters. The new contract runs for an initial period of just seven months, but continuation and expansion of the contract are anticipated, Liebler says, p e n d i n g results of clinical trials. In addition, he says, CibaGeigy has asked the company to begin preliminary planning to increase its capacity to production quantities. "In our discussions with Ciba, we have understood that they would build a plant for us at their cost and would demand that we be willing to enter into a seven- to 10-year production agreement," Liebler says. "The only thing I've demanded is that we have the right to get out of it if they don't maintain a certain market share." Although not confirming that Ciba-Geigy is the client, Liebler says that Bio-Response is engaged in improving a TPA-producing cell line and developing industrial-scale production technology for it. And although the field is already crowded—Genentech, Biogen, Integrated Genetics, and Collaborative Research are all working on plasminogen activators—Liebler doesn't consider his client's apparently late arrival as a major obstacle to gaining a
substantial share of the estimated $400 million to $1 billion global market. "We are technically behind, because Genentech has already gone to clinical trials," he remarks, "but we don't think they're ready to make it in production. We are approaching the point where we can make it in production, so the company we're working with can go through clinical trials quickly and begin producing quickly." For Bio-Response, the benefits of such a relationship could be substantial. As Liebler calculates, a U.S. TPA market of, say, $300 million would entail production costs of between $30 million and $60 million. "I would hope that we'll have $20 million of that production," he says. "That's a reasonable number for us to shoot for." For the Army, Bio-Response is working on the isolation of the best cell line for the secretion of acetylcholinesterase, a substance that may offer protection from the effects of nerve gas. The two-year contract, which commenced in February 1984, is worth about $350,000, and, if an adequate cell line is identified successfully, Bio-Response will have the right to produce the substance for its o w n p u r p o s e s . In a d d i t i o n , Liebler says the company soon will be submitting solicited proposals to the Army for two other projects related to nerve gas protection. At this stage in the company's development, Liebler says he has been worried by the narrowness of its customer base, but not overly so. For one thing, Bio-Response has been enlarging its client list, most significantly with the award last November of a two-year, minimum $600,000 contract by Eli Lilly for the production of monoclonal antibodies from a Lilly cell line. Furthermore, Liebler says the pace of talks with other firms has accelerated markedly this year. For example, he says, Bio-Response is holding advanced discussions with another major European pharmaceutical company looking for a joint development and production deal similar to the relationship with Ciba-Geigy. In addition, strong interest has been expressed by another major firm that Liebler believes has become disen-
Bio-Response technician collects proteins secreted by mammalian cells chanted with the technology of a competing contract cell-culture operation with which it is currently doing business. Liebler also sees good potential for expanding business from the work being done for the current clients. Discussions with Ciba-Geigy, he says, have touched on the possibility of Bio-Response's becoming the Swiss giant's entire mammalian cell-production arm. And the Army contract, besides giving the company rights to the substance under study, could have nonmilitary market ramifications, he says, since the relationship between nerve gas and many pesticides is close enough to suggest that antidotes to nerve gas poisoning might point the way to antidotes to human pesticide poisoning. Realization of that potential, he concedes, is far in the future. Liebler's vision of Bio-Response's expanding scope reflects the company's business plan, a three-stage strategy under which the company is envisioned moving from its contract cell-culture base into relationships in which it would get more than just production fees. The first phase, contract cell culture, is already well established, Liebler believes. Contract revenues in the first quarter of 1985 totaled $428,000, July 22, 1985 C&EN
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Business nearly as much as for all 1984, and second-quarter sales (figures have not yet been released) exceeded $1 million, he says. Montgomery's King supports Liebler's assessment. "What's exciting about this company is that it is on the verge of profitability from just its first stage," he comments. Of the next phase, Liebler says: "What we're seeing now is an ac celeration toward Bio-Response's being involved in the end product. Although I believe there will be plenty of contract production for the next five to 10 years, and al though we're not pointing ourselves in the direction of becoming a fully integrated pharmaceutical or diag nostics company, we believe one should always move toward endproduct development." Liebler says that Bio-Response's joint development work in improv ing the cell lines cultured for CibaGeigy and Lilly are already steps in that direction. He wants to go fur
ther, however, using Bio-Response's growing expertise in cell character ization—in the ability to identify which cell lines can be successfully "grown u p " to industrial scale, how stable they will be, how copiously they will produce the desired pro tein, and what it will cost to do all that—to exploit what he sees as the current commercial realities facing universities and biotechnology re search houses that want to make money from their promising clones. In Liebler's view, the days when researchers could sell clones right out of the laboratory to big phar maceutical houses and the like are fading, the consequence of too many disappointments. "The trouble was that when they got the cell line, half the time it turned out be unsta ble or low producing, or when the stuff was made, it couldn't cure hangnail," he remarks. Now, he says, large firms are offering small option payments instead until they can do their own testing. "They
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want more information, so they won't get burnt." Bio-Response's strategy to profit from this situation is twofold. First, the company is seeking cell-charac terization contracts from companies that have bought options on cell lines. Even more, however, the firm wants to intercept promising cell lines at the laboratory, offering in ventors an intermediary service in which Bio-Response characterizes the line before a buyer is sought in exchange for a share of the prod uct's ultimate earnings. "We want to get very close to people with promising cell lines and say to them, T h e more value that's added before you go to cut your deal with a drug company, the bet ter off you're going to be,' " Liebler explains. "Drug companies are just not interested in looking at a won derful clone in the palm of some body's hand. You've got to be able to test it, to know what it's going to cost you to produce." This approach is beginning to pay off, Liebler says, noting one suc cessful transaction of this type al ready. "At first there's a little reti cence about giving up or sharing their valuable clone with us, but the more we can show that we've acted as midwife to put somebody's nonproducing clone together with an interested customer, the more clout we have," he says. For Bio-Response, the value of such deals can be doubled, Liebler says. On the one hand, the compa ny drives a bargain with a universi ty or research house in which BioResponse charges nothing to cul ture the cell line but receives a share in the rights. Then the company sells a large firm a look at the characterized cell line along with an agreement that Bio-Response gets the production contract for the cell line, if the large company goes ahead with it. If the substance looks especially promising, Liebler says, Bio-Response might go so far as to negotiate a joint venture. In the midst of pursuing these routes to convert its current exper tise to cash, Bio-Response is not ne glecting its basic technology. The company is refining its cell culturing technique to reduce production costs, Liebler says, through longer
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r u n s , h i g h e r purity, a n d lower hands-on requirements. Researchers are experimenting with culturing cells on flat sheets for greater density, and Liebler believes the company is already the low-cost producer of monoclonal antibodies, turning them out, depending on the cell line, for between $150 and somewhat more than $400 per g. "We don't think anybody else can make antibodies for less than $600 to $700 per g," he says. In addition, the company is improving its cell isolation technique system, which is designed to identify high-performance cells within a large cell population. At the same time that Bio-Response's business is rapidly expanding, the company has taken steps to align its management and staff with commercial needs. Last September, Liebler, who had been chief executive from the company's inception until February 1983, returned to replace Robert F. Saydah, w h o the directors did not think was taking the correct approach to customers. Also last year, Samuel Rose, the company's chief scientist, left in response to management's decision to devote its resources to commercial needs at the expense of long-term research. In February 1985, BioResponse hired three executives with monoclonal antibodies experience from Chembiomed, a Canadian firm: Alfred Daniel, as president; Yves Fouron, as vice president for business development; and Donald Baker, as director of new product development. Total staff, in t h e meantime, has grown to 74. The company's current financial condition appears sound. At the end of 1984, cash and marketables totaled $7.3 million, current liabilities just $500,000. As Bio-Response strives not only to avoid becoming a victim of the consolidation many see coming for biotechnology companies in t h e pharmaceutical area but also to expand, the continuing requirement will be nimbleness, Liebler says, a theme to which he frequently returns. Nimbleness could take the firm to its third stage, in which it produces its own medical products, albeit probably in conjunction with a marketing partner. G
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