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GENENCOR SEEKS GREENER PASTURES Industrial enzyme maker is directing its biotechnology skills at the health care market Michael McCoy C&EN Northeast News Bureau
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or 18 years, Genencor International appeared to be a quiet joint venture that made industrial enzymes. Then, on Aug. 2, it went public, and a very different face emerged. Now, Genencor is billing itself as a global leader in biotechnology that's entering the lucrative health care business. It's going to take the high-tech tools it uses to develop enzymes and apply them to making new products for the drug and personal care markets in partnership with big pharmaceutical makers. It's an inspiring plan, but it has a catch: So far, Genencor hasn't made any of these new products. Virtually all its sales are of enzymes like proteases and cellulases used in cleaning, textile treatment, corn refining, and other industrial applications. There's no doubt that Genencor has succeeded admirably in these fields. Using sophisticated biotechnology, it has modified bacteria and fungi to express increasingly effective strains of enzymes. It has won the business of major industrial customers such as Procter & Gamble, Unilever, and Cargill and expanded its business at a double-digit rate, reaching $317 million in sales last year. But health care is a decidedly different animal than the industrial realm, with different competitors, customers, and dynamics. The challenge of repeating Genencor's enzyme success in this new market falls to executives like Michael V. Arbige, senior vice president of technology, and Debby Jo Blank, the company's new chief business officer for health care and agriculture products. Arbige and Blank admit that Genencor is trying something new, but they maintain that the new focus—far from being out of the blue or even a stretch— is a natural technological evolution for the company.
Genencor was formed in 1982 as a joint venture between Genentech—the first successful pharmaceutical biotech company—and the glass products maker Corning. It was launched with a
Arbige (left) and Blank
mandate to adapt the biotechnology expertise within Genentech to markets outside the pharmaceutical arena. According to Arbige, as the company carried out this mission over the years, it developed extensive expertise in technologies such as functional genomics,
Genencor at a glance Headquarters: Palo Alto, Calif. Sales: $317 million Earnings: $16.6 million R&D spending: $44 million Employees: 1,500 Major businesses: Protein-degrading enzymes (55% of sales) for cleaning products andfibertreatment; starchdegrading enzymes (29%) for corn refining, cleaning products, and animal feed; cellulose-degrading enzymes (13%) for textile processing and animal feed Website: http://www.genencor.com Note: Figures are for 1999.
molecular evolution, and advanced delivery systems. Although it used these skills to create industrial enzymes, they were and still are applicable over a wide range of businesses, he notes. In addition, during the course of its research, Genencor came up with a number of biotechnology skills with specific health care potential but was prevented from pursuing them by noncompete agreements with Genentech. Instead, Arbige says, the technology was either put on the shelf or spun off into new companies such as GenPharm, now a subsidiary of the biotech firm Medarex, and the Dutch transgenic animal company Pharming. The noncompete pact ended in 1997, however, and soon after, Genencor executives more seriously began to weigh using the firm's technology to jump the gap between industrial markets and health care. Blank says, "The company was thinking, 'Gee, we've got all this great science applicable to health care; why don't we do something with it?' " By the time Blank was hired in May, the refocusing was in full swing. At the center was the stock offering, a move that she says was intended to "cut ties with our owners, create a currency for acquisition, and establish ourselves on everybody's radar screen as a company devoted to health care." The stock offering went well: Genencor stock went public at $18 per share, and, after some rockiness in the first few weeks of trading, started to climb. It peaked at more than $36 and was trading at just under $27 last week. Genencor is now 15% publicly held, with the rest equally owned by Eastman Chemical and the Danish firm Danisco, successors to Genentech and Corning in the joint venture. With investor interest high, Blank, Arbige, and others are working hard to quickly turn their health care plans into reality, targeting three initial areas: vaccines, infectious disease treatments, and protease inhibitors. "We promised ourselves that we wouldn't just sit around and analyze and plan," Blank says. The antifungal effort is on the fastest timetable, with a partnership with a large pharmaceutical company pegged for completion in 12 to 18 months. In vaccines, Blank says, Genencor has technology holes it wants to fill first through business or technology acquisiOCTOBER 16, 2000 C&EN
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business tion; it then plans a similar drug company partnership by the end of 2001. Although a 12-month timetable for coming up with an antifungal drug candidate might seem like a challenge for a company with no experience in the field, Blank is confident. This, she says, is because Genencor has already decoded the genetic makeup of various fungi as afirststep toward genetically modifying them to express enzymes—something it does every day in several commercial plants around the world. Likewise, because Genencor has had to carefully assess the immunological impact of all the enzymes it develops, immunology and vaccine expertises are "built into the company," she says. And Genencor has used proteomics and structural biology for years to develop proteases for detergents and textile treatment; deciding to follow this work into protease inhibitors was "a no-brainer," Blank says. In fact, she says the antifungal effort is close enough to what Genencor does already that it was able to launch a drug discovery program without any additional hiring. "It was all in place," Blank says. "We just had to set the scope and start doing it." Longer term, however, she and Arbige acknowledge that more people and resources need to be applied to the health care market. Genencor already spends heavily on R&D—$44 million, or 14% of sales, last year—but Blank expects spending to rise 20% annually to reach $90 million in just three years. Although developing new drugs is Genencor's highest profile thrust, the company is applying its biotechnology to related fields as well. In April, for example, it struck a deal with P&G, its largest customer, to develop proteases and other proteins for use in skin care products. As Arbige explains, proteases attack protein, whether it's soil on laundry, food on dishes, or dead cells on skin. Removing dead cells can soften and renew the skin, but proteases are often irritants, so the trick is to engineer them to do the job without allergic trouble. Genencor has accomplished this already with proteases for cleaning, Arbige says, and possesses the protein modification and testing tools to do likewise in personal care products. 14
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At the same time, Genencor is broadening its testing arsenal with a genetically modified mouse that it calls the /-mune mouse model. The company recently licensed technology from Gen-
Pharm and Pharming, its progeny of the 1980s, that gives it the freedom to develop the mouse for immunological applications. One such use, Blank says, is as a tool for testing the effectiveness and safety of dermatological products, like the ones being developed with P&G. But more important, the mouse could become a preclinical model for a wide range of diseases—including big ones like HIV infection, hepatitis C, and diabetes—for which the current monkey-based models are expensive and often flawed. "If we continue to make good scientific progress," Blank says, "this could be the cornerstone for a very significant new business within the company."
able Energy Laboratory (NREL) as evidence of the firm's continued pursuit—as well as the untapped potential—of enzymes in industrial applications. NREL has been funding a number of projects designed to convert biomass such as corn stalks and rice hulls into glucose and other sugars that can then be fermented into ethanol. Most of the projects intend to break down the biomass using acid hydrolysis techniques, but the agency sees the enzyme cellulase as the preferred longterm hydrolysis agent The catch is that cellulase is expensive. So Genencor, which won the grant in competition with a number of other biotechnology firms, will work to reduce the enzyme's price 10-fold over the three-year grant period. A cheap source of fermentable sugar could do more than just change the ethanol industry, Sanford says. "We will hopefully come up with a significant feedstock with economics better than cornstarchbased glucose for many other biochemical processes," he says. 'This is potentially industry-transforming." Enzymes are mostly used to degrade things, but Genencor is also pursuing their use as biocatalysts. Its flagship project in this area is a collaboration with DuPont to develop a glucose-based fermentation route to 1,3-propanediol, a feedstock for a new class of polyester known as polytrimethylene terephthalate. That effort took a step forward in August when DuPont signed a deal with the cornstarch refiner Tate & Lyle to build a pilot plant at Tate & Lyle's R&D facility in Decatur, 111. DuPont expects to folLeft: Genencor's Elkhard, Ind., enzyme-manufacturing facility. Below: a lab technician programs an autoanalyzer.
Genencor is plunging into some very new markets, but the company maintains that it is not ignoring its traditional industrial stomping grounds. Karl Sanford, vice president of technology development, points to Genencor's recent $17 million grant from the Department of Energy's National Renew-
low this with a commercial-scale propanediol plant by 2003. Other Genencor industrial chemical projects have fared less well. Sanford says an enzyme-based route to indigo dye is sitting on the shelf, despite good economics, because the dyestuffs marketplace is too cutthroat at the moment. Likewise, Genencor and partners, including Eastman Chemical, commercialized a new route to vitamin C under the Department of Commerce's Advanced Technology Program, but were unable to interest existing vitamin C producers. So Genencor and Eastman are planning to build a plant of their own. Thomas J. Pekich, Genencor's senior vice president for global business groups, says balancing hits and misses comes with the territory in a technology-driven business. 'The industrial enzyme business has grown at a doubledigit rate since 1988," he says. "But some years it's 20% and others it's low single digit. A lot depends on innovation in new technology." Pekich expects more hits than misses in the future, as other chemical companies join DuPont in trying to move away from oil and gas and toward renewable materials as feedstocks. "Just denting the $1 trillion chemical industry would be a huge opportunity for us," he says. Pekich and Sanford say the opportunity for enzyme-based catalysis extends beyond new routes to old products. Because they can be specially tailored through molecular evolution and other biotech techniques, enzymes may be the way to novel biomaterials with new functionality. "Vitamin C is vitamin C is vitamin C," Sanford says. "But if we can design ways to come up with new monomers that are multifunctional and chiral and appealing to polymer chemists, we might bring novel materials into play." He points to a patent recently awarded to Genencor senior scientist Wolfgang Aehle that covers the interaction between the redox enzyme laccase and wood-derived lignin to form a new kind of protective film. Sanford says Genencor has already begun to receive inquiries from interested coatings makers. These are heady times at Genencor. In addition to the numerous initiatives already under way in health care and industrial markets, the company is engaged in a strategic planning process intended to sort out just where else it should go with its technology. Blank says the challenge is deciding what to do with an embarrassment of
technological riches. "We're wrestling with how to prioritize what's inside the company and create the best business model for getting near-term revenue while building long-term value," she says. For example, Blank points to the new field of structural biology, where several Executives attending the 35th Society of start-up companies are seeking to pro- Chemical Industry (SCI) European vide tools such as X-ray crystallography, chemical industry annual meeting and bioinformatics, and molecular databas- conference in Vienna at the beginning es to pharmaceutical customers for of October tackled the vexing question of change: how to match the industry's their drug discovery efforts. "We have all that structural biology ca- changing character and culture with the pability inside Genencor," she says. "The demands being made by society at question is, what should we do with it?" large. One answer is to keep it in-house and use The subject has arisen frequently at it to further Genencor's own drug discov- SCI meetings through the years, with ery efforts; another is to market it as a not much to show for any discussion. tool kit and reap a steady revenue stream This time, though, there were some inright away. dications that the message the industry It's a crucial—and as-yet-unanswered— must communicate with its public just question, but one that Blank says she and may be coming into focus. other Genencor employees are happy to The theme of this year's conference grapple with. "It's an exciting time for ev- was "catalysts for change." eryone here," she says. "It's like a horse Daniel S. Sanders, president of Exled out of a pasture to run around. We've xonMobil Chemical, observed: "Our inalways had the horse. Now we're just run- dustry can deal with change in two ning in a larger field."^ ways. We can react to it and likely ac-
SCI In Vienna: Change At Last For The Chemical Industry?
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