WASHINGTON - In the 1960's film, "The Graduate," a middle-agedbusinessman confides his secret for success to the film's star, DustinHoffman. "Plastics," he says in a conspiratorial whisper. If the moviewere remade today, the buzzword might well be "genomics."In signing its $70 million agreement with Hoffmann La Roche,Millennium Pharmaceuticals Inc. will put its name to the second-largest deal ever negotiated between a fledgling, venture capital-backedbiotechnology company and a large pharmaceutical company.The only biotechnology company to sign a bigger first-time deal whilestill privately held was Human Genome Sciences Inc. (HGSI) ofRockville, Md. Last May, HGSI rewrote the record books in its $125million deal with SmithKline Beecham Corp. (A mere six months laterat the tender age of 17 months, HGSI debuted on the public markets.)These two unprecedented deals prove that genomics has caught theattention of the traditional pharmaceutical industry to a greater extentthan any other early-stage technology in the biotechnology industry'shistory. Companies are vying to stake out patent-protected territory inwhat they believe will be the therapeutic battlefield of the 21st century:the human genome."It's very significant that the two biggest deals ever done by privatecompanies were both done by genomics companies," said MarkEdwards, principal of Recombinant Capital in San Francisco. "And thesize of this deal may be large enough to qualify it as a trend-setter."Millennium's deal with Hoffmann La-Roche differs from HGSI's dealin significant ways. SmithKline got the first right to develop andmarket all drugs, vaccines and diagnostic products and services basedon human gene sequence data discovered by HGSI. In return, HGSIwill receive royalties on sales of products, the option to co-promotecertain products and rights to its genetic data for use in developinggene therapy and antisense agents.In contrast, Millennium's deal with Hoffmann-La Roche covers onlytwo disease targets: obesity and Type II diabetes. Some analysts arguedthat the specificity of the Millennium-Hoffmann-La Roche deal mayultimately work to Millennium's advantage. At the very least, the dealmay present a new thesis for genomics companies: Don't give away allrights to a single corporate partner. By narrowing the field ofcollaboration, Millennium may now be able to work with a series ofcorporate partners rather than one defining corporate partner."In the future, Human Genome Sciences may be limited to cuttingrazor-sharp deals that are molecule- and therapy-specific," said oneanalyst who asked not to be identified.Genomics caught the attention of venture capitalists before it was evena glint in the eye of large pharmaceutical companies. There are at leastthree "pure play" genomics companies in addition to HGSI andMillennium: Sequana Therapeutics of La Jolla, Calif., MercatorGenetics of Menlo Park, Calif., and Darwin Molecular Technologies ofBothell, Wash.All three are allegedly in current negotiations with largepharmaceutical companies. "I would say there's been a phase-change inpharmaceutical companies over the past year," Mark Pearson, chiefexecutive officer and president of Darwin Molecular, told BioWorld."They are all out shopping."Alan Walton of Stamford, Conn.-based Oxford Biosciences, one of theventure capital firms backing HGSI, agreed. "The fear among the bigpharmaceutical companies is that they could be shut out of the marketof the future if they don't get proprietary ownership of the right set ofgenes," he said. As a result, they are paying big bucks to tinycompanies to guarantee future access.Walton said HGSI had at least two other major corporate suitors at thetime the SmithKline deal was cut and they both made bids of "the sameorder of magnitude." But he predicts that the number of gargantuandeals between private genomics companies and pharmaceuticalheavyweights will be limited.Pearson said the intense pharmaceutical industry interest is fueled bythe widely held belief that genomics technologies are the start of arevolution that will ultimately reveal the molecular basis of disease,allowing drugs to treat the causes of disease instead of just mitigatingsymptoms.Skeptics point out that the commercial potential of genomicstechnologies is still untested and unproven.Genomics companies will likely have to complete public equityofferings to survive the long development times ahead of them. Dealswith large pharmaceutical companies may provide an importantvalidation of the worth of their technologies, but whether or not thepublic will have the patience to wait for this revolution to take placeand produce profits is still an open question.HGSI's entry into the equity markets last December was an auspiciousbeginning for the field. The company's initial public offering (IPO)raised $31 million and gave HGSI the largest post-offering marketcapitalization of any IPO in 1993, $175 million. But according toSandy Robertson of Robertson Stephens & Co. in San Francisco, thegenomics field may already be too crowded."The public can get confused when you have five or six start-ups in thesame niche," said Robertson, whose firm started Mercator Genetics viaits venture capital arm. "It's one of the problems in the industry thesedays. The public may snap up the first three offerings and ignore therest."
-- Lisa Piercey Washington Editor
(c) 1997 American Health Consultants. All rights reserved.