Genomics Industry Creators Discuss Its Promises, Challenges.

Business Editors/Medical & Science Writers

STANFORD, Calif.--(BUSINESS WIRE)--Feb. 2, 2001

The science of genomics is rapidly changing two business sectors -- venture capital and pharmaceuticals -- leaders in those industries said at a Jan. 27 conference at Stanford University's Graduate School of Business.

Entitled "Beyond the Buzzword: Implications of Genomics," the conference was organized by students in the Stanford's Health Care & Biotech Club, which is headquartered at the Business School, and drew a capacity crowd of business people, faculty and students from the schools of medicine, humanities and sciences, law, engineering and business.

Genomics is a product of the marriage of biological sciences and information technology to map living organisms at the level of genes. It has created an impatient new industry moving at warp speed, conference participants said, although most practical health care uses of genomic knowledge are probably decades away. The promise of genomics as a treatment for diseases has captured the imagination of scientists and the public. They hope for cures for cancer, diabetes, and Alzheimer's, and the creation of personalized medicine-drugs customized for an individual's genetic makeup.

Equally promising: genomics could create trillions of dollars of new wealth over the next several decades. Bill Joy, chief scientist at Sun Microsystems, for instance, was recently quoted by Reuters as saying it would eclipse even the Internet rush in economic importance.

But genomics also involves complex ethical, legal and social issues that the new industry and society will have to cope with, and students planning the conference wanted those discussed as well. How should this massive databank of genetic information on the human species be interpreted and used? Who should have access to it? How can society protect individuals' privacy and avoid discrimination in insurance and employment?

"The public needs to know that genes are influences, not fate," said Stanford law professor Hank Greely, who co-directs the Stanford Program on Genomics, Ethics and Society. Greely and other speakers warned that there was a tremendous need for accurate public education about genomics.

"People need to understand that genetics is a discovery process that takes time," said Hugh Reinhoff, founder, chairman and CEO of DNA Sciences (http://dna.com), a Mountain View biotech company focused on discovery of the genetics of common diseases. "There's often a disconnect between what you know about genetic predisposition for a disease and what you can do about it." The breast cancer susceptibility genes-BRCA1 and BRCA2-are perfect examples. Tests can identify these genes, but the only preventive measure available for those who have them is prophylactic mastectomy (surgical removal of both breasts).

Protecting the privacy of the genetic information of individuals and families raises big questions with no easy answers. Greely and Reinhoff suggested that national health insurance would enlarge the risk pool and prevent discrimination. The cost? No one knows. Health care is now 14 percent of the GDP and rising.

Electronic medical records would help control access to genetic information, but they're not tamper-proof. "You can't guarantee privacy anymore than you can guarantee that a burglar won't break into your house and steal your stuff," said Randy Scott, co-founder, chairman, and CEO of Genomic Health (http://genomichealth.com) of Palo Alto, a new company applying genomics technologies to create new markets in consumer health. Scott is also chairman of Incyte Genomics, Inc. (http://incyte.com), the world's first genomic information company, which he co-founded in 1991. "What's important is how we treat those who violate privacy," Scott said.

Scott pointed out that one of first practical uses of genomic technologies may be to improve the efficacy of existing drugs. "There's little genomic information or testing on what drugs are doing to genes. That kind of testing should improve drug efficacy and decrease toxicity," he said.

That kind of testing, indeed the whole genomic approach to drug development, is revolutionary because it identifies target genes and designs therapies to turn them on or off to halt or reverse a disease process. This means drugs for smaller, genetically stratified markets, such as Genentech's Herceptin, a new therapy for a specific segment of breast cancer patients.

The genomic reinvention of drug development may change the pharmaceutical landscape from a handful of big companies with blockbuster drugs to a host of small and mid-size companies with targeted, smaller market drugs, some say. Paul Auerbach, of Delphi Ventures, a physician and a 1989 graduate of the Business School's Sloan Program, explained: "You can pick your population and find that 30 percent of that population has a certain genotype and can really benefit by a certain targeted drug. If you go to a major pharmaceutical manufacturer and tell them they should screen to find the 30 percent of the population likely to get an effect as opposed to a mass trial process with the whole huge population that will show a drug either does or doesn't work, their marketing group won't go for that. They'd rather sell the drug to everybody who might need it than to those who've been shown to actually need it. So, I'm rooting for the middle (sized) companies, not for Big Pharma."

To develop targeted drugs, genomics companies need to study large groups of people on a global basis, those with and without a particular disease. For example, Perlegen Sciences, a new subsidiary of Affymetrix (http://affymetrix.com), Santa Clara creators of DNA scanning technologies, can now read 50 individual genomes, identify the millions of genetic variations among individuals, and find patterns in those variations. "Those 50 genomes will yield 3 to 4 million common genes. What we're looking for is the 10 to 20 genes that together cause a disease," explained Brad Margus, Perlegen CEO. "To find those 10 to 20 genes, we'll need to look at 1 or 2 million people with disease at various places in the world."

Perlegen is only one of dozens of companies looking for populations to study. DNA Sciences has established a databank called Gene Trust to attract individuals and families, particularly those with inherited disorders, to contribute blood samples for study.

As genomics technology accelerates and the data expand geometrically, start-ups are not finding it difficult to get funding if they have solid science and business plans. "Early stage companies who only need a few million dollars still have plenty of opportunities," Auerbach said. "There are angel networks, there's a huge fallout from the dot.com craziness, and there are dollars falling off in other sectors. There's really money all over the place. The quality of the types of companies we're seeing is going up and the science is getting better and better."

Brian Atwood, managing director of Versant Ventures (http://www.versantventures.com), said "Health care venture funds have grown much larger in the last two years, and the competitive landscape is changing. The capital intensity of a lot of biotech (business) models is much greater. Start-ups that needed from $2 to $4 million in the 1970s would now need $15 to $20 million."

"When we invest in a typical technology deal, we're seeing people throwing way more money in and companies having no problem raising $100 million at a time," said Debra Yu, physician and managing director for Bay City Capital, a San Francisco merchant bank focused on the life sciences.

Investing in genomics carries big risks but with potentially big payoffs. When all the due diligence and networking is finished, it comes down to a very unscientific process, speakers said. Yu called the decision to invest an "art -- an art form in judgment. You translate technical risk into financial risk. It's a bet on market. It's a bet on people."

Atwood agreed. "In the end, you have to take a leap of faith -- or not. If you bet on big, bold technology and the business plan is there, the company will be a winner sooner or later," he said.

No matter how innovative a company's science and technology, that business plan had better include some basic principles, said Michael Hunkapiller, president of Applied Biosystems of Foster City (http://www.appliedbiosystems.com), in his keynote address.

Hunkapiller's advice: Understand who your customers are and how to create value. Stay close to your customer base to understand and meet changing needs. Build a support organization that can quickly handle problems. You won't have two years to fix a mistake, he cautioned, because "discovery can't wait."