Rainforest Renaissance.

Bio-prospecting hasn't lost its luster--despite few results a decade later.

MOLECULAR ROULETTE-THAT'S HOW GERRY Kirk, managing director of Merck Sharp & Dohme Central America, describes the search for drugs in the world's rainforests. Herbs and plants are all the rage among do-it-yourself doctors these days, but profitable cures from exotic plants are plenty hard to come by.

Just ask Merck. The pharmaceutical giant signed on with Costa Rica's Institute of Biodiversity, known as INBio, in a groundbreaking public-private partnership that made headlines in the early 1990s. The US$1 million partnership promised a revolution: Half of the royalties would go back to Costa Rica, to be split equally between INBio and the government, with 25% of the government cut earmarked for environmental protection. Suddenly, developing countries had more of a stake in their resources.

Overwhelmed with samples--but not quite hitting the magic formula--Merck Research Labs decided in 1999 to cancel the pioneering research agreement. INBio, too, fell short of its original, optimistic goals, cataloging only a fraction of the samples its organizers predicted would be complete by the turn of the millennium. To date, it has catalogued just 17% of some 500,000 species in the Costa Rican jungle.

Don't count out INBio--or fishing the jungle for drugs--just yet, though. The Institute has signed new contracts with two dozen companies, among them other big drug firms, small biotech outfits and nonprofit organizations. One of those contracts is a 15-month agreement with Eli Lilly and Company signed in October 1999, to screen natural compounds for drug discovery Akkadix, a California biotech company, plans to use bacteria-produced proteins and their cognate genes to genetically engineer crop plants protected against pathogens.

Merck's relationship with INBio, too, remains active, says Kirk emphasizing that the two still work closely together on other projects. Merck will continue analyzing and, if anything is found, the royalties will go back to Costa Rica, he maintains.

That's because, despite the odds, bio-drug bingo is still tempting to Big Pharma: In 1998, 10 of the top 30 commercial drugs on the market had their basis in a natural product. That includes the entire line of cholesterol lowering agents, the entire line of ACE inhibitors (the leading treatment for hypertension and chronic heart failure) and Taxol, a type of chemotherapy developed by Bristol-Myers Squibb used for treating some types of cancer.

The long view. Part of the problem is that bio-prospecting is capital intensive in an industry already used to product-to-market times measured in decades. Pharmaceutical companies spend a half a billion dollars and at least 10 years--sometimes as many as 20--on a drug before it hits the market and can begin to pay for its own development.

That long time frame, and INBio's relatively slow progress, raise the question of whether the INBio model will achieve one of its main goals: saving the rainforests. By the time royalties start coming back, the forests might be gone.

Working to stay solvent--and to meet its original goal of protecting the rainforests--INBio is turning to other means of making money off of its unique resources, through awareness, tourism and science.

"Costa Rica's not putting all its eggs in one basket," says Dan Graham, task manager of the World Bank's Biodiversity Resource Development Project in Costa Rica. The Global Environmental Facility, an environmental fund of the United Nations and the World Bank, has invested $7 million in INBio. Another $4 million are matching funds from Costa Rica and co-financing from the Dutch and Norwegian governments, all for INBio.

The rules have changed, too. Gone are the days when pharmaceutical companies sent agents to clandestinely forage in the jungle, says Malcolm Morville, president and CEO of biotech company Phytera, owner of patented technology that uses living cell cultures to try to unlock genetic diversity.

The 1992 United Nations Convention on Biological Diversity, held in Brazil, fueled a transformation in the industry, says Morville, by airing issues of sovereignty and corporate responsibility. The reason companies do go--even though it's difficult, costly and presents logistical and ethical hurdles--is that the chemical diversity that resides in nature is greater by many, many orders of magnitude, Morville says. "Nature is so prolific," he says. "It has produced things chemists can't even conceive of producing."

Uncharted territory. The industrialization of biology has created a need for organizations such as INBio, says Sunil Kadam, a research scientist at Lilly. Traditionally, companies such as Lilly have relied on universities for the kinds of samples INBio is providing. Since universities aren't set up to be sample-shipping factories, these agreements have always been small scale.

But drug companies today require much larger quantities of samples that are both biologically and chemically diverse, says Kadam. While other countries have the natural resources to provide such a service, Costa Rica is the only one that has invested in the infrastructure to produce and ship samples en masse and has the scientific expertise to guarantee that the purified samples are of high quality, he says.

"Universities have the biological expertise, but just having biological expertise isn't enough anymore," says Kadam. "The change has already happened. People recognize that bio-prospecting needs to be done in the way INBio is doing it."

A Latin biotech hedge? Not yet.

U.S. AND EUROPEAN INVESTORS MAY BE DITCHING DOT-COMS FOR HOT biotech firms but in Latin America--olvidalo, say venture capitalists who specialize in the region.

"The deal flow is simply not strong in biotech," says Tom Gephart, founder and chairman of Ventana Global Ltd., which invests close to US$90 million and has offices throughout the region. "We have absolutely zero invested in biotech, and won't have anything for another year or two at least."

Latin America hasn't been a biotech star because research in the field usually prospers near strong academic resources and a culture of innovation. Latin biotech firms instead seem to be going through a stage much like the Latin dot-coms did: Find a business model and export it." The tech companies in Latin America are often copies of what's going on in the United States," says Oswaldo Sandoval, a partner in San Francisco-based Explorador, which has $25 million in venture capital funds invested in Latin America but nothing in biotech.

But models only get you so far, says Sandoval: "Biotech advances are intellectual property. You can't copy them. So the Latin American biotech companies are mostly non-innovative manufacturing firms, many of which have part-foreign ownership."

Instead, say the dealmakers, Internet infrastructure will be strongest play for now. "That's where we still see tremendous growth, especially in Latin America, since there's such a huge demand for telecommunications," Gephart says. "Fiber optic companies are at the top of the list."

Sandoval's next favorite? Firms involved in environmental cleanup.

Katherine Ellison