The Biotech Boom

When Ernst-Ludwig Winnacker started out as a biochemist at the Max Planck Institute in Munich, Germany, he could assume that if he worked hard, he would eventually win recognition from his peers and perhaps a science prize or two. But by the late 1980s, things weren't quite that simple. Protesters were calling him a murderer and harassing his kids on their way to school. The police found his name on a terrorist hit list. He had to install a security system in his home and travel with bodyguards.

One of the protest leaders who helped demonize Winnacker was Joschka Fischer, a Green-party minister from the state of Hesse. Like many radical groups at the time, the Greens were fervently against anything that smacked of Nazi-style eugenics--just about anything with the word "gene" in it. That also included a new plant for manufacturing a genetically engineered protein for hemophiliacs, which Winnacker strongly supported. In the end, the protesters got their way. Pharmaceuti- cal giant Bayer decided to build its plant in the United States, taking 1,300 new jobs abroad.

That was 12 years ago. These days the prevailing attitude toward biotechnology couldn't be more different. Fischer is still a Green, but he also happens to be Germany's foreign minister and a cabinet member in the government. The Greens, now part of the political mainstream, are no longer against genetics. On the contrary, they are presiding over a dizzyingly rapid expansion in Germany's biotechnology industry.

Germany isn't the only country undergoing a biotech rebirth. For a field long dominated by the United States, it is now getting awfully crowded with global players. Britain, where the biotech boom has spawned hundreds of new firms in recent years, has approved its first three biotech products this year, a new anesthetic and treatments for migraine and Alzheimer's disease. A leading manufacturer of products for purifying genetic material such as proteins and nucleic acids is the Netherlands-based firm Qiagen; its products are now being used in most labs around the world. The Swedish firm Pyrosequencing has become a technological leader in making systems for automated DNA sequence analysis, which is essential for mining the rich vein of data in the human genome. French researchers may be on the verge of unlocking the secrets of obesity. German scientists are doing leading-edge research on heart disease and Indian researchers may soon offer a breakthrough for diabetes. In many countries genetically modified foods are still off-limits. But otherwise, the next Genentech could just as well come from Munich or Rio or Stockholm as from San Francisco or Cambridge.

A lot of this activity has to do with the big strides researchers have made in gene sequencing. The Human Genome Project last summer enumerated 3 billion letters of the human genome, a gold mine of raw data for countless medical breakthroughs. Scientists, however, must first wade through it and figure out what it all means. That's something that not even the vaunted U.S. medical- research establishment can do by itself. For scientists in countries that have not previously had a big biotech industry, this spells opportunity. "The genome gives us all a new start," says Winnacker, who is now president of the German Research Society in Bonn. Says Les Clifford, biotech partner with Ernst & Young in Cambridge, genome research "will speed everything up and bring on a whole swath of new competitors."

Genomics, of course, isn't the only factor behind the growth in biotech. Big pharmaceutical companies, facing an unusual number of expiring patents and thin product pipelines, are looking to life-sciences companies for new drugs. At the same time, new drug-discovery techniques are getting cheaper, faster and better at targeting specific diseases. This means drugs are more accurate, markets will be more segmented and small labs can afford to go after a potential market too puny for big pharmaceutical firms to care about. Munich-based Wilex Biotechnology, for example, is working on ways to stop a particular protein that causes cancer to spread, even though it is active in only 30 percent of breast-cancer victims. "We would be happy with $100 million to $200 million a year," says CEO and founder Olaf Wilhem. "A small company can survive on that."

Cultural barriers to genetics research are also coming down. The big head start the United States currently enjoys (U.S. biotech firms total more than 1,300, compared with about 700 in all of Europe) has as much to do with society, culture and politics as with science. There's the fabled American entrepreneurial spirit, which means that a person with an idea can try and fail and try again. A German scientist who set out his shingle would never have been welcomed back to his university if things didn't work out. Moral and ethical objections to genetic manipulation, especially in Germany and Denmark, delayed scientific research for years and drove scientists to the United States (they still do in many places with GM foods). By and large, though, attitudes toward genetics are quickly changing.

The financial industry is also showing more sympathy toward new biotech ideas. In the past, financial markets outside the United States also simply were not geared to support start-ups. Since most big pharmaceutical companies found biotech research too risky, scientists rely on cash from venture capitalists to fund their research and commercialize it. But venture capitalists won't fork over the dough unless they can make a killing when the start-up sells its stock on the market. In the past three years Germany, France, Italy and other countries have set up Nasdaq-like markets for small, high-tech companies, which have allowed firms to lure researchers back from the United States with stock options. "It's increasingly attractive for bright young scientists to work for start-up companies rather than go and work for the big corporate giants," says Andre Pernet, president of French biotech firm Genset.

Venture capital has only recently made an appearance in continental Europe. Total investment in European biotech was ¤579 million in 1999, less than half that of the United States. But that's up 53 percent over the year before. And this year several big players such as Merlin Bioscience have raised hundreds of millions in new funds (interview).

Britain, of course, was first out of the gate in starting its own biotech industry back in the mid-1980s. It now has 560 biotech companies. Of 70 or so publicly quoted biotech concerns in Europe, half are British. This includes the grandfather of British biotech firms, Celltech, which has pioneered drugs that exploit the body's own antibodies to combat disease. This year Celltech posted a profit for the first time.

Germany is the next big bet. Peter Stadler, former head of biotechnology for chemical giant Bayer, remembers all too well the protests over the 1980s plant. "We had already had a scientific brain drain because of the Nazis," says Stadler. "I was so convinced this should not happen in our country again." These days no one is trying to cut him down. In a whirlwind about-face, Germany has embraced biotech as key to its long-term competitiveness. In 1993 the government passed new legislation designed to streamline decision-making in biotech projects. It then held a so-called BioRegio contest among 17 regions in 1995 and awarded 50 million marks each to Munich, the Rhineland near Cologne and the area including Heidelberg to help build research centers. And it is proposing to spend some 1.2 billion marks over the next five years on human-genome research at universities and institutes. Indeed, grant money has flowed so freely that for a while entrepreneurs could triple their start-up cash overnight with matching regional and federal grants. A law was tweaked to give scientists at universities and institutes the rights to their intellectual property should they decide to leave for start-ups. Suddenly, everyone was talking to each other. To rally the country, the government in 1997 even declared a national goal of catching up to Britain by 2000. It hasn't, but last year German researchers claimed 14 percent of all biotech patents applications, up from 10 percent five years ago. More than 400 biotech-related start-ups now pepper the country.

From across the Rhine, France has been paying close attention. The French government has increased its funding of biotech research tenfold since a decade ago, to $260 million. One of the beneficiaries is the Genopole research campus at Evry, near Paris. Founded in 1998, Genopole, also known as Genetic Valley, is a rambling series of buildings housing some of France's most promising new biotech companies. Geneticist Pierre Tambourin, president of Genopole Evry, aims to have 50 or 60 new companies up and running on the campus within the next two years. Other "Genopoles" are slated for 20 French cities. "It was absolutely essential that France do something," says Tambourin.

The same could be said for the hundreds of small companies cropping up across Scandinavia and, to a lesser degree, southern Europe. In Spain, Jose Maria Fernandez Sousa-Faro, the president of family-owned insecticide maker Zeltia, founded PharmaMar in 1986 to investigate potential anticancer agents extracted from marine plants and animals. The firm holds 620 patents, but the great hope is ET-743, a promising antitumor agent extracted from red sea squirts living in the Caribbean and Mediterranean seas. The drug has been tested on 750 patients in the United States and Europe and shows few of the typical side effects such as nausea or diarrhea. It may be licensed for use in Europe in 2002 to treat bone, skin, breast, ovarian and other cancers.

Israel sowed the seeds of its own biotech boom in the 1950s and 1960s around citrus crops, when a generation of biologists toiled to make better strains of oranges. But by the late 1970s, most farmers had gone bust. In 1980 Haim Aviv, the father of Israel's biotech industry, managed to attract American venture capitalists. His success encouraged other foreign investors, and the result was a boomlet of small start-ups. Now Israel has 135 biotech companies. "Once that watershed was crossed, it's been repeated hundreds of times," said Bernard Dichek, who runs an online biotech magazine. "Today it's taken for granted that you raise money abroad, but nobody had done it."

In India, the government took the first step in encouraging a biotech industry back in 1986, by establishing a separate government department charged with increasing the number of biotech grads coming from universities. Fifty universities now produce about 500 biotech scientists annually. In addition, the government began funding more than 50 centers around the country to collect genomic data. Because of India's caste system and isolated and in-bred tribes, Indians have a particularly well-preserved and easily traced gene lineage, which could prove to be a rich source of information for scientists seeking the mechanisms behind hereditary diseases and, ultimately, cures for them. "Biotech's an area where India can be a key player," says Kiran Muzamdar-Shaw, managing director of Biocon, a biotech firm. "We've got the skill sets and the manpower, and in genomics alone India has the richest gene pool in the world." So far, though, private industry is still in its infancy.

Brazil is also just getting biotech research off the ground. It used $250,000 of seed money from a So Paulo-based science foundation, FAPESP, to jump-start what has blossomed into a $20 million operation involving more than 200 scientists at 62 laboratories. Scientists have now completed more than 730,000 sequences of the cancer genome. Brazilian researchers lead in sequencing cancers. By year-end they expect to complete a million sequences and believe that, by 2002, they'll finish assembling a full genetic map of a breast-cancer tumor. Brazil hasn't yet translated this research into new start-ups.

Noticeably absent from the biotech boom is Japan. As early as 1981, the government was planning to build automated high-speed DNA sequencing facilities for a project led by Akiyoshi Wada, then a University of Tokyo professor. Japan, however, could not pull off this ambitious effort. The various funding agencies would not cooperate with each other, research facilities went underfunded and petty turf wars among scientists got in the way. The government may also have been overly sensitive to America's fears of Japanese industrial domination. "The Japanese government did not want Americans to feel that way, and that's why we fell behind," claims Wada. Now Japan is home to only a few dozen biotech companies.

But Japan is trying to catch up in the post-genome world. Despite continuing hard times, the government plans to increase spending on biotech research by 23 percent next year. This month it opened the Genomic Sciences Center in Yokohama, led by Wada, featuring a nuclear magnetic resonance center to study protein structures. The Kyoto-based liquor producer Takara Shuzo will start operating Dragon Genomics, a center for high-throughput genome analysis, in early 2001, which will be the largest of its kind in Asia.

In the race to catch up, many countries still have to get over old hang-ups. Gerard Soula took the French biotech firm Flamel Technologies public in the United States in 1996 because at the time he wasn't able to interest French investors. Four years later, Soula still hasn't listed his firm on his home turf because he believes French investors are too risk averse. "In the United States, they call it venture capital and the emphasis is on adventure," says Soula. "In France it's still called capital risk."

Despite Germany's new entrepreneurial fever, failure is still not considered the great American "learning experience." When Olaf Wilhelm wanted to leave his tenured post as assistant professor at the Technical University of Munich three years ago to found Wilex, his father, a doctor too, was horrified. But Wilhelm had uncovered a protein that appeared to cause breast cancer to spread to other parts of the body. When he won a contest in 1997 for aspiring business plans, he had to decide whether to sell the idea or make a go of it himself. The choice for him was obvious, if risky. "My wife said I could always work in construction," he says, grinning.

But brilliant science doesn't always translate into management expertise, another bottleneck in many countries. To compensate, scientists are hiring experienced business managers from big companies, many from the United States. Imminent public-stock offerings are the best lure for these pros. Noxxon Pharmaceuticals of Berlin, which has patented a new way to accurately deliver drugs to a protein, tempted Raimund Eckel, 51, to take over as CEO two months ago from Switzerland's Roche. "I got tired of meetings," Eckel says, shrugging.

With the money flowing so freely, the biotech scene has an air of transience, a bit like the gold-rush towns that sprung up in the American West in the 19th century. In the next few years, many firms will go belly up, merge with each other or get swallowed by the pharmaceutical giants. "The name of the game over the next five years is consolidation," says Helmut Schusler, managing director of venture capitalist TVM in Munich. Some German firms have already taken advantage of big stock-market valuations to acquire U.S. firms. Add that to the criss-cross of alliances, the multilingual labs and the international funding already in place, and biotech truly has become a global industry.