Subject: As Genentech Awaits New Test of Old Drug, Its Pipeline Fills Up Date: Published: 4/30/93 (233 lines) Source: Wall Street Journal. Copyright Dow Jones & Co. Inc. Hedged Bet: As Genentech Awaits New Test of Old Drug, Its Pipeline Fills Up --- TPA Is on the Line Again, But Firm Is Churning Out A Host of New Products --- Keeping Its Scientists Happy ---- By Marilyn Chase Staff Reporter of The Wall Street Journal SOUTH SAN FRANCISCO, Calif. -- Biotechnology's reigning high roller, Genentech Inc., is about to win or lose a huge medical bet. Those concerned about the cost of health care in America have a stake in the outcome as well. Today researchers will disclose results of a huge Genentech-financed trial, perhaps the most expensive ever launched to retest a proven drug. The company is hoping against hope that the test will show something previous trials didn't: that a Genentech heart drug costing $2,200 a dose is superior to an older, rival drug that costs only $200 a shot. Genentech has spent $55 million funding a 41,000-patient restudy of its six-year-old clot buster, TPA, which it sells as Activase. "My friends in the pharmaceutical industry think I'm nuts," says Genentech President G. Kirk Raab. But TPA's share of the clot-busting market has been dwindling; this is a long-shot bid to turn it around. Many analysts think this test will come out like previous ones, showing heart-attack victims to survive no better when given TPA than if they get streptokinase (from Sweden's Astra AB and Kabi Farmacia AB and Germany's Hoechst AG). Given the price difference, such a draw would be the same as a loss. TPA sales would hemorrhage. But if TPA is shown to be superior in the trial run by the Cleveland Clinic, cardiologists may face pressure to administer the Genentech product to heart-attack patients in spite of its higher cost. For Genentech, the TPA case has been a seminal event. The deep disappointment of past tests against streptokinase, which kept TPA from being the blockbuster executives assumed it would be, shocked the company into tightly refocusing its efforts. Because of that -- plus a timely cash infusion -- the company that pioneered the biotechnology industry is now so much better disciplined, and funded, that even if the big test doesn't go its way, its prospects seem bright. Genentech has spent $1.1 billion on research and development over the past decade, including $279 million last year alone. That was 55% of its total revenue, compared with rival Amgen Inc. 's R&D spending rate of 18% of revenue. Behind Genentech's R&D program are the deep pockets and scientific laissez-faire of its Swiss parent Roche Holding Ltd.; ahead lie the plentiful products soon to emerge from its pipeline. Among them is DNase, meant to ease clogging of the lungs of cystic fibrosis patients. It is close to Food and Drug Administration approval, and if it gets it, some analysts think DNase could have initial sales of $250 million a year for cystic fibrosis -- later doubling to $500 million a year if use is expanded to chronic bronchitis around 1998. Other Genentech drugs will target cancer, AIDS, neurologic disease, allergy and inflammation. "They're like the Bell Labs of biotechnology," says analyst Denise Gilbert of Smith Barney in San Francisco. After a six-year drought, "starting in late 1994, you could see a new product every year or two." Long-term earnings forecasts are notoriously shaky, but Ms. Gilbert is willing to hazard one: profit of $3.58 a share in 1998, compared with 18 cents a share in 1992. But it isn't just spending power that has changed at Genentech since Roche invested in 1990. So has Genentech's discipline. The company now abandons projects that don't hold enough commercial promise. It has cut in half its backlog of research projects, freeing scientific talent to accelerate work on possible home runs. "We had too much on our plate," says Arthur Levinson, senior vice president for research. While doing this, the company has preserved its entrepreneurial culture by encouraging scientists to publish their discoveries, and -- most important -- by letting them spend 20% of their time on their own projects. "It's like a university here, except you're better paid," says one scientist, Laurence Lasky. Genentech, the founder 15 years ago of the new industry of gene-splicing bacteria to yield new proteins, had an awkward adolescence. It thought TPA (tissue plasminogen activator), would be a blockbuster. Expecting universal acclaim by heart doctors, Genentech far overestimated annual sales at $1 billion, so that the sales actually realized -- $180 million a year -- make it look like a failure. Thanks to several large studies showing TPA to be just about even with the cheaper drug in survival rates (even though it opens arteries faster), TPA's share of the world clot-busting market has eroded from two-thirds shortly after its 1987 introduction to half today. Genentech then managed to get only one other product approved under its own label: gamma interferon, for a rare immune disorder of children. It brings in just $2.9 million a year. Meanwhile, with money tight, tensions had developed between the company's visionary co-founder, Chairman Robert Swanson, and its president and chief executive, Mr. Raab, a pragmatic former drug salesman. Enter Roche Holding. After a secretive courtship, with code names and clandestine meetings in Swiss hotels, Roche paid $2.1 billion for a 60% stake (since raised to 63%). An option it holds to buy the rest at $60 a share by mid-1995 has kept Genentech stock afloat in the mid-30s through drug-company market doldrums, although the stock has been slipping this week. It closed yesterday at $32.75, down $1.125, on the New York Stock Exchange. Roche Chairman Fritz Gerber didn't respond to requests to be interviewed about his plans for Genentech. Money in hand, Genentech has engineered a course correction. It has installed a new research director, tightened development standards and made creative alliances with younger ventures, such as gene-therapy company GenVec of Rockville, Md. Mr. Raab contends a stronger company was born from the TPA disappointment. "We've come light years," he says. "What happened to TPA was a great shock to this organization." Before, he says, "there was a fascination with molecular biology, and a clinical dream that drove things." Today, the company tries to plan for the worst case. At the same time, a maturing Genentech is struggling with the departure of inspirational figures, such as David Goeddel, a founding scientist who will leave in August. "Our culture has been changing for a long time; the new one is being defined now," says vaccine researcher Phil Berman. "Some say we're in an identity crisis." But he and others insist the spirit of Genentech is simply being invented anew. The head reinventer is research chief Dr. Levinson, a boyish, hyperkinetic 42-year-old. Though groomed in an intellectual milieu of Nobel laureates, he keeps a pragmatic focus by ordering his scientists to leave their lab benches "from day one" and talk to practicing doctors. It was Dr. Levinson's unhappy task to cut Genentech's list of 70 research projects by half. First to go was Relaxin, a protein to ease childbirth, featured in a past annual report with a gauzy photo of a new mother. "It didn't meet expectations," he says. Other casualties: an injectable anticlotting drug and tumor necrosis factor, an intriguing but toxic anticancer substance. Dr. Levinson made it harder for projects to get promoted from the research stage to product development, a step that steeply raises costs. With Mr. Raab, he agreed to focus on four areas: endocrinology (such as growth hormone), cardiology (such as TPA), immunology (such as a drug for asthma) and neuroscience (such as nerve growth factor). Roche's money freed executives to set aside 10% of research funds for products aimed at the next decade, instead of operating quarter-to-quarter as revenue allowed. Long-range funding has underwritten an ambitious program in the "new frontier of the brain," says Franz Hefti, a neurologist just recruited from academia. It is seeking products among natural chemicals that nourish brain and nerve cells. Nerve growth factor, for damage inflicted by diabetes or chemotherapy, is in first-stage human trials. Substances called neurotrophins may one day treat stroke or diseases like Parkinson's, Huntington's or Alzheimer's. Dr. Levinson's joy in the science has added more verve to Genentech's research efforts. Jumping from his desk, he flings his arms wide to act out the making of a "humanized" monoclonal antibody now being tested to block a breast-cancer gene. "By swapping mouse with human components, you end up with a monoclonal that's 95% human," he says exuberantly. To nurture such invention, Genentech coddles researchers in a new $80 million research center, a science palace on a hill overlooking San Francisco Bay. Labs boast sweeping views, while in a courtyard below, a bronze sculpture depicts founders Swanson and Herbert Boyer planning the company over a beer at a bar table. Before an experiment, scientists sometimes slip a coin into Dr. Boyer's bronze beer mug for luck. It's a far cry from the days when scientists worked under a makeshift plastic canopy to keep dust from falling into their test tubes. Despite the grandeur, scientists insist their old spirit is intact. Raucous beer busts called "ho-ho's" still enliven Friday afternoons. Most crucial is the one day a week they can devote to personal research. This is how the cystic fibrosis drug DNase began, as the private obsession of Steven Shak, director of pulmonary research. Dr. Shak was haunted by medical-school memories of patients whose lungs were so congested he had to suction them out. He sought an enzyme to cut up the genetic debris in their lungs. In his personal time at Genentech, he found one that quickly liquefied the congestion. Today, after extensive development and testing, DNase is awaiting FDA review. Another project that began as a flyer was staff scientist Paula Jardieu's work to abort asthma attacks. She created a monoclonal antibody aimed at blocking the body's "allergic trigger," which touches off a cascade of wheezing and sneezing. Clinical trials in humans could start in late 1993 for asthma, which afflicts an estimated 10 million people, and later for "hay fever" -- affecting 20 million people. When scientific snags arise, causing corporate backing to dwindle, researchers have sometimes used personal time to keep projects alive. An AIDS vaccine was almost dropped, but Dr. Berman nursed it for almost four years, until successful chimp studies put it back on development track. A key tactical challenge for the new Genentech is how to price products, especially if it wants to sell drugs for such common maladies as hay fever. TPA, burdened by its price premium, was held to a performance standard it never met. To succeed in the new environment, warns Ms. Gilbert of Smith Barney, "New drugs must save you health-care costs." Mr. Raab has hired a crew of doctors with MBA degrees to hone pricing strategy. He points to an irony, though, in the debate over health and cost: "Death at an early age is the cheapest of all," he says. "But that's not what we're about." --- GENENTECH'S PROSPECTS Results in New Products Drug -- DNase Use -- Cystic fibrosis Stage -- FDA Review Drug -- Her2 monoclonal antibody Use -- Breast cancer Stage -- Clinical tests Drug -- gp120 Use -- AIDS vaccine & immunotherapy Stage -- Clinical tests Drug -- Insulin-like growth factor Use -- Wasting syndrome in AIDS Stage -- Clinical tests Drug -- Nerve growth factor Use -- Neuropathy of diabetes and chemotherapy Stage -- Clinical tests Drug -- IgE monoclonal antibody Use -- Asthma, chronic bronchitis Stage -- Preclinical Drug -- CD18 monoclonal antibody Use -- Trauma inflammation Stage -- Preclinical Sources: Genentech, Baseline [This article is made available here by Dow Jones Co. for the personal and non-commercial use of callers to this bbs, in the hope that it will be of some help to those who are suffering from the disease and others who are seeking to help them.]