Artificial Genes

Biotech comes to the drugstore

Skeptics have wondered whether genetically engineered drugs might become the synfuels of the 1980s, crippled by uneconomical costs and uncertain usefulness. Now there is early evidence that the skeptics may be wrong. Genentech, an industry leader, licensed for sale a gene-spliced substance that has just become the first such medicine ever approved for human use by the U.S. Food and Drug Administration. Says Dr. John Potts, professor at Harvard Medical School and chief of medical services at Massachusetts General Hospital: "This is really a landmark because it is the first practical development of a useful medicine by new techniques."

What Genentech has done is to develop the first insulin drug that is made with a synthetic duplicate of human genes. Called Humulin, it differs from insulin products now on the market, all of which are made from cells extracted from animals, particularly cattle. Humulin can be used to treat the approximately 8% of the world's 70 million diabetics (including 10.3 million in the U.S.) who are allergic to the animal product and have previously had to seek more complex treatments with other drugs like steroids.

Yet Humulin represents only a small advance for an American industry that has produced scant profits for its backers and worldwide sales of just $25 million. Another form of human insulin, made conventionally through chemical processes by Denmark's Novo Industri, has been on the market in Great Britain since June. Though Humulin's cost will decline as production runs increase, it will initially be twice as expensive as animal-based insulin and its eventual market is limited, no more than $20 million.

Since Humulin has been licensed to giant Eli Lilly & Co. for production and sale as a nonprescription drug, Genentech stands to make at most 10% of any profits. Says Analyst Marilyn Hill of Arthur D. Little in Cambridge, Mass.: "Royalties and fees are not going to make these companies a big success. Genentech still has to show that it can develop its marketing clout with its own products." Investors apparently agree. Although Genentech's stock ran up from $33 a share to $46 in the weeks preceding the announcement, it is well below the fantastic $89 it briefly hit when shares were first issued in October 1980. Last week Genentech reported a loss of $1.2 million during the third quarter, on sales of just $7.2 million.

Genetic engineering is still undergoing the shake-out that afflicts any young industry, especially one that has attracted some 300 new entrants in the past two years. Bethesda Research Laboratories of Maryland had to narrow its focus last year after trying too many research efforts at once. To conserve $130 million in capital, Cetus Corp. of Berkeley, Calif., one of the industry's largest firms, shut down five of 13 major projects this past summer and ended probes into several other costly areas. A number of companies have failed only a year or two after their startup. Southern Biotech of Tampa filed for bankruptcy in June, after issuing $5.5 million in stock, because of "an unsuccessful research project."