BUSINESSWEEK ONLINE : JULY 12, 1999 ISSUE
COVER STORY

Gene-Therapy Companies Catch Their Breath


Because it promised to cure everything from cancer to hemophilia, the field of gene therapy captivated the imaginations of scientists and Wall Street in the early 1990s. However, as trial after trial failed to produce results, the excitement dwindled--and so did the cash.

Many startups didn't survive long enough to get their products through clinical trials, which can take up to 10 years. Consequently, investors have taken a much less optimistic view of the biotech sector, particularly gene therapy, than have scientists. However, research into gene therapy is making slow and steady progress, and some analysts are betting that therapies will become available to the public within five years, primarily in the areas of cancer and heart disease. Large investors, though noncommittal, remain watchful. ''The market is really in 'show me' mode,'' says SG Cowen analyst David K. Stone. ''The question isn't 'Who has the technology?' It is 'Who will actually bring a product to market?'''

CONSOLIDATION. In order to grab that brass ring, companies have been fighting since the early 1990s to lock up the rights to the crucial gene delivery systems, such as bioengineered viruses. Both Vical Inc. (VICL) in San Diego and Cell Genesys Inc. (CEGE) in Foster City, Calif., now hold substantial patent rights. To solidify its position as a major gene-therapy player, Novartis Pharmaceuticals in East Hanover, N.J., consolidated its subsidiaries, SyStemix and Genetic Therapies, last September. Meanwhile, GeneMedicine and Megabios announced a merger and formed Valentis in Burlingame, Calif. in early April.

This increasing consolidation is a sign of just how difficult it is to excel in the many different research areas--from gene discovery to treatment delivery--that define a successful gene-therapy company. Smaller companies can have difficulty putting together the compelling data that they need to pursue a treatment on their own. Says Francois Meyer, a senior vice-president at RPR Gencell, the gene-therapy division of Rhone-Poulenc Rorer Inc.: ''To be successful in gene therapy, you need to establish a knowhow that is beyond one company.''

''NASCENT TECHNOLOGY.'' That knowhow, though, must be channeled correctly. Companies need to avoid the temptation to work on every type of gene-delivery system out there and to focus on making one successful. ''It is a nascent technology, and it takes a lot of money, just as it does to launch a drug,'' says analyst Michael B. Sheffrey of OrbiMed Advisors.

Analysts predict that investors will come back as soon as a gene-therapy company shows it has a working product. A number of companies are vying for that honor. Vical's allovectin-7, which treats metastatic melanoma, began Phase III trials in May, 1998. And Introgen Therapeutics Inc.'s p53 therapy for cancer of the head and neck is also in end-stage trials. Both companies hope to launch products by early 2000. Bernard J. Gilly, chief executive of French gene-therapy company Transgene, is spurring his researchers to develop delivery systems that are even more powerful. Says Gilly: ''There is still a lot of work to be done, but I believe that gene therapy will be considered the medical weapon of choice 10 years from now.'' That should get investors excited again.

By Ellen Licking in New York

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