Biotechnology Industry Rethinks Corporate Strategy

Article excerpt

After several trips to Eli Lilly Co.'s Indianapolis headquarters last year, Seragen Chairman George Masters suspected a deal was near. "Lilly sent a corporate jet to pick me up and take me back," he remembered. "All the other times I was flying USAir."

He was right. Soon after that plane trip, the Hopkinton-based biotechnology company entered into a $62.5 million partnership agreement with the big drug maker.

In both style and substance, the July pact might be indicative of biotechnology's future. Once envisioned as big drug companies, today's biotechnology companies are more likely to become the research and development arms of more traditional drug companies.

That prospect has implications not only for the companies themselves, but for the role biotechnology has been expected to play in the area's economy.

Observers say the promise of biotechnology _ using genetic engineering techniques to develop treatments that strike at the roots of everything from hay fever to cancer _ is as bright as ever. But increasingly, biotechnology is being viewed, not as a self-contained industry, but as a way of developing drugs.

Genzyme Corp., now operating a new drug factory towering in Boston, might be the most visible of the area's biotech companies. Mark Skaletsky's shop may turn out to be more typical.

The co-founder and president of GelTex Pharmaceuticals Inc. of Waltham, Mass., said of his company's future: "We expect to be small _ no more than 30 to 35 people, that's it _ and focus on research and product development and let others do our manufacturing, clinical trials and toxicology testing. Our overall strategy is to take our products far enough into development to create value without building a huge infrastructure. We let our partners sell them."

At present, 149 companies along the Boston-Worcester corridor employ about 16,000 people in the biotechnology industry. With some notable exceptions _ Genzyme, Genetics Institute Inc. and Biogen Inc., all in Cambridge, Mass. _ most of the companies and their employees are focused on research.

They are also focused on raising money.

Able to expect little or no revenue from sales, biotechnology companies have depended on outsiders to finance expensive drug development. But venture capitalists are increasingly wary. And Wall Street, feeling burned by the highprofile failure of some biotech drugs, are turning to other investment options.

At the same time, the world's large, traditional pharmaceutical companies find it is getting harder to create effective new chemistry-based drugs. With facilities to make drugs and the sales network to sell them, they've gone looking for new products beyond their own in-house laboratories.

The result has been a new kinship between the old and the new drug businesses.

Seragen was just one of 29 outside development deals Eli Lilly obtained last year _ triple the activity of two years ago and 10 times more than in 1992. Not all of the deals were with biotech companies, but many were.

Among many other deals, ImmuLogic Pharmaceuticals Inc. of Waltham, Mass., has received more than $65 million in product development and equity funds from Marion Merrell Dow for a proposed family of allergy vaccines. The partnership recently announced plans to jointly build a bio-manufacturing facility in Midland, Mich., that will be operated by Dow Chemical Co.

"Our major value added is. . .the technology in the form of a product," said Malcolm Gefter, ImmuLogic founder and chairman. "The opportunity to manufacture and sell is not really a very highly valued opportunity compared to the risks that go along to building a manufacturing plant, adding a sales force and marketing staffs."

Others companies, such as AutoImmune Inc. of Lexington, have gone a step further. …