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COVER STORY

Business in the Biotech Century

A conversation with Henry Nordhoff, CEO of Gen-Probe Inc., on building a medical technology business at the nexus of biotechnology and clinical diagnostics.

Perhaps you knew what your business was five years ago. Maybe you even knew what it was last year. But if many analysts are right, it’s a pretty sure bet that whatever your business was, it’s about to change.

The causative agent for such far-reaching change is the creeping revolution that is being brought about by advances in the field of biotechnology. So long anticipated and analyzed in advance of its arrival, the so-called biotechnology revolution seems almost a foregone conclusion. Researchers in the field have long filled the professional and lay media with predictions—ranging in tone from the dire to the fanciful—about the effects of the revolution. Among the benefits listed by researchers are early screening for genetic predisposition to disease, to be followed by ongoing genetic monitoring to guide the application of genetic therapies. In short, say researchers, the coming revolution will make it possible to detect, monitor, and treat virtually every form of human disease.

Sometimes lost in the shuffle of such predictions is a sense of how the coming revolution may also alter the healthcare marketplace and the companies that serve it. Proponents may not want to admit it, but even this well planned revolution could still become sidetracked for lack of a receptive marketplace, or falter because of inadequate R&D funding, or even collapse on itself in a heap of unresolvable patent litigation. And somewhere along the way, the work of the revolution will still have to be forwarded by businesses—companies that may not at all respect past distinctions among the fields of medical devices, pharmaceuticals, and biotechnology.

To find out more about the issues that are affecting companies at the cutting edge of the revolution, Medical Device Executive Portfolio spoke recently with Henry Nordhoff, CEO of Gen-Probe Inc. (San Diego). Excerpts from that interview are published here. A subsidiary of Japanese pharmaceutical giant Chugai Pharmaceutical Co., Ltd, Gen-Probe is a company that is already plying the margins of traditional medical technology fields in search of revolution-era business success. With a patent portfolio stuffed with biotechnologies, and application interests that range from blood screening and clinical diagnostics to genetic therapeutics, Gen-Probe offers insight into the shape that many medical technology companies may take in the course of the revolution (see sidebar, page 40).

MDEP: The pundits in the mass media have already dubbed this the biotech century. How justified is their optimism?

Nordhoff: Absolutely well justified. The advances that we’ve made just in the last 10 or 15 years predict well what we’re going to do in the future, particularly in the area of gene therapy. When I was running a gene therapy company several years ago, I made some predictions that turned out to be a little too optimistic—for instance, that we would soon be able to detect and correct genetic predispositions to diseases in utero. But I still think those things are going to happen.

I’m certainly not willing to make a forecast on the time involved, but gene therapy has to happen. As we know more about the human genome—not so much the sequences, but the functions of the genes—and as we become better able to find those genes that are responsible for certain genetic disorders, I think we’ll be able to interfere genetically in those disease processes.

What is the main obstacle to knowing how long it will be before genetic therapeutics will begin to take hold?

Before we can talk realistically about dates, we need not only to discover the genes that are important but to discover a way of delivering those genes where they have to go. That’s what we were working on at the gene therapy company. We had isolated a receptor on liver cells that was very useful in delivering genes to the liver. But unfortunately, it was appropriate only when the liver was stressed, and that’s why that technology is not being pushed forward into the clinic.

But I’m sure there are other receptors and other delivery vehicles that are specific to certain types of organs, and that’s what we need to discover. Being able to use some of the viral vectors, and deactivating them so that they’re not toxic, is a useful approach too.

Will the work to discover therapeutic delivery vectors proceed in tandem with the continued work to understand the human genome?

Yes. They go hand and hand, and it probably isn't too far off the mark to consider the whole effort a single field of disease management. Clearly we have to have knowledge of both.

Some researchers have made the point that once the entire human genome has been sequenced, decades of work will still be required to understand what the sequence means. Do you share that feeling?

I certainly agree that knowing the sequence is not enough. I think that leads us into proteomics—looking at the proteins that those genes express. Clearly we know that the task is a little more complex than we thought just a few years ago. There are very few diseases that are determined by one gene. Most are really polygenic and they may vary from individual to individual. Research into single nucleotide polymorphisms (SNPs) will go a long way toward improving the practice of medicine, and I think SNPs will probably be useful from a diagnostic and therapeutic standpoint long before gene delivery is.

When dealing with a polygenic disease, does that suggest a polygenic delivery mechanism might also be required?

One really defines the other. We’ve done some work in that area at the other company that Chugai owns in the United States—Chugai Biopharmaceuticals Inc. (CBI), a therapeutic company that we spun out of Gen-Probe in 1995.

That happened because I didn’t like the idea of kind of sacrificing the growth potential of Gen-Probe by putting money from Gen-Probe into this therapeutic division. The division was about ready to start a human clinical trial using an HIV antisense approach, so we spun it out and signed an R&D contract with Chugai, who supplies all the funding. That freed up money to grow Gen-Probe while adequately funding CBI.

As it turned out, the CBI product did not show a very high probability of success, so we dropped it and moved on to high-throughput screening, combinatorial chemistry, and genomics and informatics.

But along the way, we acquired the rights to a cell line that started out as a metastatic breast-cancer cell line and then diverged into a nonmetastatic form. In my experience, that's a unique occurrence. And it provides a very appropriate set of disease and nondisease genes to use in target discovery because they're all from the same progenitor cell and thus should differ primarily in those genes responsible for metastases. Studying these cells, we have found a number of genes that just aren’t expressed in the metastatic line. They may be important, but if they aren’t expressed, there’s not much you can do currently from a therapeutic standpoint. In other words, since they are not expressed, inhibiting their production will have no therapeutic effect.

However, there is a lot that can be done with those markers from a diagnostic standpoint to distinguish cancers with metastatic potential. And diagnostics will also have a very large role to play in the entire genomics scenario well before therapeutics become important.

Changing Medical Practice

All of these changes seem like a lot for physicians to swallow. How do you see the practice of medicine changing as a result of these new concepts?

You might be expecting me to say that the role of the physician and the importance of being able to diagnose on the basis of conversations, symptoms, general feel, and experience will diminish in favor of more quantitative measures. But I’m not really sure that’s going to be the case.

Certainly the physician will have more information—and probably better information—at his or her disposal. But I think we all know that the individual has to play a role in treating himself or herself, and facilitating that effort is where the physician can really alter the course of the disease.

It is clear that the use of DNA probes, particularly quantitative amplified probes, have had an impact on the treatment of disease. Our ability to use a quantitative test for HIV is one of the main reasons that HIV infection and AIDS have been changed from a death sentence to a chronic disease. Today, clinicians monitor the course of the disease by looking at viral titer, using an HIV quantitative probe test. We know that the virus is very mutagenic, and as it starts to change and the medications become less beneficial the viral titer increases. Fortunately, we now have more than just a single therapeutic agent, so when the viral titer begins to increase, that's a signal for the clinician to change one of the medications in the cocktail.

That’s a terrific example of the impact of molecular diagnostics on medical practice. And I think we’re going to see more and more cases like that as our science moves forward into the biotechnology century.

Are clinicians ready for these changes?

I think they probably are. It's less certain whether we'll see the day when every individual carries around a microchip that contains all his genomic information, and that the physician can use to predict how that person will respond to certain medications. But I think the physicians today are ready for it. There have already been so many gut-wrenching changes in the practice of medicine in recent years that the changes brought about by genetic medicine might seem minor compared to some of the ones we’ve already gone through with managed care.

What about the training of the new generation of physicians? How is the coming of genetic medicine altering their training and way of thinking?

I’ve been in the industry for a little over 30 years, starting out at Pfizer on the therapeutic side. I was always struck by how little physicians knew about drugs and how dependent they were on the pharmaceutical sales reps and drug companies for their information. Many probably still are. But with the development of Internet resources, and with patients becoming a lot more knowledgeable, the doctors have had to move along too.

Some of the older physicians used to feel a little bit threatened, but I think they’re past that now. One hears a lot of instances now where a patient has been diagnosed with a disease, and returns for a second visit having read more than his physician about the disease. That doesn't mean that patients can put everything in context, but they know an awful lot and have an awful lot of pretty good questions for their physicians.

In a scenario like that, are specialists likely to play a heightened role?

Yes, I think so.

Over the past couple decades, privacy and related ethical questions have been a stumbling block for the field of genetic diagnostics. Do you think those issues are resolved now or can be resolved as the field moves forward?

I would hope so, or they could be a huge barrier to everyone leading healthier and fuller lives. I guess everybody’s concern is that once a person's genetic predispositions are known—even if the chance of disease is one in a million—then potential insurers or employers might think differently of them and they wouldn’t be eligible for insurance or employment. That’s probably a knee-jerk reaction. Knowing how many factors would have to be called into play for a certain disease to go from a genetic predisposition to actuality, I think we’ll eventually get away from some of those thoughts and fears.

Is there more suspicion in certain markets, certain regions of the world? Do you think that outside the United States the pace of acceptance for genetic technologies is likely to be slower?

Yes, probably so. But a lot of it is inevitable. I think the Europeans, including the French, will eventually get used to the idea of genetically modified foods. We’ve been doing this in a fashion for a long time through genetic selection for desired traits such as disease resistance and drought resistance, but in a less efficient manner. Now we’re being more controlled and targeted with it.

In addition to the pharmaceutical implications—the therapeutic side—some people have suggested that there are likely to be changes in the whole shape of medical products as a result of genetic technologies. How do you see those changes unfolding?

It seems likely that the practice of medicine will continue to move away from the hospital or physician’s office to the patient's home, with a lot of diagnostics available for use in that setting. Some of these will be available in traditional formats, where the patient goes to the pharmacy or drugstore and buys a kit. Others—a bit further off into the future—will be available electronically, enabling the physician to prescribe on the basis of data gathered, analyzed, and transmitted via computers.

The practice of traditional medicine will probably change, but we always have to reckon with the economic forces that come into play. We’re certainly seeing that trend in the device industry, where payers always want to know whether certain tests are really worthwhile. Can we pay for such a sophisticated instrument? What is the economic outcome analysis going to be? Concerns such as those interrupt progress toward the adoption of really sophisticated instruments, and they tend to bring manufacturers back down to earth.

Growing the Market

The investment community seemed confused last March, when President Clinton and Prime Minister Blair issued their call for free access to the genetic sequences being developed by researchers of the Human Genome Project and others. Wasn't that a good thing for biotech investors?

Yes, you’re right. But the question then becomes 'all right, we’re done sequencing the human genome, now what?' If companies patent all the sequences they've discovered and hold them all close to the vest, they’re not going to earn any royalty income. I think it was very wise of Cetus and Roche years and years ago to make PCR available to the scientific community. And I think it really helped develop the technology.

Pharmaceutical companies seem to have a heightened awareness of the potential of genetic technologies. Is that where the funding and the business interest will primarily come from in the future?

I think most of it will. Research into pharmacogenomics, for example, has tremendous implications for pharmaceutical companies. It may enable companies to shorten development time by targeting only those individuals with a certain genomic makeup as recipients for a medication. It may enable them to bring back drugs that failed because of toxicity in certain types of individuals, and to put them back onto the market with a shortened development time. These benefits, I think, explain why pharmaceutical companies have such a strong interest in pharmacogenomics. The rewards for the pharmaceutical industry could be just huge—not to mention the rewards for all mankind.

How big of an obstacle are differing acceptance rates and pricing structures for the growth of the market in molecular technologies?

I can speak specifically for what we’re doing in nucleic acid diagnostics and hopefully that will be more or less representative. DNA probes have carved out a significant portion of the infectious-disease diagnosis market because of their better sensitivity and specificity compared with immunoassays. The marketplace has been looking for even greater sensitivity, so we’ve replaced nonamplified probes with amplified probes, which have the same specificity but greater sensitivity. These new technologies also carry a higher price, so the market has grown from that standpoint.

Has the market grown because better tests are available? Probably. An example would be the ability of the amplified assays to test urine specimens for sexually transmitted diseases. Urine is easier to obtain than a cervical specimen and enables screening of population groups. This has increased the market in units, and the market has increased in value because it is a more expensive test.

Compared to our competitors in the diagnostic market—Roche and Abbott—Gen-Probe is very small. So we're moving into a whole new area, using amplified probes for blood screening. We have been testing under an approved IND, 70% of the total U.S. blood supply, broken down as follows: 100% of the blood from the American Red Cross, 100% of the blood from the American Independent Blood Centers, and from 25 to 30% of the blood from America’s Blood Centers (Roche is doing the remainder). And we are looking at a more-expensive test to detect cases of HIV, hepatitis B, and hepatitis C that have slipped through the immunoassay net.

We’ve produced some significant results. We’ve caught about 30 cases of HCV and four or five cases of HIV that were missed by the immunoassay test.

It’s going to be costly. Will medical providers pay that extra price? Will insurers insure for it? Would you be willing to pay an extra $10 or $15 for a pint of transfused blood if you knew that the likelihood of your getting a disease would be greatly reduced? In this case, will the existing tests, the immunoassays, be discontinued in favor of the probe tests? These are all questions that we’re grappling with now.

I think the answer is affirmative in all of those cases. Do we want to make our blood supply the safest that the latest technology can possibly allow? I think the answer is yes. Are we willing to pay for it? Probably.

Are there problems with the ways reimbursement decisions are made that are also slowing down the acceptance of molecular technologies?

I’m getting involved in that now, really for the first time, looking at the Health Care Financing Administration (HCFA) and why it makes the decisions it does. And I really can’t be critical now because I just don’t know the system. We’re not there yet.

Where we are, basically, is that we receive money under a contract with the National Heart, Lung, and Blood Institute (NHLBI), which is one of the National Institutes of Health (NIH). And we're investing everything we can put our hands on to metamorphose a very small company into a large player in the fairly large blood screening market. Certainly you have to have the technology and the patent rights to make a go of it in the blood-screening market that’ll be serviced by DNA probes, and we think we’re moving in that direction.

R&D Funding

How does Gen-Probe fund its product research and development activities?

On the blood-banking side, 3½ years ago we received a contract from NHLBI to develop an amplified probe test for screening the blood supply for HIV-1 and the hepatitis C virus (HCV). Over a period of time, we have received some additional monies from NIH—probably $15 million in total—and that’s also helped to support our R&D.

We’ve also entered into agreements with other firms. Having come from Pfizer, I’m probably more acutely aware of the limitations of our small size than I might have been without that background. When we began to move into new R&D areas, we found it necessary to do so as part of a collaboration or alliance.

About 3½ years ago we completed a deal with bioMérieux that had three major effects on our business. First, bioMérieux took over as our distributor outside North America and Japan. Second, it enabled us to use bioMérieux's Vidas instrument and to develop amplified probe tests that could run on that instrument together with immunoassays. From bioMérieux's standpoint, this part of the agreement offered the benefit of extending the life of the instrument. From our standpoint, it enabled us to address the small-customer segment of the market, which was a segment that we had been ignoring in favor of very large clinical reference labs. And finally, it provided an opportunity for both companies to pool their technologies in order to develop a DNA-chip instrument called the Anais. This project has been made simpler because of the good relationships that bioMérieux has with Affymetrix—including an exclusive license for the development of tests for bacterial infection. So the deal with bioMérieux offered all three of those things, plus some cash payments over a two-year period as well as some additional funding for research.

A couple of years ago we signed a collaboration with Chiron to get access to its patent rights for HCV blood screening. That deal also carries with it some monies that we have received and some future milestone payments.

So in addition to the funding we've received from NIH, we've also gotten a fair amount of funding through our partnership dealings. And that's really how we’ve been able to finance our huge investment in R&D.

Because we have these significant amounts of funding coming into the company that are not derived from sales revenues, it probably isn't fair to simply tally our R&D spending as a percent of sales, as you might with other companies. But if you consider just straight research versus sales revenues, Gen-Probe is currently spending about 34% of sales on R&D. And if you add in preclinical and clinical development, that percentage rises to about 37% of sales. If you further add the company's investment in creating its new Center for Biologics Evaluation and Research (CBER)–qualified manufacturing facility, that would add another six or seven percentage points—so now you're talking about 44 or 45% of sales. Obviously, that level of R&D investment would be absolutely unsustainable over the long term.

Gen-Probe has been nicely profitable for many years, and a positive cash flow has enebled us to generate most of our R&D funding internally. So our investments in development of the Tigris system and for the creation of our CBER-qualified facility are self-funded.

When you say that such a level of R&D investment is unsustainable, does that mean that you would expect sales revenues to increase so that the investment percentage would drop off?

Yes, but I think there also has to be a drop-off in absolute dollars. Right now, these investments are paying for one-time discoveries that will provide the basis for product development long into the future. But the future demands on R&D investment will drop off over the next two to three years, because there will be less need for development and documentation once the products are approved.

High R&D investment seems typical for the state of discovery and product development involving molecular technologies right now. Is that right?

Yes, that’s true. But again, a lot of Gen-Probe's particulars are reflective of the company's size. The absolute dollars that we invest do not add up to a huge amount, but to a company with $100 million or so of revenues it turns out to be a very high percentage.

You've partnered with a lot of companies in relationships where Gen-Probe is conducting the R&D. Does Gen-Probe, in turn, invest in other, still smaller companies that conduct some parts of projects?

We’re not investing per se, but we are acquiring technologies either by outright acquisition or more commonly by licensing, either on an exclusive or nonexclusive basis.

Defending Intellectual Properties

All of this R&D investment must have enabled Gen-Probe to develop a significant portfolio of intellectual properties. What does that look like now?

It is substantial. We have in excess of 125 patents, and over the past few years we have been number one among San Diego biotech firms in the sheer number of patents issued. We're also third or fourth overall in San Diego, which is no mean achievement considering that that tally includes the Qualcomms and other wireless communications companies in the area. And we're also among the top five biotech companies in California.

We have invested an awful lot in research and we do in fact acquire technologies that are complementary to our own. I mentioned our core ribosomal RNA technology, which we still use; our other core technology is transcription-mediated amplification (TMA). In order to have free title to that technology, Gen-Probe acquired from Stanford University another patent that our people thought could be troublesome. And then some three years ago we began to hear rumblings from Organon Teknika to the effect that they believed their nucleic acid sequence–based (NASBA) technology predated TMA and that the patents might be in conflict. There are several major differences; for instance, TMA uses two enzymes, while NASBA requires three enzymes. But in any case, the two companies were able to agree not to sue one another. They can practice their technology, and we can practice ours, but neither of us will use the other's technique. That was a nice resolution, and a model that I would hope more companies in biotechnology would begin to follow.

So this potential conflict turned into a win-win situation. We didn’t tie one another up in court, raise questions about whether one company could execute or not, or spend a lot of money.

Not every effort to defend your patent portfolio has been so pleasant. Gen-Probe has been involved in a number of suits and countersuits with Vysis, which started out as a part of Amoco Technologies.

Yes. Those resolutions were not so amicable. In one case, Vysis was alleging that David Kohne was at another San Diego company when he invented the ribosomal RNA technology. In the other case, they alleged that a scientist at another university was a coinventor. Both cases were jury trials, and Gen-Probe won both of them.

This process cost us a lot of money, but a company has to fight to keep what rightfully belongs to it—especially when those properties are so important to its technology and products. The Kohne technology was certainly one of those. But we have licensed out the technology. We licensed it to Becton Dickinson several years ago for a limited application. And we have licensed it to bioMérieux to use jointly, and to Chiron as part of our acquisition of their hepatitis-C patent rights for blood screening. We have also given Chiron diagnostic access to certain other technologies, and since Chiron Diagnostics was acquired by Bayer Diagnostics last year, we now have a relationship with Bayer.

It becomes complicated to follow all of the various licensing relationships among biotech companies, doesn't it?

Yes, but this is something that company executives must do. Very few companies have the necessary breadth of technology and product offerings to stand on their own—whether it be in therapeutics or in diagnostics—so it's essential to forge these relationships. Doing so has been very helpful for us.

How does Gen-Probe decide when to defend and when to license?

Where it makes sense for us, we'll license our technology to another company. But even though we are small, we’re not going to be bullied into making a deal that’s detrimental to ourselves, our shareholders, or our future. And that’s been our practice in the past.

Where a deal makes economic sense, both currently and, more importantly, longer term, we’ll do it. Frequently, companies can cross-license one another, not just with technologies that might be the subject of litigation but also with other ones. We’ve always tried to do that, but not always successfully. That type of arrangement isn't always a good fit, but it's an option that companies should always seek.

Does the coming expiration of Roche's patent on PCR heighten or diminish the licensing potential of TMA?. Or is this even something that Gen-Probe is looking to do?

In areas where licensing TMA wouldn't make us competitors either with ourselves or with our partners, we would consider doing so—and we have. But the first patent on TMA doesn't expire until 2012, so we’re in no rush to license it out very broadly.

Do you see gene patenting as a stumbling block for Gen-Probe’s development of future technologies?

It hasn’t been thus far. We’ve been able to license patents on the sequences that we think are important and that are unique to certain organisms. And I would think that they would continue to be accessible to us for diagnostic applications, so at the present we're in pretty good shape.

I would hope that companies wouldn’t go into litigation on the basis of an overlap of a couple of base pairs. I think there's a better way to work out such conflicts. In the past, the litigation that we’ve been involved in has had to do with certain technologies, not genes. But I think there probably is some public sentiment to the effect that companies shouldn't be permitted to patent a gene until they know its purpose.

Company and Product Development

How was Gen-Probe established and how did it wind up being owned by Chugai?

Gen-Probe was founded in San Diego in 1983, which is quite some ago for a biotech company. The company started with DNA probes, and one of the founders, David Kohne, basically patented the use of ribosomal RNA for the detection of organisms. When you’re trying to detect the presence of an organism in a specimen, there may be only one or two copies of the unique stretch of the genome to identify it. But there may be as many as 10,000 copies of its ribosomal RNA. We call this nature’s way of amplification.

Two gentlemen from another San Diego company, Hybritech, wanted their company to license this technology from Kohne. Hybritech eventually became an early investor in Gen-Probe, but the company wasn't interested in a licensing arrangement. So Tom Adams and Howard Birndorf left Hybritech and joined Kohne to form Gen-Probe around his ribosomal RNA technology. The company did well and went public in November of 1987, about one week before the stock market crash of that year.

The company expanded rather dramatically, but by 1989 it was running short of funds. It already had a research agreement with Chugai Pharmaceutical, so in that year Chugai was approached about the possibility of acquiring the company. Roche was also interested, but in the end Chugai acquired Gen-Probe for about $110 million.

Gen-Probe has grown well and has provided Chugai with a pretty good return on its investment. Last year we had revenues of about $116 million. In the United States, Chugai also controls a small therapeutics company called Chugai Biopharmaceuticals Inc. (CBI). Chugai is essentially a therapeutics company, but it also has a very small diagnostics subsidiary, Chugai Diagnostic Sciences, which is based in Japan, and with whom we work closely.

Starting from our base in ribosomal RNA technologies, we’ve expanded into the infectious disease market, specifically the sexually transmitted diseases chlamydia and gonorrhea. We also have an involvement in respiratory diseases, including streptoccocus-A infections and tuberculosis. All together, I think we have one of the best arrays of technologies in the diagnostics industry, including our proprietaty form of nucleic acid amplification, called transcription-mediated amplification (TMA). Our people like to call TMA a second-generation amplification technology. Unlike PCR, TMA is isothermal, so you don’t have to raise and lower the temperature of the sample to produce the amplification effect. The method is also autocatalytic, less likely to cause cross-contamination, and very powerful.

Over the years Gen-Probe has been able to take some of those very sophisticated technologies and incorporate them into products that are very convenient and easy to use. Right now we are trying to move into the blood screening market. But to do so, we’ve had to make some rather large investments. About 3½ years ago, we started investing in development of a high-throughput, fully automated instrument that would be capable of performing about 1000 nucleic acid assays in a 12-hour period, roughly 500 per laboratory shift. Our intention is to produce this instrument for both the diagnostics market and the blood-screening market. And we have invested in a new CBER-qualified production facility that will produce nucleic acid assays for the blood-screening market.

This is the long-awaited Tigris instrument?

Yes, this is the Tigris instrument. But please don’t emphasize the long-awaited part. It is progressing well now and should be developed in less time and for less cost than an average instrument of this type.

What proportion of the intellectual properties that Gen-Probe holds are directly related to products actively under development? Are there some that are more likely to be developed in the future?

A lot of the technologies we have are pretty much operational right now. For detection, we are using our hybridization protection assay (HPA), which is able to detect single-point mutations and has a patent that will run until 2011. To differentiate between two different analytes we use our dual kinetic assay (DKA), which shows the differences by using both a flash of light and a glow of light and is also patented through 2011. So our HPA, DKA, and target capture technologies are all being used now. That doesn't mean the products using all these technologies have been approved, but they are under development and should be submitted to FDA fairly soon.

At this point in the evolution of Gen-Probe, we are concentrating on applied, as opposed to discovery, research, converting our technologies into practical and convenient products. Our rapid entry into blood screening illustrates this near-term strategy.

At this point in the evolution of the biotech industry, is the absence of a standard, automated platform that is mounted in lots of clinical laboratories a hindrance to making use of molecular technologies?

I don't think it has been a hindrance to Gen-Probe. We have about four instrument systems we’re using now and they all employ those technologies. To give just one example, the Tigris system is a fully automated, high-throughput walk-away system that will employ our TMA amplification technology as well as HPA and DKA. So they’re all incorporated in there. These technologies were developed with automation in mind, so when it came time to put assays on the Tigris system, it turned out to be simplest to use proven instrument components and processes.

Automated systems like this promise to simplify laboratory operations and make laboratorians’ lives easier, but it seems that getting labs to actually adopt such systems—either through purchase or lease-back arrangements—is taking a long time. Is that a correct impression?

Yes, exactly. Labs want proof that the system will save time and money. To launch an instrument like Tigris, the manufacturer really needs a large customer, which has always been the market focus of Gen-Probe. Tigris has the capacity to do about 1000 combined HCV and HIV blood-screening tests in a 12-hour period. There aren’t too many labs that require or can support that kind of throughput. That’s probably been a hindrance with a small menu. So I agree that adoption of automated molecular systems is progressing very slowly.

You mentioned that not every lab performs the volume of testing needed to make a high-throughput molecular system like Tigris cost-effective. Do you think the marketplace is ready for such sophisticated systems?

Yes, we think it is. And it certainly is when you consider starting out in the blood screening market, as we are. The average blood bank will probably need two or possibly even three of these instruments. The additional instruments are needed partly to match the volume of testing with the throughput of the machines. But they are also needed because of the perishable nature of some blood components, which means that the system can’t be shut down; at least one instrument has to be up and running at all times.

I don’t think there is quite the same time crunch when it comes to diagnostic applications. But it certainly makes sense from an economic standpoint to use one technician to run two high-throughput instruments instead of several technicians to operate more machines with much lower throughput. Not only does this reduce costs—specifically, personnel costs—it also reduces the risk of errors. It’s because this makes so much economic sense that we are continuing to see consolidation among the labs, with the result that individual labs are getting larger and requiring ever-higher throughput.

Some diagnostic labs that specialize in genetic testing may perform only a few dozen tests a week. How do high-throughput automated systems fit into that environment?

An instrument like the Tigris makes no sense there. None at all. However, one of the things we’re interested in doing with Tigris for the diagnostics market is to broaden the menu as much as possible. If the system can only perform one or two assays, it’s not going to enjoy a very broad market reception. But if it can run a large number of assays, obviously there would be more labs that could justify using it.

When higher volumes of molecular testing are being performed, will the cost per test come down as it does with other technologies?

Yes. We price on a volume basis and the instrument is included in that price. So the higher the volume, the lower the cost per test.

You mentioned that the Tigris system uses essentially conventional automation technologies. Is Gen-Probe also investigating DNA-chip technologies? How would you rate their potential?

I think the potential is enormous, and the whole field of microfluidics is going to be important as well. But commercialization of a product that uses DNA-chip technologies for clinical diagnostics is probably a little further away than we thought as recently as a year or two ago. Through our collaboration with bioMérieux, and theirs with Affymetrix, we have the opportunity to participate in this field. Many companies in the diagnostics area are working on this. It will eventually happen—probably first in the areas of IVDs and SNPs—but we certainly have to get the cost of the chips down. It has come down some, but it still has a long way to go.

Is the cost of DNA chips partly or largely a function of the substrates that they’re made out of?

It’s partly their substrate, but also the volume of production. I mean, companies might be able to produce billions of such chips cheaply, but can they sell billions of them right now? There’s no need for such large-scale production. At least, not yet.

Navigating the Regulatory Path

What will it take for fully automated molecular systems to gain regulatory approval for diagnostic applications?

Of course, getting regulatory approval for such systems could be a stumbling block. But there has been signficant movement on that front. In May, Gen-Probe was one of four companies that CBER brought together to demonstrate their latest molecular assays and systems for the benefit of FDA reviewers and field inspectors. We demonstrated the semiautomated system that we are now using for blood banking as well as the Tigris system.

Do you think that such FDA-training activities are likely to smooth the regulatory path to market for automated molecular diagnostics systems?

Yes, that’s our hope. And judging by the interest and attitude exhibited by the people from CBER and CDRH, I think it’ll happen. They asked a lot of good technical questions, both on the chemical and on the electromechanical side. I understand that another such session is being scheduled for this fall.

Given such an improved regulatory scenario, do you think the pace of commercialization for such products will move as rapidly as the technology can be developed, or are there other hindrances that are likely to slow progress?

I think it probably will move quite quickly. Certainly, there will be some lag-time before the technologies can be embodied in assays and instruments, but I think the lag is going to be a lot shorter than it’s been in the past. For instance, in the case of the Tigris instrument, because of the need for blood screening to improve the safety of the blood supply, we have been given an accelerated review. And I think FDA is really interested in having the same quality of reviews as it has had in the past, but is trying to streamline the process and provide greater assistance to manufacturers. So when a manufacturer comes into CBER with an instrument that represents a whole new generation in terms of size and sophistication—like Tigris—agency reviewers are very willing to talk about what elements they consider most critical for the approval of that product. The cooperation that we’ve gotten has just been terrific.

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