AGS Expects OK to Release Microbes in Air : Genetic Firm Poised for Historic Experiment

Advanced Genetic Sciences could make history this week by getting the government’s OK to release man-made life into the atmosphere.

The biotechnology company expects landmark federal approval Thursday to spray a laboratory creature on strawberry plants to see if the microbe prevents frost damage. Approval from the Environmental Protection Agency would be the first of its kind.

Winning approval would also be a giant step for 5-year-old Advanced Genetic, giving it a shot at becoming a major player in agriculture.

Investors, responding to rumors that regulatory sanction was near, pushed Advanced Genetic’s stock up to the $4 range in over-the-counter trading--double what it was a few weeks ago, Advanced Genetic President Thomas M. Dyott said.

But any EPA decision will hold even more significance for the emerging biotechnology industry, whose sales, analysts say, could reach $100 million by 1990. About 40% of that revenue will come from the creation of new drugs. But about 60% is expected to come from agriculture, where gene splicing techniques could fatten plants and animals and make both more resistant to disease, drought and poor climate.

By allowing Advanced Genetic to test the microbe in the environment for the first time ever, biotech executives and analysts say, the EPA will demonstrate its willingness to permit such procedures. It also will make clear its intention to help companies wade through federal red tape in their attempt to develop novel products.

“It’s a feather in the company’s cap, but much more is at stake here industrywide,” said Misha Petkevich, biotech analyst at Hambrecht & Quist.

Potential customers stand to gain, too. The microbe that Advanced Genetic is testing, for example, could help fruit growers, who each year face the possibility of losing millions of dollars in crops to unseasonal chills. Growers now rely on smudge pots, which provide uneven warmth and protection.

In greenhouse tests at Advanced Genetic’s headquarters, the company’s newfangled microbe successfully protected fruit plants from freezing temperatures. But, as with all new products that affect food supply or are used as drugs or medical devices, side affects may take years to appear.

Regulators must try to protect the public from the potential hazards of allowing an altered organism into the atmosphere, where it could interact in undesirable ways with the environment. They also must avoid shackling companies with unreasonable delays.

Environmentalists and executives, however, rarely agree on what is reasonable. Opponents of gene manipulation have used the courts to block the release of laboratory-made organisms into the atmosphere. The strategy has added two years and millions of dollars to the research costs of Advanced Genetic and other companies.

Now, executives at fledgling biotechnology firms and at established chemical giants such as Monsanto and Du Pont are watching to see if the EPA allows Advanced Genetic to test genetically altered microbes in nature.

If permission is granted, Advanced Genetic hopes to test spray a crop of strawberries in January in an area near Salinas, Calif. Industry executives say the green light would clear the way for approval of several similar experiments at a variety of companies, including St. Louis-based Monsanto.

Advanced Genetic’s run-down headquarters and precarious financial position seem out of keeping for a company that is making headlines nationally.

Dwindling Cash Reserves

Dyott’s office, among the nicest at the company, has bare walls and hardly holds two people comfortably. The Spartan accommodations are the most obvious sign of the battle that Advanced Genetic is waging against time and dwindling cash reserves: The company must get key products out the door before research money runs out or competitors catch up to what analysts agree is its technological lead.

Dyott says that the company needs $6 million in new funding “soon” to keep from folding. He says he feels certain that the company is about to raise $4 million, but he concedes that fund raising is not easy. And all the time the company must look over its shoulder at competitors such as W. R. Grace and Cetus, which have a joint venture in agricultural applications of biotechnology.

The biggest potential competitor, however, is Monsanto.

In August, Advanced Genetic introduced its first product--Snomax, a naturally occuring microbe that the company sells in a form to speed up snow making on ski slopes. The company projects sales of $500,000 for the product this winter.

Advanced Genetics’ Snomax product works in opposite fashion from the microbe awaiting EPA approval. Both, however, come from research on the same organism. The company noticed that a microbe common on fruit plants made water in plant leaves freeze more quickly. Snomax takes advantage of the natural organism’s ability to speed the time required to freeze water.

By eliminating the organism’s water-freezing gene, the same microbe becomes a shield against cold. It’s that genetically altered microbe that the company hopes to develop into an affordable frost protector within three years. It also hopes within that time to create an organism to protect plant roots from disease. Both products will target the world’s pesticide market, which is expected grow by 5% a year and reach $15 billion in sales worldwide by 1990.

In the longer run, the company hopes to have a second line of products--genetically engineered plants. Plants will be more lucrative than gene-spliced microbes, Dyott says. And less controversial. “Plants don’t bother people as much because people assume they can outrun a plant,” he said. Jokes aside, Dyott is concerned about the growing list of liability lawsuits facing the chemical and pharmaceutical industries.

He’s also concerned about legal expenses to protect patents. Advanced Genetic’s ice-inducing and ice-prohibiting products rest on patents that it licenses from the University of Wisconsin and the University of California at Berkeley. The licenses expire in the mid-1990s. By then, the company hopes to have its own patents and to be big enough to afford the expense of protecting them in court.

The company was founded in 1980 by venture capitalist Daniel Adams and went public in 1983, when its stock sold for $15 a share. But it raised only $10 million of the $40 million that it had counted on. Dyott says it has been seeking funds to make up for that shortfall ever since.

Profitable Only 1 Year

The company has only been profitable one year, but the $743,853 in net income in 1982 was possible only because Philadelphia-based Rohm & Haas contributed a $5-million research grant. For 1985, Dyott said he expects the company to lose $7 million, the same as last year. But he expects the losses to dwindle until the fourth quarter of 1987, when he expects the company to regain profitability.

Dyott says the company intends to remain independent and become a fully integrated chemical and seed company. But, he said, “we know we need to collaborate with bigger companies right now,” both for research funding and for access to established manufacturing facilities and marketing channels.

The company recently signed a research agreement with Du Pont for $320,000 a year. It also is completing a study on genetically engineered fruit plants for an unidentified “major food conglomerate,” and the results could lead to a “significant” association with a corporate giant, Dyott said.

He said that EPA approval “demonstrates that our company has what it takes to gain the regulators’ confidence. That’s a major hurdle.” But, he said, “we still face an uphill battle.”