Diagnostics Race Heats Up for S.D. Biotech Firms

A technology race is heating up in the $12-billion worldwide medical diagnostics market, and an announcement by Baxter International demonstrated that its San Diego-based researchers will be playing a vital role in the competition over the next decade.

Baxter, a medical supply, instruments and distribution company with nearly $9 billion in annual sales, said last week that it has moved the headquarters of its diagnostics division’s research and development efforts to San Diego.

The diagnostics R&D; chief, vice president Susan Evans, has been transferred from Miami to oversee research efforts in San Diego, Irvine, Sacramento and Miami.

That Evans is moving to San Diego even though only 35 to 40 of the diagnostics unit’s 500 total researchers are based in San Diego is an indication of the importance Baxter places on the technology under development here. The local Baxter team is led by Thomas R. Gingeras, head of Baxter’s Life Sciences Research Laboratory.

Gingeras’ team is developing new diagnostic technology called nucleic acid amplification, a method that enables a hospital laboratory to identify a virus, microorganism or other health problems in minute amounts of genetic material.

In the past, diagnostic methods that focused on genetic evidence have been frustrated by the fact that amounts of the genetic material were too small to be measured accurately, Evans said in an interview. So the bacteria or virus had to be grown in a culture.

But PCR and other gene amplification methods can take trace amounts and increase the “signals” sent out by their genes so that they are easily measurable, Evans said in an interview.

Baxter is hardly alone in the field. It and other major players in the medical diagnostics field are hustling to keep pace with Hoffman-LaRoche, which became the leader in the nucleic acid amplification field after its acquisition last year of a “revolutionary” amplification method called polymerase chain reaction, or PCR, developed by Cetus Corp.

Hoffman-LaRoche acquired the technology from Chiron for $300 million after Chiron bought Cetus and found it did not want to pursue Cetus’ diagnostic business. Also pursuing nucleic acid amplification technology is Abbott Laboratories, the leader in the medical diagnostics industry with an estimated $2-billion slice of the worldwide market.

After acquiring the Cetus technology, Hoffman-LaRoche set it up as an independent business unit and is now budgeting between $50 million and $100 million per year to bring the technology to the marketplace, said Kenneth D. Noonan, vice president of Wilkerson Group, a New York-based management consulting firm to the health care industry. “Roche is making a significant bet on PCR,” Noonan said.

Thomas Adams, a former executive with Baxter, Hybritech and Gen-Probe who is now chief executive at Genta, a San Diego biotechnology company that is developing therapeutic drugs, said companies such as Baxter, Gen-Probe and Chiron “all have major programs aimed at new detection methods that all involve amplification techniques of one type or another. They’re all racing with Hoffman--LaRoche to come up with other things.”

It could take a decade or more for amplification methods such as PCR to become significant tools in the market, which consists mainly of hospital, clinical and commercial laboratories. The process involves reagents or chemicals that help produce the amplified effect on a specimen of blood, fluid or tissue, and also the microprocessor-based instruments to detect and measure the cells or viruses being sought.

Still, the commitment of Hoffman-LaRoche to the PCR has shaken up the medical diagnostic industry, said Michael Martorelli, research analyst with Pennsylvania Merchant Group, an investment banking firm in Radnor, Pa.

“Polymerase chain reaction or PCR is a revolutionary technique that is creating a new market,” Martorelli said. “It allows you to amplify the signal of the item you are looking for so that, instead of a needle in a haystack, it’s a needle in a little group of straws.’

Thomas Bologna, president of Gen-Probe, a San Diego based company that makes DNA probe diagnostic tools, said the beauty of the nucleic acid tests is that certain viral diseases such as HIV will be detectable at a much earlier stage. HIV is now detected through the presence of HIV antibodies, which manifest themselves long after infection.

Until last July, Gingeras and his research team were employees of Salk Institute, from which Baxter had been licensing rights to nucleic acid amplification research since 1988. But, last summer, Baxter made the Salk employees its own and brought the research efforts under its roof in a 25,000-square-foot Sorrento Valley facility.

In an interview, Evans said Baxter’s approach, called 3SR, is similar yet different from the Hoffman-LaRoche PCR approach. “We both use amplification techniques but the targets are different. With PCR the target is DNA, and with ours the target is RNA. You amplify it to the point that it enables direct detection in a very rapid mode.” Evans said.

Evans said another purpose of basing Baxter’s diagnostic research operation in San Diego is to be close to academic research activities at places such as Salk, UC San Diego and Scripps Research Foundation. Gingeras is also a professor at the UC-San Diego medical school.

Howard (Ted) Greene, a San Diego venture capitalist and former Baxter executive who is now chairman of Amylin Corp., said Baxter’s desire to be close to academia is a sound approach. “It’s what the Japanese companies are doing, establishing beachheads with academics so that they get into the deal flow,” Greene said.