As a start, we will look at what the biotechnology start-up companies do now to see why those areas have been successful and others have not. This section will review briefly the main areas that 'biotechnology companies' work in.

The applications: medicine
ology investment since the mid 1970s has been in health-care, and specifically in the discovery of new drugs. An effective new drug can be sold at good profits for as long as the patent on it prevents someone else from selling it at a lower price. Once a drug comes 'off patent' it can be manufactured as a 'generic', and profit margins on it plummet. Patents do not last forever and, if a drug takes 15 years to develop, a patent will only protect its manufacturer from competition for a further 5 years. This means that the original inventor of the drug must have invented a new one every five years (ideally more often), if they are to sell high value, high profit drugs. Thus discovery or invention of new drugs is critical to the commercial strategy of many big pharmaceutical companies. In fact, the drug 'super-companies' formed by the mergers that created such companies as Glaxo-Wellcome and Novartis must launch at least three new drugs each year to keep their competitive position.

In this session we will summarise the application of the technologies of biotechnology to drug discovery. A wide range of discovery techniques can identify a molecular target, although genomics-based discovery is currently considered one of the most powerful. This 'target' is a molecular entity whose activity is considered important in a disease. The rest of the discovery process then searches for a small molecule compound that will interfere with the effects of that target. The result is a candidate drug, which is developed into the active ingredient of a medicine.

This process has a high failure rate--only about 4 percent of programmes succeed in producing a drug that is approved by the regulators, and probably less than 25 percent of these are profitable. And it is very expensive: a drug typically takes around $250 million to bring it to market, and most of them fail along the way (these are similar costs and success rates to a Hollywood blockbuster film, a new make of car, or re-launching Pepsi in blue cans). Typical failure rates, times and costs are listed in Table 1, but the reality is even worse than this, because you have to run at least 12 target discovery programmes at $3.5 million each to have an even chance of getting one drug at the end. This means that the pharmaceutical industry spends nearly 20% of its aggregate $20.9 billion 1998 R&D expenditure on things that do not work. They are therefore willing to pay very large sums to biotechnology companies that can provide science or technology that:

• enhances the understanding of the disease (and hence lowers the inherent risk in this approach);
• increases the efficiency of the discovery process (and hence means you can do more discovery for less cost);
• has already been proven in clinical trials to be superior to existing therapy.

This is a continuum of activity from basic biomedical research to commercial drug development, and the drug discovery biotechnology industry occupies the middle of this continuum. Thus some companies are essentially applied extensions of academic groups, others are indistinguishable from small drug companies. In between are companies providing specific technological skills or services, such as companies providing genomics, combinatorial chemistry, or molecular design technology, or companies specialising in screening. In addition, some companies are seeking to radically alter the order in which these steps are done, for example performing aspects of the conventional development as part of discovery.

Medical diagnostics have a quite different dynamic. While it is hard for an academic researcher to discover a new drug, it is relatively easy to discover a new diagnostic 'marker' for the difference between sick and healthy people. The limitation on their commercialisation is making them reliable and simple enough to be used on a large scale, and ideally to be performed by automated machinery, thus removing the need for skilled assay technicians. As a result, the diagnostics industry is dominated by a small number of companies with powerful marketing and distribution abilities, usually allied to their 'platform' instrumentation--large automated instruments that can perform a wide range of tests. Small companies can only gain a foothold in this market by finding specialist niches, such as specialist 'over-the-counter' tests (for pregnancy, cholesterol etc.), or unusual medical specialties that do not fit into the mainstream of diagnostics.

Genomics-driven drug discovery may change this, with drugs being increasingly targeted according to diagnostic tests that have been developed for those drugs (an idea called the RxDx tandem). This will create needs for many new technologies and systems for testing.

The applications: food and agriculture
Food and agriculture is more important economically than health-care, even in Western countries, and is clearly of much greater concern to the rest of the world. However these areas have not attracted so many biotechnology companies. At root, this is because a new food cannot be sold at $1,000 a meal in the same way that a new drug can be sold at $1,000 a bottle. Food is price sensitive--the higher the price, the less you sell. Above a certain price, you sell none (price limited). So it is hard to justify expending very substantial amounts of money on developing new food materials because that money cannot be reclaimed in a premium price on the food.

The main exception is in breeding, where the cost of generating a new strain of plant can be offset both by sales of a very large amount of seed-stock and in the premium the farmer can charge for the resulting produce, or the savings in production. In principle, the cost of developing a transgenic crop plant that is resistant to pests (an exercise costing tens to hundreds of millions of dollars) can be recovered by charging extra for the seed--farmers would pay more for the seed because they would have to spend less on pesticides. In practice these economic arguments have proven hard to make in many cases.

A similar argument makes animal reproduction technologies valuable, either in the generation of 'transgenic' animals or, more recently, cloning them. The scientific and commercial value of such 'cloning' explains some of the excitement over the 1997 announcement of 'Dolly' the cloned sheep. Dolly is not a product in her own right, however, but a demonstration of a technology for making tools that themselves will end up in products.

Product-orientated biotechnology in agriculture has been most successful when it focuses on added value in the final product (rather than increased bulk). Typical of food and agricultural biotechnology programmes are the use of genetically engineered enzymes in food processing (added value can be the development of more reliable food flavour, for example), transgenic fruit and vegetables to prolong shelf life (the Flavr Savr tomato was the first such product), and bacterial silage additives and nodule stimulants for legumes to increase productivity.

Even so, the raw material cost in many consumer products is a small fraction of costs of packaging, transport, storage and selling: for example, in the 'over-the-counter' pregnancy tests, the majority of the manufacturing cost lies not in the antibody reagents, but in the plastic casing. And this is itself a small fraction of the cost of storage and transport of the packaged tests. So the biotechnological product must add exceptional value to be worth developing.

Two other areas of biotechnology have had successful application in plant sciences. Both are applications of the 'new' biotechnology to very extensive, established 'old' industries. The first area is in the use of enzymes and, to a lesser extent, micro-organisms in food preparation. The other is in horticulture, where micro-propagation technologies have now become so widely accepted for developing new decorative plant types that they are mainstream horticultural practice. Gardeners will tolerate levels of pesticide use and 'crop failure' greatly in excess of those allowed a farmer: their 'crop' only has to look pretty. For crop plants these techniques have proven only occasionally successful in large-scale production, although they are part of the panoply of technologies used in plant breeding.

The applications: other industries
Many other industries could, in principle, benefit from biotechnology. The fabric and textiles industries are using biotechnology quite substantially, using enzymes to treat textiles and leather, for example. The paper pulp industry is taking up biotechnology rapidly as a cleaner (and hence cheaper) alternative to chemical and mechanical processes. The plastics industry uses the polymers made by micro-organisms, although in practice materials such as the poly-hydroxyalkanoates (such as polyhydroxybutyrate mixtures--'Biopol') have gained only marginal industrial use.

Other biomaterials such as xanthan gums are used in some specialised industrial applications, but this is rare, and opportunistic, and usually does not exploit our systematic knowledge of biological systems, but only our accidental knowledge of their properties and products. This is because oil is very cheap, and the industry for converting it into products is flexible, efficient and sophisticated.