By ANDREW POLLACK, Business/Financial Desk
The New York Times November 23, 2001, Friday,

On a farm near Madison, Wis., are some of the world's most costly and well-protected cows. People entering their climate-controlled steel and concrete barns have to shower first -- to keep the cows from becoming infected. The cows have been genetically engineered to produce pharmaceuticals in their milk. Some biotechnology executives think such animals may be the pharmaceutical factories of the future. But today the roughly 45 cows face an uncertain fate. The company that created them, the Pharming Group, which is based in the Netherlands, has run out of money and filed for protection from its creditors.

Pharming's problems suggest that the dream of producing drugs in milk has begun to fade. PPL Therapeutics, the Scottish company that cloned Dolly the sheep and is also trying to produce drugs in milk, nearly ran out of money before raising about $45 million recently. Genzyme Transgenics of Framingham, Mass., while flush with cash, changed chief executives in July, and its stock has dropped from above $45 last year to about $4 now. The problems of the drugs-from-milk business could also deal a blow to animal cloning companies because replicating such drug-producing animals was expected to be one of the biggest applications of cloning. Indeed, Pharming's cows were created with the help of Infigen, a Wisconsin cloning company. The troubles are occurring at a time when it would seem the use of genetically modified animals would be in great demand. That is because the biotechnology industry is suffering from a severe shortage of conventional manufacturing capacity, spurring the need for alternatives like drug-producing animals. Biotechnology drugs are generally human proteins like insulin or growth hormone that are manufactured by putting the gene for the protein into bacteria or hamster cells, then multiplying those cells in stainless steel fermentation tanks. A big manufacturing plant requires several years and $100 million to $500 million to build. Putting the gene for the human protein into animals and then purifying the protein from milk is a cheaper alternative, backers say. "You're talking about investments in animals and barns and milking facilities rather than stainless steel reactors," said Tom Newberry, a spokesman for Genzyme Transgenics. The biggest advantage of using animals may be to produce drugs that are needed in large quantities because they are given in high doses. PPL and its partner, Bayer, are now holding clinical trials of a protein produced in transgenic sheep called alpha-1 antitrypsin, which is used to treat emphysema and cystic fibrosis. Bayer already gets the protein from human blood but can only make enough for 3,500 patients. But 2,000 transgenic sheep could make enough for 20,000 to 40,000 people, said Ron James, PPL's chief executive. But despite the theoretical advantages, the earliest that drugs made in animals will be on the market is 2003. For one thing, it is not yet clear how readily the Food and Drug Administration will approve such drugs. Among other things, drug-producing animals will have to be certified as free of mad cow disease or other serious infectious illnesses.

Genzyme Transgenics has signed more than a dozen deals with drug companies to explore producing drugs in transgenic goats. Johnson & Johnson and Bristol-Myers Squibb have signed agreements for two drugs apiece. But none of the companies has actually made a commitment to begin clinical trials with a drug produced in milk. "You're at a point where you've got to execute," said William Tanner, an analyst at SG Cowen. "This is not a problem of getting more partners or getting more goats. It's a question of getting someone to pull the trigger."

Genzyme Transgenics planned to have its own drug from goat milk approved first. It finished clinical trials of antithrombin-III for use in certain patients undergoing coronary bypass surgery. But when the F.D.A. requested more data, Genzyme Transgenics dropped the drug, saying the potential sales would be too small to justify the expense.

That decision, early this year, sent the company's stock tumbling and Genzyme now acknowledges that it was a mistake. Geoffrey F. Cox, who took over as chief executive in July, said the company will pursue new clinical trials to get antithrombin-III approved for a different use by 2003. Sales might be small, Dr. Cox said, but the real goal is to demonstrate that a drug produced in animal milk can win approval. "We need to establish through our own leadership the sense of confidence in the regulation of transgenic products," he said. In addition to regulatory hurdles, it can take 18 months to begin getting a drug from an animal. To produce drugs in a goat or sheep, a gene must first be inserted into an embryo, which can take several months. Then the embryo must be implanted in the womb of a surrogate mother, which will give birth five months later.

It then takes six months for the goat or sheep to reach sexual maturity and another five months for that animal to give birth and begin producing milk. With cows, which have a longer gestation period, it takes even longer. If an animal does produce enough of a drug in its milk, it can be the founding animal of a herd. But if not, the whole process must start again. By contrast, conventional production in hamster cells can yield small amounts of protein in a few months, allowing clinical trials to begin more quickly. Even Pharming ended up switching to conventional manufacturing using hamster cells for its first drug -- a treatment for a rare genetic disorder, Pompe's disease -- after starting with genetically engineered rabbits. "If you are in a clinical program and need to scale up quickly, they duplicate every 24 hours," Rein Strijker, senior vice president at Pharming, said of hamster cells. "Even rabbits, though they breed like rabbits, don't duplicate in 24 hours."

But the shift to hamster cells added an extra financial burden for Pharming and undercut its claims for its own technology. Pharming's failure is affecting several American organizations. Most of the cows in Wisconsin were engineered to make either fibrinogen, a wound-sealing protein Pharming was developing with the American Red Cross, or human collagen 1 for tissue repair, which was being developed with Cohesion Technologies of Palo Alto, Calif. Pharming was also working with Baxter Healthcare on a protein known as human C1 inhibitor for the treatment of hereditary angioedema. Pharming executives say they hope to raise money soon and emerge from receivership. They say the technology will find a place given the need for alternatives to conventional manufacturing. Meanwhile, new start-up companies are trying to produce drugs in genetically modified plants, in the eggs of genetically altered chickens and even in the semen of genetically engineered hogs. The stumbles of the transgenic animals companies could allow some of these competitors to catch up. Or it could merely show them the pitfalls that are ahead.

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