Joseph Priestley Lecture

Good afternoon. Thank you for having me here to address a society that honors Joseph Priestley.

One hundred and seventy nine years after his initial isolation of oxygen, another Englishman, Francis Crick, joined forces with an American, James Watson, to look inward, at the structure of something just as wondrous as air: DNA. This molecule, of course, marks the fundamental intersection of chemistry and biology.

And this year is, as I'm sure you've heard, the 50th anniversary of Watson & Crick's discovery of the double-helix, a structure we now take as much for granted as that of the solar system or the atom. It's also been 30 years since the key breakthrough with recombinant DNA, 20 years since the advent of the polymerase chain reaction technique of expanding DNA, and 10 years since the founding of the organization I represent, the Biotechnology Industry Organization, or BIO.

Of course, today marks a much more somber anniversary, that of September 11, 2001, a date whose events have left a mark on so many facets of our lives and our work, including biotechnology. The industry is responding to the call to develop vaccines, diagnostics and drugs to counter bioterrorism agents. More than 300 biotech companies have products or technologies that may be useful for biodefense. Their efforts - many of them self-funded to this point - will get a boost with the expected congressional passage of the president's $6 billion BioShield legislation this fall.

But there's more to biodefense than defending against bioterror pathogens, as important as that is. Defense Department officials want to integrate biotechnology into every facet of defense. And just this summer, the Army Research Office awarded a $50 million grant to a university consortium to study biological mechanisms and harness them for design and fabrication of new materials, devices and systems performance. Already, six corporate partners have joined the consortium.

That brings us to the theme of today's symposium: partnering. In biotechnology working together has been the model of success from the outset. From Watson & Crick to the Human Genome Project, which linked labs around the world in a common quest, biotechnology has been all about collaboration - with a dash of competition, as in the race between the Genome Project and Craig Venter's Celera to complete the draft sequence of the human genome.

Watson & Crick were likewise both collaborators and fierce competitors. They beat their rivals to the structure of DNA because they worked together, bouncing ideas off one another and talking, endlessly talking. Linus Pauling, who may have been the superior chemist, went down some blind alleys because he was working alone. Rosalind Franklin at King's College had by far the best images of DNA - what J.D. Bernal "the most beautiful X-ray photographs of any substance ever taken." But she did not have collaborators. So it was the two guys who worked together - and who talked so incessantly they were given an office out of ear shot of the rest of the Cavendish lab -- who discovered the structure of DNA.

And that's been pretty much the way biotechnology has worked ever since. When Stanley Cohen and Herbert Boyer met at a conference in Hawaii almost 20 years after the double-helix discovery, they quickly realized that Cohen's plasmid and Boyer's DNA-cutting enzyme would make a patentable recombinant DNA machine. Two years later, Boyer met venture capitalist Robert Swanson and teamed up to create Genentech. Soon, with the added push of the 1980 Bayh-Dole Act streamlining technology transfer, dozens of professors in Cambridge and San Francisco were patenting their discoveries and seeking to partner with the business community.

The fledgling companies that resulted had thick portfolios of ideas but little experience developing complex products and bringing them to market. So they sought R&D and marketing agreements with larger multinationals. Even today, partnering is as much the lifeblood of the biotech industry as it was more than two decades ago when Genentech and Eli Lilly hooked up to develop and market the world's first biotech drug, recombinant human insulin, launched in 1982.

In the industry's early days, biotech companies also partnered with oil, agricultural and chemical companies, and even distilleries. It was clear from the outset that biotech could provide novel enzymes and whole-cell systems capable of making industrial processes cleaner and/or more efficient, and could perhaps even create new products, such as biobased materials or organisms that convert environmental toxins to harmless substances.

In fact, the seminal Supreme Court decision for biotechnology -- the 1980 Diamond vs. Chakrabarty case, in which the court decided that recombinant organisms were patentable -- centered on an organism that digested oil and helped clean up spills.

But industrial biotech drifted to the back burner by the mid-1980s, as it became apparent that, even though health-care posed the most formidable regulatory obstacles, it was also, in most cases, the only avenue of development that offered sufficient marketplace rewards to justify the enormous cost of overcoming technical and production hurdles to bring recombinant DNA products to the marketplace.

The Orphan Drug Act, which went into effect 20 years ago, accelerated this shift in emphasis by providing generous incentives in the form of tax credits, clinical trial support and extended patent exclusivity. Thanks to the Orphan Drug Act, it became viable to invest in research and manufacturing processes for products that are very expensive to produce even in quantities of only a few kilograms a year.

The incentives led to the development of more than 240 drugs for rare diseases and helping to create a new industry along the way. Almost all of biotechnology's top-tier companies became profitable thanks to orphan drugs, including Amgen, Genzyme, MedImmune, Biogen and Idec.

The nature of biotech investment also helped push companies towards healthcare applications. Because most biotech companies are R&D shops that don't yet have marketed products, investment tends to be volatile, driven usually by a spate of good news -- or of bad. Overall investment in the industry can drop two-thirds in a single year. It quickly became clear that there just wasn't enough money over years-long development time frames for a company like Amgen to pursue the business plan outlined in its 1983 IPO prospectus: 14 projects spanning industrial, environmental and healthcare applications, including, among other things, indigo dye and chicken growth hormone.

Amgen, like almost all of its first-generation biotech counterparts, chose eventually to focus on health care, leaving the development of lower-margin agricultural and industrial applications mostly to a handful of multinationals for the better part of the 1980s and 90s. Early on, Genentech, the industry's other bellwether, exited the sector by spinning off its industrial applications off into a joint venture with Corning - Genencor International - in 1982.

Even with this new focus, without a partnering culture, biotechnology would have gone nowhere fast. It simply took too long and too much investment to overcome the formidable technical hurdles and develop biologic medicines and vaccines. It also took considerable clinical and regulatory expertise to pass the FDA's muster. Biotech companies would not have survived without partners.

Even a decade after the launch of insulin, there were still fewer than 20 biotech medicines and vaccines on the market -- and many of those were competing versions of insulin, human growth hormone and clotting factors, the industry's earliest successes.

In recent years, the upswing in biotech investment has made it more feasible for a biotech company to develop a drug through clinical trials and launch it on its own. Unlike the dot-com sector, biotech did not crash following the 2000 boom. Over the last three years, the volume of investment has remained at levels more than double that of the late 1990s. This year, in fact, is shaping up to be second only to 2000, with more than $10 billion in new investment in the industry through August. Perhaps most importantly, the number of FDA-approved biotechnology medicines and vaccines has soared in recent years, topping more than 160 at last count.

Yet, even today, biotech companies with promising clinical products and plenty of money in the bank more often than not choose to partner them -- and so share the risk as well as the reward - rather than going it alone. And companies with technology platforms - the Cohens & Boyers of today - typically opt to partner them out widely and nonexclusively.

I've talked about the technology's use in healthcare, but it has also been incorporated into agriculture, of course. But because agricultural biotechnology developed along a very different path, dominated, as I said earlier, by multinationals, corporate partnering has been much less common in that sphere. There are far fewer companies dedicated to agricultural research than healthcare. Biotechnology, however, has been remarkably successful on the farm - it's the fastest adopted technology in the history of agriculture. When BIO was created in 1993, there were no commercial biotech crops. By 2002, biotech-improved soybeans accounted for 74 percent of U.S. acreage, biotech cotton for 71 percent. Thirty-two percent of U.S. corn acreage was biotech-enhanced to ward off pests.

To meet fast-growing demand for biologic medicines, a new generation of agricultural biotech companies is now developing plant-made pharmaceuticals - plants modified to produce protein medicines. Many of these same firms are conducting research to develop plants that make industrial enzymes as well.

And that brings us to industrial biotechnology. If healthcare was the first wave of biotechnology, agriculture the second, then industrial and environmental biotechnology is shaping up as the third wave. This wave looks to be a tsunami, and people like gene-sequencing pioneer Craig Venter are grabbing a surfboard.

The technical and cost hurdles that shuffled industrial applications to the backburner in the 1980s have largely been overcome. Bioprocesses are stable, high-yielding and cost-competitive, or even offer cost advantages, in many chemical applications. Moreover, biotech has a public acceptance edge over chemical processes.

The Organization for Economic Cooperation and Development says, "biotechnology should be on every industrial agenda." According to McKinsey & Co., "Biotech is technological ready for take-off and will be one of the key innovation drivers over the next 10 years in chemicals."

And the National Academy of Sciences' National Research Council has said the industrial impact of the biological sciences in the 21st century would be as great as that of the physical and chemical sciences in the 20th.

The media is getting the message. The Economist this spring opined, "What is needed is an industry that delivers the benefits without the costs. And the glimmerings of just such an industry can now be discerned. At the moment, biotech's main uses are in medicine and agriculture. But its biggest long-term impact may be industrial."

The Washington Post and the Journal of Foreign Affairs have also published positive articles on the technology in recent months, and Forbes in February did a cover story on DuPont's biotech efforts.

So just what are these applications that are generating so much buzz and have brought us all here today?

Industrial and environmental biotechnology applies the technologies that have transformed healthcare and agriculture to manufacturing processes and environmental remediation. These technologies include recombinant DNA, genomics, proteomics, gene shuffling, high-throughput screening and advanced fermentation. Broadly, their applications include the discovery and manufacture of industrial enzymes, the development of enzymes and whole-cell technologies for chemical manufacture and processing, and biological solutions for energy.

The range of specific uses already commercialized is impressive. I'd like to share with you a few U.S. and European examples from an OECD collection of case studies:

• The use of Xylanase to help brighten and bleach paper without the toxic dioxin byproduct produced by chlorine.
• The replacement of a multistep chemical synthesis process for manufacturing vitamin B2 with a one-step biological process that has slashed 50 percent from production cost and is now the method of choice.
• Replacement of a toxin-using and -generating chemical process for making the antibiotic cephalosporin with a nontoxic biological process.
• Use of a biotech process to make acrylamide - a process that improves yield by one-fourth, reduces waste disposal costs and the use of toxic metal, and saves 50 percent on capital equipment.
• Use of a biotech process to make dodecane dioic acid for nylon. This technology reduces operating costs 50 percent, and generates 75 percent in capital equipment savings.
• Use of a biological treatment system to refine zinc, thereby eliminating 18 tons a day of gypsum waste.

This is a group that cares about the multisyllabic chemistries involved, but for consumers, biotech processes translate into cleaner, more efficient and often cheaper ways of making everyday products such as faded bluejeans, detergents, plastic cups, vitamins, antibiotics, cheese and fructose for soft drinks.

But of course, what makes this technology so much fun for me to follow is the exotic stuff: the goats that make super-strong spider silk in their milk; the sea sponges that make more resilient fiber optics; Armani suits made of a corn-based polymer; the possibility of DNA computers and nanotechnology devices; biobatteries for the military that could use waste food, cartons and grasses as fuel sources.

And then there's Craig Venter's goal of using bioinformatics and gene assembly to create organisms from scratch to soak up carbon dioxide and manufacture hydrogen fuel. Because this technology has the potential to counter global warming, it's attracted positive interest from the NGO and activist community - a welcome relief from the drumbeat of criticism about agricultural biotech. You know there's something revolutionary afoot when Craig Venter and Jeremy Rifkin are espousing the same ideal -- a hydrogen-based economy.

The more nearer term economic promise, however, lies in more seemingly mundane applications in the chemical industry. McKinsey has made the attention-grabbing prediction that industrial biotechnology will have a $160 billion value impact on chemicals by 2010 - and that these applications could far eclipse biotechnology's healthcare and agriculture revenues.

Biotechnology, McKinsey suggests, may even reverse the decline in new polymer innovation since the 1960s. Moreover, the uptake of these new products could be as rapid and wide-ranging as that of chemical innovations of the past, such as nylon and Teflon.

As an indicator of just how fast the transition to a biobased process can occur, in 1990 biotechnology was used for 5 percent of the production of Vitamin B2. By 2002, production of B-2 had expanded 250 percent, with biotech accounting for 75 percent of the total. Most consumers aren't even aware of the role biotechnology plays in this and other common products, but the technology is really already everywhere we look.

Some of the largest opportunities, at least in terms of volume, lie in the conversion of plant material - biomass - into polymers and fuel. Just last year the world's first modern biorefinery, a Cargill-Dow project, came online in Blair, Nebraska. The plant converts the sugar in corn to polylactic acid, or PLA, and, from there, into biodegradable polymers that can be used to make a wide array of products, including plastic cups and containers, wrappers, carpeting and polyester textiles. Not only are these products biodegradable, biomass-produced PLA can reduce fossil-use in plastic manufacture up to 80 percent; if all plastics were made from PLA, this would translate into a savings of between 90 and 145 million barrels of oil a year.

The goal now is to find and develop new enzymes that break up cellulose - the tough cell-wall substance that gives plants their rigidity - so that not only corn can be used as the feedstock, but also agricultural waste such as leaves, stalks, hulls and husks, as well as wood-processing waste such as chips and sawdust. Dissolving the cellulose would enable production of sugars that could be used not only to make polymers, but also that other high-volume petroleum product, fuel.

Cracking cellulose could be the Permian Basin strike of the 21st century. Raw materials such as wood-product manufacturing residues, municipal solid waste and agricultural waste, could supply more than 500 million tons dry tons of biomass - enough to make more than 50 billion gallons of ethanol. That's about a quarter of current U.S. gasoline consumption. Another 10 to 15 billion gallons could be produced from corn stalks and husks and wheat straw, according to a report from Burrill & Co.

The environmental, political and economic benefits of this technology are impressive: cleaner-burning fuel and biodegradable materials, replacement of a limited resource (petroleum) with renewable biomass resources, less reliance on foreign suppliers of petroleum, and a new outlet for agricultural production. This is such a no-brainer that biomass conversion measures consistently win bipartisan support in the U.S. and are popular in Europe, where governments are committed to implementing the Kyoto climate change accords.

The industry has made dramatic progress on the cellulose problem in the last few years. Genencor announced in April it had met the goals of a $17 million biomass-to-ethanol program by developing a new generation of enzymes to economically convert low-cost biomass into fermentable sugars. The company is now partnering with Cargill-Dow on a pilot program.

Meanwhile, another major player in industrial biotech, Novozymes, is working on a $14.8 million project to reduce the cost of cellulase enzymes. For industrial applications of biotechnology, cost is always the highest barrier - because, after all, the chemical industry demonstrates every day that it can make products like plastic, gasoline and other chemicals cheaply and in large quantities.

But biotechnology, with a little help from the federal government is gaining. Just last week, the USDA and Department of Energy selected 19 projects to receive $23 million for biomass research, development and demonstration projects. BIO members such as PureVision, Metabolix and Cargill were among the grant winners.

Through both the Clinton and Bush administrations and partisan swings in Congress, the federal government has been among the most ardent supporters of industrial biotechnology. The government has set a national goal of tripling the use of biobased products and bioenergy by 2010.

2002 was a banner year for industrial biotech. Congress passed and the President signed comprehensive farm legislation that, for the first time in history, contained a bioenergy title. Its provisions included biorefinery development grants, the first of which were awarded last year.

And now, this fall, Congress is considering a comprehensive energy bill that would provide additional funding for biorefineries, a measure BIO obviously strongly supports.

Industrial biotechnology is an increasingly prominent part of BIO's agenda as well. In 2001, we named a vice president for industrial and environmental applications, and this year we've added a lobbyist. Our industrial and environmental section now boasts more than 50 companies and organizations as members, ranging from small young biotech companies such as Nexia and Metabolix to big players such as DuPont, Dow, DSM and Eastman Chemical.

The good news is that industrial biotech wins ready acceptance among the public. In focus groups, people describe it as "working in concert with nature." They associate enzymes with laundry detergent cleaning power. They like the idea of using biomass instead of petroleum and biological processes instead of chemical synthesis. And when they learn that biotechnology is already used to make many common products they use every day, they respond very positively. They even like the word industrial, which makes the technology sound like something ordinary, mass-produced and, therefore, innocuous.

This past January, we decided to take another step forward by introduce industrial biotech to Wall Street. We hosted a day-long conference in New York, where we gave an overview of the technology to some 75 security analysts and investors and attracted media interest from The Economist and others.

We followed up this spring by partnering with the American Chemical Society to host the CTO Summit - a Washington-area, invitation-only partnering, education and networking meeting for biotech executives and technical officers from chemical companies. At that meeting, biotech executives learned more about the what the chemical industry needs, and the chemical experts learned about the solutions biotech can provide. The meeting was so well received that ACS and BIO plan to make this an annual event.

Already, we're seeing a growing number of industrial biotechnology collaborations and licensing. Genencor's partners include not only Cargill-Dow, but Eastman Chemical, for whom the company is developing a new ascorbic acid production technique, as well as DuPont for production of a high-performance polyester. Genencor and Dow-Corning have launched a strategic partnership to explore the interface between industrial biotechnology and silicon nanotechnology, and they achieved their first-year milestone goals.

Smaller companies are landing deals as well. Senomyx, a privately held biotech company specializing in flavors and fragrances, has signed agreements with Coca-Cola, Nestle, Campbell Soup and Kraft.

I would note there are minor hurdles remaining for this technology's broader incorporation into chemical processes: the expertise gap. Whereas medical and agricultural scientists have always been immersed in biology -- and hence biotechnology techniques were a natural step on the continuum of progress - chemists and chemical engineers typically have little experience working with biological systems and technologies, or with thinking in terms of biological solutions to chemical problems. Obviously, I don't think that's an insurmountable barrier.

Nor are the cultural differences between biotech companies - which retain an academic, boutique research environment even when they grow up into billion-dollar companies - and chemical concerns, which are of necessity more focused on production and marketing.

These barriers will be surmounted because the need is there on both sides. Biotech companies developing industrial applications need larger chemical industry partners for the same reasons healthcare biotech companies have needed pharmaceutical partners: financial support of R&D, marketing experience and muscle, and manufacturing economies of scale.

And chemical companies need biotech firms for some of the same reasons pharmaceutical firms do - to replenish the R&D pipeline and stay competitive by introducing new products. But for chemical and energy companies there are other imperatives: the need to shift to cleaner, more efficient processes using renewable resources where possible.

Those simple imperatives encompass a sweeping range of technologies, applications and products in fields as diverse as novel materials, industrial enzymes, fine chemicals, agriculture, environmental remediation and energy. It's a daunting list for someone like myself faced with doing a talk. There's just no way to cover the industrial biotech landscape in a single speech.

I think we can come closer with a new conference. BIO is going to bring all the players together next February or March in Orlando for the first ever World Congress on Industrial & Environmental Biotechnology. This meeting, which I'm announcing here for the first time, will cover new developments in science and technology, and the business and financial aspects of industrial biotech. We'll also host a full partnering forum for biotech and chemical executives at this event. Two major industry association partners have tentatively agreed to co-sponsor this conference. If you're interested, I would encourage you to check our web site in the coming months for details, or give me your card, and I'll make sure you're on our list for industrial biotech announcements. After all, I'm here to find new partners, too.

Thank you.