America's gene sleuths are a prolific lot. Hardly a day goes by without a discovery of a new strand of DNA that leads to cancer, heart disease, or some other deadly affliction. And no sooner are new genes discovered than companies spring up with diagnostic tests to reveal which individuals harbor a fateful genetic flaw.
Demand for that knowledge will someday fuel an explosion in gene testing, experts predict. But the boom is taking longer to materialize than anyone anticipated. Prenatal tests such as amniocentesis have blossomed into a $270 million market. The rest of the gene-testing industry is minuscule, however, and littered with corpses of startups.
BIG HURDLE. The obstacles are varied and complex. Controversies swirl over the ethics and accuracy of tests that predict incurable diseases. That has slowed acceptance among doctors and potential patients. Cash-strapped gene-test startups are also floundering under heavy development costs, while battling with large hospitals that offer similar tests. Thus, one of the most heralded medical gold mines of the late 20th century will be lucky to achieve $1 billion in revenues by the year 2000. "The market has been much slower to materialize than anyone expected," says John P. Richard, former sales vice-president of Collaborative Diagnostics Inc., a now-defunct gene startup.
The biggest hurdle for fledgling gene- testers is acceptance among doctors, who must grapple with painful questions. How can they reassure patients who learn that they are carrying a deadly gene, such as the one for Huntington's disease? What kind of counseling is needed? Should family members be informed of test results? And how will insurance companies and employers react? "The real problem is that primary-care physicians know little about genetics," says Dr. Philip R. Reilly, executive director of the Shriver Center for Mental Retardation in Waltham, Mass. Uncertain of how to manage the results, most doctors still don't promote the tests unless they yield information vital to treating patients who are already sick. "The industry is too wrapped up in mystique to take off," says Harvard business school professor Elizabeth Olmsted Teisberg, a specialist in emerging technologies.
Questions about test accuracy have also slowed popular acceptance. Consider the case of Vivigen Inc. in Santa Fe, N.M. By performing prenatal tests for Down's syndrome and other chromosomal disorders faster and more cheaply than hospitals, Vivigen grew into America's largest genetic testing lab, with more than $12 million in sales in 1991. But the market grew more competitive, and the company stumbled when its new test for cystic fibrosis, rolled out in 1990, achieved just 70% accuracy. The American Society of Human Genetics squelched the test with a cautionary statement, and with no other blockbusters in the pipeline Vivigen was sold to competitor IG Laboratories Inc. in 1992. "When the CF gene was discovered I thought we were going to roll, but [the ASHG] took me to the woodshed," says Vivigen founder Tom Reed.
MANY WOES. Vivigen is a microcosm of the tumultuous gene-testing industry. Doctors look forward to a day when low-cost DNA tests of the sort Reed targeted will be available for common diseases such as breast and colon cancer--a potentially huge market. But today, such tests can only tag relatively rare hereditary diseases, such as CF. Combined industry sales in this segment will be just $7 million in 1994. Because volume is so small, big players--including some 450 hospital and research labs--use profits from high-volume medical tests to subsidize DNA tests. Small startups can't duplicate those funds.
Even larger, more established players have financial woes. IG, for example, is the leader in both prenatal procedures and ID tests for paternity and law enforcement. Its revenues are expected to jump 24%, to $51 million, this year. But IG is spending heavily on new technology, including a test to predict disorders such as Down's syndrome from fetal cells in the mother's blood. The test will eliminate the need to insert a needle in the uterus and could be a blockbuster. With development costs reaching into the millions, however, IG doesn't expect to break even until at least 1996.
Meantime, delays and disappointments have triggered a wave of consolidation. Dianon System Inc. in Stratford, Conn., bought Collaborative Diagnostics Inc., a small maker of DNA tests for lymphoma and leukemia, in 1992. Last September, Corning Inc.'s medical testing division, MetPath, bought Nichols Institute, a large genetic testing lab. And IG is using the deep pockets of its majority owner, Genzyme Corp., to buy gene-testing outfits around the U.S. "When the market finally takes off, we want to be there with a broad, strong base," says IG CEO Elliott D. Hillback Jr.
Still, limited funds narrow the options of small players. Dianon rakes in $30 million a year from specialized, nongenetic cancer tests, administered through oncologists and gynecologists. Now, it plans to use that network to expand the market for its newly acquired DNA tests, hoping for about $300,000 in sales this year. Another approach is to pick a big niche. Startup Genica Pharmaceuticals Corp. of Worcester, Mass., wants to corner the market on neurological genetic tests. It has exclusive rights to a promising new Alzheimer's test that was to be announced Nov. 10. Founded in 1989, Genica should gross $9.3 million this year and is in the black.
LONG WAIT. Success stories, however, remain the exception. More common are companies such as Myriad Pharmaceuticals Inc. in Salt Lake City, which acquired exclusive rights to develop diagnostic tests for the breast cancer gene called BRCA1 but won't market a product until 1996. And a DNA test for hereditary colon cancer developed by Oncormed Inc. in Gaithersberg, Md., backed by $7 million from a public offering in October, may not find a mass market for years, concedes the company's president, Dr. Doug Dolginow.
Once profits do start to flow, giants of the medical testing industry such as Roche, SmithKline, and MetPath will pounce. A likely route for expansion is new automated testing techniques, which they could license or buy from innovators such as Affymetrix Inc. in Santa Clara, Calif., and Molecular Tool Inc. in Baltimore. Both are developing techniques that simplify DNA testing by etching thousands of gene mutations onto tiny silicon chips and comparing those with samples from human blood. Such techniques could make test results available in minutes, rather than weeks, and bring costs down from several hundred dollars to less than $100.
Such advances, placed in the hands of large players, will speed consolidation, predicts Dr. Kim D. Lamon, senior vice-president of MetPath. "It will be difficult for DNA labs with a narrow focus to survive." The future of the Genetic Age is still bright. But for a few more years, companies that sell gene tests will continue to grope in the dark.
A Slow Start for Genetics Testing 1993 REVENUES ANNUAL COMMERCIAL MILLIONS VOLUME INTRODUCTION* PRENATAL TESTS $270 2,400,000 1975 POSTNATAL 20 40,000 1970 CHROMOSOME TESTS CANCER TESTS 30 42,857 1975 DNA TESTS FOR 6 5,000 1985 INHERITED DISEASE PATERNITY AND 50 500,000 1988 IDENTITY TESTS * BW ESTIMATES DATA: ELIZABETH OLMSTED TEISBERG, HARVARD BUSINESS SCHOOL