An Analysis of Markets for the Utilization of Biodiversity Platforms ...

An Analysis of Markets for the Utilization of Biodiversity Platforms
through Technology Applications in the Andean Region
Final Report
Submitted to:
Corporación Andina de Fomento
Caracas, Venezuela
Biotechnology Center of Excellence Corporation
371 Moody Street, Suite 109
Waltham, Massachusetts
02453 USA
April 29, 2003
1

Preface
Summary observations
Introduction
CONTENTS
Current trends in commercial biotechnology
General analysis of principal product areas and market characteristics
Biopharmaceutical drugs, vaccines and diagnostics for human and
animal health care
Herbal medicine and nutraceuticals
Cosmetics and personal care products
Enzymes for use in food, food processing and non-food industries
Agriculture and forestry products
Bioinformatics
Biochips and microarrays
Detailed analysis: Selection of product sub-areas
Discussion of product sub-areas and variables
Recombinant proteins: monoclonal antibodies
Functional foods
Skin protection and anti-aging
Enzymes for food processing
Transgenic seeds
Genomic bioinformatics
DNA chips
Conclusions and recommendations for further study
Appendices
References
Company lists
Glossary
Additional Tables
NIH Lists
Notes on CAF/BCEC discussion in Boston, February 25, 2003
2

PREFACE
Scope and objectives of the report
The purpose of this report is to provide an analysis of the market conditions for current and future
products derived from biologically diverse natural resource platforms in the Andean region.
Although not intended to be comprehensive in its coverage, the report is designed to describe
selected product types within specific categories considered by the authors to be representative
of the general market trends and market dimensions. The major producers and leading brand
names cited herein are meant to be illustrative of these trends. Global market figures are
provided for selected product types in each of the respective categories. Also described are the
tendencies relating to geographical expansion of manufacturing for selected product types along
with relevant regulatory and intellectual property considerations in principal market countries.
The report also discusses ways in which new technological developments and new research tools
affect the discovery, development and production of products derived from biologically diverse
platforms. It also looks at new and emerging markets for the selected product types included in
the report.
The selection of product areas for purposes of this report was based on an assessment of the
market areas enumerated in the original terms of reference issued by CAF November 2002. The
authors of this report selected the product areas for the general analysis that, in their judgment,
are most representative of the trends in those industries benefiting from modern biotechnology.
The representative aspects extend to considerations of capital requirements, infrastructure
needs, regulatory framework, and intellectual property protection. Further consideration is also
given to the relevance of biodiversity and bioprospecting for the selected representative product
area.
This report is not a blueprint for investment, nor is it intended to make recommendations on
product areas or market areas where government agencies or private investors should
necessarily concentrate their resources. Rather, the report is designed to illustrate where
traditional industries are enhancing their competitive position through the use of advanced
technology tools based on biotechnology and related fields. Similarly, the report highlights where
resources from biologically diverse regions are serving as part of the value chain and where new
innovations are likely to occur in this regard.
Concepts, terms and definitions
The various concepts and terms used in this report take on specific meanings relative to the
context of those products and processes which can be derived from biologically diverse natural
resource platforms. The list of product areas considered in the present analysis is based on
general notions of what these product types and applications are or what they can be. In this
regard, the discussion of product types, their market characteristics and market dimensions
covers both intermediate and final consumer markets. The US, for example, is the world leader
in biotechnology and is also the foremost market for biotechnology products. The observations
offered in this report are offered from the standpoint of the US, Europe and Japan as both
producers and as markets for many of the product areas covered. The production and
consumption aspects of the Latin American market situation are included to the extent that
relevant information is available.
Discussion in this report of “biodiversity-derived” products refers to those products and processes
which result from sustainable exploitation and commercialization of natural reserves in
3

iologically diverse regions. This includes but is not limited to products and processes for the
biotechnology industry and/or those enhanced or improved through biotechnology processes.
Discussion of these products and processes also refer to information products and associated
intellectual property. The quantitative and qualitative information used in this general analysis is
derived primarily from available databases and publications listed in the appendix to this report.
4

SUMMARY OBSERVATIONS
Outlined below are some summary observations from the report.
1. As the world economic outlook continues to go through changing and uncertain times, the
pharmaceutical, chemical and biotechnology industry sectors have experienced a certain amount
of consolidation through mergers and acquisitions and other structural adaptations. The formation
of strategic partnerships among industry partners within the same country and across country
boundaries is part of this trend.
2. As the consuming public becomes more ecologically conscious it is also displaying increased
selectiveness in product consumption opening up opportunities for "green and natural" products.
3. There continues to be a gradual maturing of the new and existing trade blocks in Europe, Asia,
and North and South America. In parallel, there is a movement toward harmonization of
regulatory regimes and provisions for intellectual property protection.
4. Universities and research institutions are becoming increasingly active in technology
commercialization through the proliferation of newly created offices for technology licensing and
transfer. This has opened up new opportunities for new technology start-up firms in
biotechnology and other areas.
5. Both medium and large technology-based companies are taking a fresh look at developing
regions for potential trade partners with access to biologically diverse resources. Although an
estimated 25% of all prescription drugs come from botanical sources, recent advances in
automated selections and screens along with combinatorial chemistry have promoted the rapid
growth of agricultural biotechnology. While companies such as Abbott, Bristol-Myers Squib and
Eli Lilly have been active players in botanical bioprospecting for more than fifty years, other major
companies such as Bayer, SmithKline Beecham, Glaxo Wellcome, Biodiversity, Aventis and
Merck have shown a strong interest to invest in this area.
6. Frontiers of knowledge are rapidly advancing in life sciences, systems biology, nanomaterials
and nanotechnology, proteomics, bioinformatics and others. Traditional industries are being
drastically transformed through emerging technology applications. These include the
biopharmaceutical, pulp and paper, textiles, food and food processing, cosmetics, agriculture,
forestry, aquaculture, and others. For example, chemical companies are now creating new
pharma-chemical companies.
7. Fluctuation in the traditional stock markets has made it increasingly difficult for biotechnology
companies to raise money for long-term research and development. This has also caused
scarcity of available venture capital funds in some regions.
8. The largest percentages of biotechnology-related investments are in human health care
applications. Other applications such as agriculture, environment, and biomaterials are also
garnering investments but in lesser proportions. This may change in the coming years as profit
potential in these areas becomes more and more evident. In particular, biomaterials and industrial
applications are areas of rapid advancement and vast potential.
9. To date, there are only a few examples of agreements between large pharmaceutical
companies and local companies, organizations, or government agencies in biodiverse regions of
the world. While there is no clear evidence pointing to successful formulas in said arrangements,
further study is needed.
5

10. The biotechnology industry in the U.S., Europe, and Japan has experienced extraordinarily
rapid growth in the last decade. Along with this growth has come the need for development for
professional and service capacity and infrastructure as well as the development of a sizeable
market for biotechnology-related supplies and materials.
11. Market size and market potential are important variables for the identification and selection of
sector areas and sub-areas for detailed analysis of relevance to the Andean region. Additional
variables which are useful to consider relate to value-added activities, regulatory concerns,
capital requirement, and others to the extent that they may constitute certain hurdles or barriers to
market entry. The product sub-areas selected to best illustrate the market areas of potential
interest to the countries of the Andean region include: recombinant proteins/ monoclonal
antibodies, functional foods, skin protection and anti-aging, enzymes for food processing,
transgenic seeds, genomic bioinformatics, and DNA chips.
12. Increased understanding of the above-mentioned market areas can be gained through
consideration of principal producers, description of typical or standard “value-added chains” and
stages, strategic alliances and joint ventures; types of technology platforms, legal protection
mechanisms for intellectual property; regulatory issues and cost factors for setting up firms to
commercialize the selected product sub-areas.
13. The countries of the Andean region are in a unique position because of their diverse
biological resources. The continuing globalization of manufacturing in biopharmaceuticals,
nutraceuticals, cosmetics, industrial enzymes, food processing and other areas will open up new
and multi-layered market niches where the Andean region will have clear competitive advantage
not only through its biological diversity but primarily through its human resource base.
6

INTRODUCTION
Market opportunities for the Andean region
The Corporación Andina de Fomento (CAF) recognizes that modern biotechnology can offer
important strategic tools for generating added value to the diverse biological resources present in
the Andean region and in Latin America. CAF sees biotechnology and its many technical and
commercial ramifications as a means for opening up avenues to new productive activities and an
economic development engine for the region. At the practical policy level, CAF seeks to
strengthen its ability to formulate strategies for the sustainable use of genetic resources and
development of products derived from biodiversity and biotechnology.
For this purpose, CAF is interested in gaining a perspective on outside markets for biodiversityderived
products. This focus comes at a propitious time in the transition of outside markets in the
US, Europe, Asia and in Latin America itself. Although the economic downturn in the US,
Europe, Japan and other countries is affecting all areas of the world, it is also serving to
restructure commercial and trade relations. New market relationships among the industrialized
nations may open up new opportunities in Latin America and the Andean region in particular.
Europe itself presents dynamic market opportunities for Latin America. Markets in Europe have
always been at the forefront of consumer demand for natural products. The European Union has
continued its market consolidation. Major pharmaceutical companies in Europe have continued
to reach out to developing countries for opening up new commercial opportunities and resource
exchanges.
Japan, South Korea, Taiwan, China and other countries in Asia and Southeast Asia continue to
transform their manufacturing and production platforms to accommodate emerging technology
opportunities. Andean region countries and others in Latin America are regarded as potential
strategic partners in the natural resource and life sciences area.
As Latin America itself continues to undergo social, political and economic changes associated
with government transitions, there will be added demand for new sources of employment, new
mechanisms for investment flow and commercial avenues with which to address all of the
multiple challenges of globalization. The same political transitions in Latin America are also giving
rise to newly configured partnerships, new coalitions and new commercial avenues for the region.
In this regard, Latin American countries are awakening to new opportunities in knowledge-based
industries and corresponding competitive strategies. There are competitive pressures to shift the
balance from traditional agriculture, mining, and manufacturing to technology intensive industries.
The rapidly-growing availability of new scientific and technological tools provide new insights and
increased awareness of biological resources.
7

Biodiversity at the forefront
Although clearly rooted in its use within the biological sciences, “biodiversity” has come to mean
different things to different audiences. As an umbrella term, it is used to describe the number,
variety and variability of organisms in terms of genes, species and ecosystems (Pearce, 1994).
Increasingly, the concept is gaining usage and appeal in public movements in industrialized
countries in association with environmental/ecological protection and species preservation.
The earth’s biological resources are vital to economic and social development of humanity.
Biological diversity is a global asset of tremendous value to present and future generations. The
threat to species and ecosystems has never been so great as it is today. Biotechnology can be
used to analyze and preserve biodiversity, but only nature can create new species. When a
unique species or genetic trait disappears, there is no way to regain it.
Biodiversity preservation efforts worldwide are directed at protecting the source of the microorganisms
and more recently as a source of information on the functioning of complex systems.
Even though the efforts to promote and preserve natural resource biodiversity are not always
supported by precise ways to measure progress, there is a general consensus that the overall
level of biodiversity is under threat by environmental pollution, overfishing, clear cutting of forests,
intensive agriculture, urbanization and other factors. The concern is that there is less and less
biological diversity in the world from the sheer pressures of population growth and competition for
land and ocean resources. One report points out that: “Rapid loss of biodiversity poses a global
threat to human well-being. The scale of human impacts on biological diversity is increasing
exponentially, primarily because of worldwide patterns of consumption, production, and trade;
agricultural, industrial and human settlements, development and population growth.” (IIED
Marketing article).
The merging of lead-compound discovery with novel molecular biology approaches is
transforming traditional disciplines like pharmacognosy and ethnobotany into
“ethnopharmacology”. Molecular and structural biology lends a new vitality to “rational drug
design.” As lucrative as natural product and gene discovery may be in the pharmaceutical and
industrial realms, perhaps even greater benefits are to be found in agricultural applications.
(Nature Biotechnology, 1996).
It is difficult to say where this trend will lead us and it is all the more imperative that concerned
communities and governments seek to expand their knowledge of ecosystems and identify ways
in which biologically diverse natural resource bases can be exploited for the benefit of mankind in
a sustainable and renewable manner. We still do not know enough of how species within
ecosystems depend on one another, nor do we know the impact that the extinction of any one
species has upon the others. Scientists and policymakers alike are faced with the challenge of
reducing the rate of loss of biological diversity and of maintaining the existing levels as much as
possible as part of a strategy of sustainable development. Scientists estimate that worldwide less
than 15 percent of all species have been described. Individually, the world uses about 100 plants
which provide the majority of the world’s food. However, there are tens of thousands of kinds of
plants, especially in the tropics that have edible parts and might be used more extensively for
food and perhaps brought into cultivation. This vast reserve of plants is even less well
understood in terms of potential medicinal qualities, industrial uses and other applications.
(McNeely pg. 22) .
In 1992, the Convention on Biological Diversity (CDB) was opened for signature. As part of the
United Nations Secretariat of the Convention on Biological Diversity, the conference urged
parties, states, intergovernmental organizations and other organizations to review their activities,
8

especially their national biodiversity strategies. In 2002, the CBD developed a Strategic Plan to
provide guidance at regional, national and global levels. The Strategic Plan suggests ways to halt
the loss of biodiversity and to secure beneficial uses through the conservation, sustainable use
and fair and equitable sharing of benefits arising from the use of genetic resources.
The National Science Foundation (NSF) of the US has initiated a the pioneering Biodiversity
Surveys and Inventories Program (BS&I). This program supports collecting, identifying, and
describing species of all forms including those in terrestrial, freshwater, and marine environments.
The BS&I program of the National Science Foundation has formed partnerships with other
organizations to continue this work on a worldwide level. (NSF website).
Bioprospecting
Bioprospecting is the "systematic search for and development of new sources of chemical
compounds, genes, micro- and macroorganisms, and other valuable products from nature." Its
two fundamental goals are "the sustainable use through biotechnology of biological resources
and their conservation, and the scientific and socioeconomic development of source countries
and local communities". Megadiverse countries hold 60-70% of the world’s known biological
diversity and "have a significant stake in harnessing the potential of biotechnology and
bioprospecting for achieving sustainable economic development.” (Sittenfeld 1996).
Bioprospecting Issues and Policies
It is essential that, in order to preserve and utilize the bioresources of any habitat, policies be in
place before any activity begins. This is imperative in order to preserve and sustain the
bioresources so that they remain diverse and productive over the long term.
Sittenfeld and Lovejoy (1999) outline the important points to be considered:
1. Defining the goals.
a) conserving the biological and genetic resources
b) generating new knowledge
c) direct and indirect benefits to the host country/region
2. Creating teams of professionals
Organize inter- and multi-disciplinary teams of scientists, lawyers, conservation managers,
and business developers to:
a) propose the development of policies and action plans
b) help implement those policies and plans
3. Establishing a bioprospecting framework.
a) favorable macropolicies
b) inventories of biodiversity (a baseline of resources)
c) information collection and management systems
d) access to technology for the host country
e) business development planning
4. Distributing the benefits
a) agreements for benefit sharing (patents, royalties, product revenues)
b) emphasis on building biotechnology capacity in host country
c) emphasis on building capacity in biological resource management
9

Intellectual Property Rights and Bioprospecting
The Convention on Biological Diversity (CBD) was the first formal effort to provide diversity-rich
countries with the means to benefit significantly from the utilization of their bioresources. The
CDB states that national governments have the authority to control access to their genetic
resources. It also states that governments should provide for "the conservation, sustainable use,
and equitable sharing of benefits from the commercial use of those resources" (Megadiverse
2002). An important conflict has arisen between the CDB, which supports the sovereign rights of
nations over their biological resources and the Agreement on Trade-Related Aspects of
Intellectual Property Rights (the "TRIPs agreement"), which supports private rights to intellectual
property. This has yet to be resolved. For more information on the development of policies for
conservation of biodiversity, trade in biological resources, and intellectual property rights to
biological resources, see Sittenfeld (1996), and Sittenfeld and Lovejoy (1999). The Alexander
von Humboldt Institute publishes "Intellectual property and biodiversity”. This document
examines conflicting positions regarding biodiversity and offers an objetive analysis of the
different points of view with the purpose of promoting discussion about fundamental issues
affecting conservation and sustainable use of biodiversity.
(http://www.humboldt.org.co/default-ing.htm ).
Examples of Bioprospecting Initiatives
Bioprospecting takes place in developed as well as developing countries. Many countries are
selling the rights to bioprospect in their forests to large and small pharmaceutical and
biopharmaceutical firms.
Among the examples of bioprospecting on a larger scale occur in the Report of the First
Ministerial Meeting of Like-minded Megadiverse Countries on the Conservation and Sustainable
Use of Biological Diversity (Secretaria de Medio Ambiente y Recursos Naturales Megadiversos/
Megadiverse 2002) are:
The Kani-TBGRI-model in Kerala, India
On an ethnobotanical/medical study in the Kerala district of India in 1987, members of the Kani
tribal community accompanied scientists of the Tropical Botanic Garden and Research Institute
(TBGRI). The scientists noticed the Kani eating fruit they called "Arogyapacha," which they said
kept them energetic and agile. The scientists promised that any benefits of their study of the
source would be shared with the tribe. The plant was identified as Trichophus zeylanicus.
Pharmacological study confirmed the anti-fatigue properties of the fruit, and the leaves were
shown to contain various glycolipids and non-steroidal compounds with anti-stress and antihepatoxic
properties. The team devised a polyherbal formulation which was named "Jeevni."
After clinical evaluation it was approved for commercial production. Negotiations with interested
parties resulted in the manufacturing license being transferred to a local company, Aryavaidya
Pharmacy Coimbatore Ltd. for an annual fee over a 7-year period. The TBGRI and the Kanis
agreed to share the license and the royalty equally. In 1997, nine members of the Kani tribe, with
assistance from the TBGRI, registered the Kerala Kani Samudaya Kshema Trust. The objectives
of the trust deed included welfare and development activities for the Kanis of Kerala; preparation
of a biodiversity register to document the Kani's botanical/medicinal knowledge; and methods for
promoting the sustainable use and conservation of biological resources (Secretaria de Medio
Ambiente y Recursos Naturales Megadiversos/ Megadiverse 2002) .
The International Cooperative Biodiversity Group (ICGB)
10

The ICGB was set up in 1991 with US funding from three federal agencies: the National Institutes
of Health (NIH), the National Science Foundation (NSF), and the US Agency for International
Development (USAID). The three goals of this group were to improve health through new drugs
from natural sources: to conserve biodiversity, and to achieve sustainable economic
development. Projects are currently underway in Mexico, Costa Rica, Panama, Peru, Chile,
Argentina, Surinam, Cameroon, Nigeria, Vietnam, and Laos.
The ICGB effort in Surinam was proposed by Conservation International, an international NGO,
and collaborators included the Saramaka Maroons, a forest community in Surinam, as well as the
Virginia Polytechnic Institute, the Virginia State University, Bristol Myers-Squibb, and a
government-owned pharma company in Surinam (Bedrijf Genessmiddelen Voorziening
Suriname). The ICGB helped form the Forest Peoples Fund for immediate payments from Bristol
Myers-Squibb of $60,000 at the outset and $20,000 per year thereafter upon each annual
renewal, as well as benefits and future royalties from new drugs. From this fund, the Saramaka
Maroons are compensated for their ethnobotanical participation, research and technology
exchanges, conservation programs, sustainable management projects, and other projects. A
board consisting of two Saramaka Maroons representatives, two members of Conservation
International Surinam, and one member of the Surinam Department of the Interior, agreed on the
primary uses of the fund to be community development, biodiversity protection, and health care.
They review proposals for the spending of money of the fund. The board also reviews specific
project proposals as they arise. 50% of Surinam's share of royalties from future drug
development go to the fund and the other 50% to the other ICGB partners in Surinam.
The results of these efforts include the discovery of many bioactive compounds, an increase in
the technical capacity of people and institutions, scientific and policy support for conservation,
and development of models for collaborative research to support the Convention on Biological
Diversity objectives and others (see Moran 2000; Megadiverse 2002).
The Bioresources Development and Conservation Program (BDCP) - Nigeria
The BDCP program is designed to use local knowledge and bioresources to target tropical
diseases in Nigeria. Beginning in 1990, the BDCP brokered collaborative relationships between
Nigerian research institutions and Shaman Pharmaceuticals Inc., a US biotechnology company.
Four ethnobotanical field expeditions were organized with scientists from Shaman and from
Nigeria. The Nigerian side decided on the benefits that they would like to accrue from the joint
effort. These included workshops and training sessions on public health, botany, ethnobotany,
and conservation; support for a medicinal plant reserve; supplies for village schools; botanical
collection supplies for a herbarium; laboratory equipment for research on plants used to treat
parasitic diseases in West Africa; and support for Nigerian scientists to acquire and apply modern
research techniques.
In 1997, the Fund for Integrated Rural Development and Traditional Medicine (FIRD/TM) was
instituted by the BDCP to receive benefits from the bioprospecting project. Distributions from the
fund are decided by a board consisting of leaders of traditional healer's associations, senior
government officials, multi-ethnic representatives of village councils, and technical experts from
scientific institutions; but spending will be decided locally for local projects. Such projects must
promote the conservation of biodiversity and drug development and the socioeconomic
development of rural cultures (Moran 2000).
Unique position of the Andean region
11

What is the role of developing countries in biotechnology? What do they have to contribute to
utilize and sustain and benefit from their vast reserves and diversity of micro and macro
organisms? What hurdles do they have to overcome?
In addressing these questions, it is important to consider the various advantages and
disadvantages which the developing countries have to work with. In the case of Latin America,
the trading blocs of Mercosur and of the Andean region can provide distinct market advantages
for investors. Although the region cannot form its long-term strategies on comparative
advantages in labor wage rates, the expanding efforts in skills training and higher education are
preparing the work force for technology-intensive employment. Similarly, the region’s vast
biological resources are increasingly being regarded as inputs for knowledge-based, high valueadded
activities. However, various hurdles are faced by these countries with respect to
converting these resources into non-traditional products of interest to the globalized high
technology markets. Among these are the need to strengthen the region’s research
infrastructure, legal framework, and investment capital community.
Biodiversity has been articulated as an economic development strategy by countries like
Malaysia, Brazil, Australia, and others. The stated mission and medium-term agenda of the
Megadiverse Countries Group is relevant to the Andean region and its biodiversity-based export
potential.
Biodiversity itself is not equally distributed throughout the world. The organization Conservation
International maintains a list of “Biodiversity Hotspots” which are regions of great biological
diversity. According to this organization, these hotspot regions “support 1,500 endemic plant
species, 0.5 percent of the global total and, to qualify as a hotspot, must have lost more than 70
percent of its original habitat.” There are 25 such designated hotspots. These harbor over 40
percent of all plant species and yet comprise only 1.4 percent of the land area in the world
(Conservation International ). The Andean region is home to at least two of these identified
hotspots. It is particularly well-endowed in terms of its biodiversity. Comprised of the fivecountry
group of Venezuela, Peru, Colombia, Ecuador and Bolivia, the Andean region contains
several types of ecosystems and biodiversity settings. It has coastal, marine, and freshwater
ecosystems, mountain ecosystems, forest ecosystems, and others. Each of these ecosystems
presents its own universe of resources and associated knowledge sets as well as its own set of
challenges. According to Conservation International, four of the five countries of the Andean
region, Colombia, Ecuador, Peru, and Venezuela are among the only megadiverse countries in
the world. (www.conservation.org/web/fieldact/megadiv/list.htm, Nov.2000)
The Andean region is well positioned to take advantage of its biological resources for applications
in several product areas. This will require a continuing commitment to better understand the
basis for sustainability of biodiversity and a knowledge of the ever-changing and rapidly
expanding markets in both new and existing industries.
12

Biodiversity “Hotspots” in the Andean Region according to Conservation International
13

Traditional industries in transformation
The contribution of biotechnology applications to traditional industries is substantial and continues
to grow steadily. These industry areas include pharmaceuticals, food and food processing,
agriculture, forestry, mining, industrial fermentation, energy generation, and others. As the
environmental impact of some traditional natural resource exploitation activities such as mining
and forestry are coming under increased control and scrutiny, biotechnology-based approaches
have offered new avenues for sustainable development and commercialization of these
resources.
Applications of Biotechnology to Health Care: In human health care, biotechnology products
offer the promise of faster and more accurate diagnostic tests, therapies with fewer side effects,
uncovering natural products such as antibiotics for therapeutic use, using biopolymers as medical
devices, producing and replacing missing proteins such as insulin, using genes to treat disease,
develop specialized cytokines to modulate the immune system, humanize animal organs for
xenotransplantation, produce regenerative proteins such as growth factors, produce stem cells to
treat degenerative disorders, and develop new and safer vaccines and vaccine delivery systems.
In the pharmaceutical industry alone, biotechnology is especially important for drug discovery as
well as for manufacturing and drug delivery. During the past several years, the industry has
witnessed an impressive growth of products approved for marketing. Biotechnology will continue
to play a major role as the scientific driving force in this industry. Some of the big pharmaceutical
companies have developed in-house capabilities for biotechnology research. However, there is a
continuing pattern of smaller dedicated biotechnology firms that are focusing on niche markets
and license their discoveries directly to the larger firms. As the pharmaceutical industry continues
to come under increased scrutiny from government agencies in relation to their corporate
business practices, pricing schedules, product regulation and other aspects, said companies are
continuing to look for business arrangements that will enable cost-savings and increased
revenues for the corporations and their stockholders.
Applications to Agriculture: Biotechnology has continued to make important contributions to
knowledge base for modern agriculture, particularly on the research side. Given the tremendous
potential that biotechnology can make to agriculture there is surprisingly very little adoption of
biotechnology techniques in the field. Biotechnology innovation in agriculture is mostly driven by
the large chemical and seed companies. Agriculture has benefited from biotechnology
innovations through products such as seeds, fertilizers and pesticides, as well as veterinary
diagnostics and therapeutics. Biotechnology innovation and agriculture varies from country to
country with the US being an example of higher levels of integration.
Demand for agricultural products and resources parallels the increase of the world's population.
The United Nations estimates that the global population was about 1.6 billion in 1990, 6 billion in
2001 and will reach 10 billion by 2030. Agricultural biotechnology can help meet this demand by
increasing yields, decreasing inputs such as water and fertilizer, and providing pest control
methods more compatible with the environment. Biotechnology applications to agriculture offer
the means to increase crop plant production and protection, develop safer biopesticides, create
plants resistant to pests and tolerant to herbicides, manufacture pharmaceuticals and vaccines in
plants, increase overall productivity, and protect the environment. Biotechnology will contribute to
livestock production and health as well.
Applications to food and food processing: Biotechnology contributions to food, food additives
and food processing are receiving increasing attention. The applications of “biotechnology” to
food products go back 8,000 years. Bread, alcoholic beverages, vinegar, cheese and yogurt, and
14

many other foods are produced by enzymes found in various microorganisms. Biotechnology will
impact the food industry by providing new products, lowering costs, improving microbial
processes, and improving the quality, nutritional value and safety of the crop plants and animal
products used by the food industry. A variety of products derived by biotechnological means are
in the market at present. In the area of food production, there is particular relevance to
fermentation processes and to food safety procedures. For example, a great many cheese
producers use recombinant chymosine, the main component in rennet. The use of this
biotechnology produced enzyme has cut production costs in half and producers no longer worry
about scarcity of the raw material from traditional sources.
Applications to Animal Health: In 1999 the US spent more than USD 4 billion on animal health
products. Two-thirds of this amount was spent for livestock and farm animal care. During the
same year, the world's top 20 animal health companies recorded approximately USD 550 million
in international sales of animal health biologicals and spent approximately USD 320 million on
research and development for new pharmaceutical and biotechnology products. Biotechnology is
arguably the best source of diagnostics, therapeutics, vaccines for animal health care. In addition,
biotechnology permits selective cross breeding and creation of transgenic animals with desirable
properties such as increased muscle mass or for production of transgenic therapeutic proteins in
milk.
Applications to Aquaculture: Aquaculture is the growth of aquatic organisms in a controlled
environment. The increased public demand for seafood, combined with the relatively small supply
of aquaculture products provided by American companies, has encouraged scientists and
industry to study ways that marine biotechnology can increase the production of marine food
products. By using biotechnology techniques, including molecular and recombinant technology,
aquaculture scientists study the growth and development of fish and other aquatic organisms to
understand the biological basis of traits such as growth rate, disease resistance or resistance to
destructive environmental conditions.
Marine biotechnology may be used to identify and combine valuable traits in parental fish and
shellfish to increase productivity and improve product quality. Marine biotechnology help to supply
new biomaterials and may also be used to increase productivity by developing feed additives,
vaccines and pharmaceutical agents.
Applications to Forestry: Wood products are currently a USD 400 billion global industry,
employing 3 million people. Demand for wood products is expected to increase, even as major
economies, such as Europe and Japan, are unable to grow enough trees to meet their current
demand. According to the UN Food and Agriculture Organization, world demand for wood
products in 2010 increase by 20% to about 1.9 billion cubic meters. Biotechnology can increase
the productivity of forests and offers tools to create disease- and insect-resistant trees, increase
the growth rates of commercial forests, improve the manufacturing process of wood into useful
products such as paper and thus decrease the environmental burden caused by caustic
chemicals.
Chemical industry: As the chemical industry continues to be under pressure for polluting and
contamination of rivers and waterways, the industry has looked for alternative ways to produce
some of the traditional compounds. Biotechnology has contributed micro organisms to
fermentation processes for products such as amino acids. Biotechnology has also provided
enzymes for more efficient industrial processes. Biotechnology approaches have also been used
to achieve greater stability in certain chemical products. The chemical industries’ use of
biotechnology is also of importance in that industry’s efforts to reduce its consumption of energy.
15

Applications to other Industrial and Environmental Uses: Biotechnology today offers the means
for sustainable development by continuous innovation, improvement and use of "clean"
technologies to make fundamental changes in pollution levels and resource consumption.
Industrial uses of biotechnology include production of improved biocatalysts that operate at lower
temperatures, produce less toxic waste, fewer byproducts and emissions, and reduce energy
required for industrial processes. Industrial biotechnology is also yielding new methods of
monitoring environmental conditions and detecting pollutants, producing renewable energy,
creating biodegradable “green plastics,” developing “smart bionanotechnological” machines to
improve industrial processes, engineer microorganisms for removal of toxic wastes, biomonitoring
and bioremediation of the environment.
Despite the high-profile examples of the use of naturally occurring microorganisms in oil spill
cleanups, the number of biotechnology firms dedicated to applications for environmental
bioremediation are relatively few compared to applications in the other areas. Bioengineered
microorganisms for environmental applications have not been actively pursued because of public
concern the effects of the deliberate release of these organisms. Biotechnology has been used
for the scale-up of naturally-occurring microorganisms that have been used in cleanup efforts.
Other Uses: Amongst the myriad of additional uses where it can be deployed, biotechnology can
offer improvements in forensics as in DNA fingerprinting, and in artificial intelligence with DNAbased
biomimetic systems.
16

Current and Potential Biotechnology Applications
From: Inquiry into Development of High Technology Industries
in Austrailia based on Bioprospecting. 2000.
17

CURRENT TRENDS IN COMMERCIAL BIOTECHNOLOGY
There are several ways to describe the general directions in which commercial biotechnology is
moving: growth stages of product development, product pipelines, evolution in financing, funding
sources, patents, stock market trends, new government/industry/university partnerships, new
players, current public policy issues, and other aspects.
The major competitors in the world pharmaceutical market are primarily based in the United
States, Canada, Switzerland, United Kingdom and Germany. Japanese companies are rapidly
increasing their role in this group of major players.
On the financial end, there are several examples of new strategic partnership arrangements
between large pharmaceutical companies and smaller dedicated biotechnology companies.
There continues to be a steady pace of mergers and acquisitions as well as international
alliances which are intended to afford financial strength, technological advantage, and market
position. Regional governments throughout the world are also pursuing special efforts to improve
their competitive advantage through the creation of special funding mechanisms for research and
development, technology transfer, incubation and other support services. There clearly continues
to be a major difference in the standing of industrialized versus developing countries in terms of
numbers of biotechnology companies and related infrastructure.
The biotechnology industry throughout the world numbers more than 4,000 companies. The
countries and regions considered to be major biotechnology leaders are: US, Canada, Europe,
Australia/New Zealand and Asia. During the past few years, this industry has witnessed
tremendous advances in the science and technology inputs to product-oriented research,
development and manufacturing. There is an impressive pipeline of medicines and an enviable
track record on the part of biotech companies in attracting investment capital. Because of the
heavy dependency of US biotechnology companies on the public stock markets, the patterns of
expansion and consolidation are reflected accordingly. Along the line of industry consolidation
during the last few years, there are some examples of large scale mergers. For example, Amgen
acquired Immunex for $16 billion dollars and MedImmune acquired Aviron for $1.5 billion dollars.
A 2002 report by the accounting firm of Ernst & Young points out that ”R&D collaborations
between biotech companies and big pharma have been a major driver of the biotech industry’s
globalization. US, European and Japanese-based pharmaceutical companies have sought new
technology, scientific breakthroughs, and alliances with biotech companies wherever they can
find them.”
This same report observes that there is an “aggressive movement” on the part of the leading
genomics companies toward development of diagnostic and therapeutic products. Those
biotechnology companies with clinical-stage products destined for large markets usually seek out
large pharmaceutical companies for marketing agreements for their initial products. The most
common structure for marketing continues to be direct deals between the individual biotechnology
companies and large pharmaceuticals. In 2001 there were over 400 new agreements between
biotechnology companies and pharmaceutical companies.
Other trends affecting the industry worthy of highlighting include the extensive competition among
states, regions and countries to attract biotechnology companies and related investments.
National and regional governments are going out of their way to offer incentive packages and to
assure that all of the necessary infrastructure requirements are in place. Similarly these same
governments have made efforts to streamline their respective regulatory frameworks. In the U.S.
18

, the Food and Drug Administration (FDA) is constantly studying ways of streamlining and making
its operations more efficient and responsive without losing sight of its regulatory mandate.
The biotechnology industry continues to need to give attention to those issues which are of
concern to the public. The debates over the use of embryonic stem cells, cloning, gene therapy,
genetic testing, clinical trial protocols and privacy require constant attention and straightforward
dialogue with the public if biotechnology is to enjoy general acceptance. This is true not only for
the US, but also in Europe, Asia, and elsewhere.
Facts about the biotechnology industry
The Biotechnology Industry Organization estimates that:
• The FDA has approved more than 130 biotechnology drugs and vaccines
• More than 370 biotechnology drug products and vaccines are currently in clinical trials
targeting more than 200 diseases
• Biotechnology has produced hundreds of medical diagnostic tests
• Genetically modified foods such as papaya, soybeans, and corn offer alternatives to
consumers
• Biopesticides and other agricultural products are being used to improve food supplies and
reduce dependence on conventional chemical pesticides
• Environmental biotechnology products make it possible to clean up hazardous waste
without the use of caustic chemicals
• Industrial biotechnology applications have led to cleaner processes that produce less
waste and use less energy and water in such industrial sectors as chemicals, pulp and
paper, textiles, food, energy, and metals and minerals
• DNA fingerprinting has improved criminal investigation and forensic medicine, and
afforded significant advances in anthropology and wildlife management
• The US has 1,457 biotechnology companies with 342 of these held publicly
• Market capitalization, the total value of publicly traded biotechnology companies, was
USD 224 billion in May 2002
• The biotechnology industry has tripled in size since 1992, with revenues increasing from
USD 8 billion in 1992 to USD 27.6 billion in 2001
• The U.S. biotechnology industry currently employs 179,000 people
• Biotechnology is one of the most research-intensive industries in the world. The U.S.
biotechnology industry spent USD 15.6 billion on research and development in 2001.
• The top five biotechnology companies spent an average of USD 89,400 per employee on
R&D in 2000
• Biotechnology is one of the most regulated industries and is monitored by the Food and
Drug Administration (FDA), the Environmental Protection Agency (EPA) and the
Department of Agriculture (USDA).
Economic impact of biotechnology
Since its inception, the biotechnology industry has grown exponentially, more than doubling in
size between 1993 (USD 8 billion in revenues) and 1999 (USD 20 billion in revenues). Today,
the biotechnology industry is engaged in most areas of economic activity including drugs and
products for forest, marine, agricultural and environmental applications. Potentially, these
products could improve the quality of health care, increase the productivity of forests, oceans,
and fields, and produce a cleaner environment thus generating immense returns and
opportunities for society. Currently, however, the biotechnology industry makes substantial
economic and fiscal contributions.
19

Ernst and Young estimated that in 1999, the biotechnology industry generated 437,400 jobs in
the US; 150,800 jobs generated directly by the companies and 286,600 jobs generated by
suppliers of inputs to the industry and goods and services to employees. Although as a whole it
remains unprofitable, the biotechnology industry generated USD 47 billion in excess revenue with
the producing companies generating USD 20 billion and those supplying inputs or selling goods
and services generating USD 27 billion. During the same period, the industry spent USD11
billion in research & development (excluding R&D conducted by firms supplying the
biotechnology industry and paid USD 10 billion in federal, state and local taxes.
The biotechnology industry has transformed the pharmaceutical industry. Technology moves so
fast that pharmaceutical companies prefer to form multiple alliances with small biotechnology
developers and thus de facto outsource a significant portion of basic research. The trend is such
that a novel technology is no longer sufficient, but a product in advanced stages of development
is required, to enter into a profitable alliance with a major pharmaceutical partner.
The technologies of biotechnology: their applications and new technology
frontiers
Continuing advances in systems biology, nanoscience, nanotechnology, genomics, proteomics,
combinatorial chemistry and other fields are contributing to the development of biotechnology
products as well as to our enhanced understanding of natural resource biodiversity and
sustainable approaches to its exploitation.
These emerging knowledge frontiers and related platform technologies can serve to open up new
opportunities for the sustainable exploitation of the biodiversity resources in the Andean region.
Similarly the studies in these fields have generated new applications for existing research
methodologies such as mass spectrometry, gene sequencing, gene amplification (PCR), as well
as parallel applications from information sciences and high performance computing.
Biotechnology utilizes a heterogeneous set of techniques and methods. Although most frequently
associated with recombinant DNA applications, the industry captures all the applications of
modern biological science. Some of the technologies used by biotechnology enterprises include:
1. Recombinant DNA. Recombinant DNA technology refers to a set of genetic modification
techniques to combine genes at the molecular level. In this manner, genes of known function,
such as those encoding for regulatory and proteins, can be transferred selectively between
organisms. With the sequencing of complete genomes from multiple organisms, genetic material
from many species is available today. This makes possible to access most or all of nature's
genetic diversity. At present, recombinant DNA techniques are used to produce new medications
and vaccines; treat genetic diseases; inhibit inflammatory responses; control viral diseases;
control pests and increase yields and decrease production costs in agriculture, forestry and
aquaculture; improve the nutritional value of foods; slow food spoilage; decrease water and air
pollution; decontaminate the environment; and develop biodegradable plastics.
2. Protein Engineering. Protein engineering is one the earliest applications of recombinant
DNA techniques used to modify and improve existing proteins, such as enzymes, antibodies and
cell receptors, and to create proteins not found in nature. These proteins may be used, in turn, in
drug development, food processing and industrial applications. Protein engineering has been
used to design novel agents that bind to and deactivate viruses and tumor-causing genes; create
effective vaccines; study the membrane receptors for use as targets for pharmaceuticals; improve
the functionality of plant storage proteins; develop new proteins as gelling agents; increase
20

enzyme stability and alter the catalytic properties of enzymes to develop ecologically sustainable
industrial processes. As a consequence, the chemical, textile, pharmaceutical, pulp and paper,
food and feed, and energy industries are all benefiting from cleaner, more energy-efficient
production made possible by incorporating biocatalysts into their production processes.
3. Cell Culture. Cell culture technology refers to the growing of plant, insect and animal cells
outside of living organisms. Plant cells may be cultured in vitro to create transgenic crops, obtain
naturally occurring products of therapeutic value, such as paclitaxel found in yew trees, or as a
source of compounds used as flavors, colors and aromas by the food processing industry. Insect
cells are cultured as factories to produce therapeutic proteins, as research tools, or to identify
novel biological agents to control pests. Animal cells have been cultured as a tool in livestock
breeding for a number of decades and to manufacture therapeutic human proteins requiring posttranslational
modifications not possible in microorganisms. The technology underlying cell culture
relies on a profound understanding of essential cell functions. Understanding what factors guide
growth, replication, multiplication, and differentiation is of paramount importance in the largescale
production of therapeutic proteins, in tissue engineering and regenerative medicine, in
regenerating transgenic plants from single cells, in developing newer biocontrol agents for insect
pests. Cell culture technology offers the potential to develop permanently immature “stem” cells
produced by a few tissue types as therapeutic agents. These stem cells can become white or red
blood cells, nerve, muscle, and liver cells. Bone marrow stem cells have been used to treat some
cancers. Other diseases of tissues that produce adult stem cells, such as liver and muscle, could
also be treated in the future via replacement of diseased cells with healthy stem cells grown in
culture. However, most tissues do not have a continual supply of stem cells as a source of
healthy cells. Researchers hope embryonic stem cells, can serve as source of healthy cells for
tissues that lack their own stem cells. Embryonic stem cells, which could become potentially any
type of cell in the body, may be used to treat degenerative disorders such as Parkinson’s
disease, Alzheimer’s disease, cardiac myocytes damaged by heart attacks, neurons damaged by
stroke, and pancreatic cells in diabetes. (See 13 stem cell for more information.)
4. Monoclonal Antibodies. The technology underlying monoclonal antibodies relies on fusing a
myeloma tumor cell with an antibody producing cell called a “hybridoma” to generate an immortal
cell line. This cell line produces identical antibodies of defined specificity. Using recombinant
techniques, the technology can produce antibodies that mimic human antibodies. These
humanized antibodies are not recognized as antigens when injected into humans. The
applications of monoclonal antibody technologies are vast and include diagnostic and therapeutic
uses. Quantifying compounds present in low amounts in body fluids, detecting cancerous from
normal cells, identifying microorganisms in food or tissue samples, and measuring environmental
pollutants are examples of diagnostic applications of the technology. Ameliorating the immune
response in transplant patients, controlling autoimmune disease, and selectively destroying tumor
cells when tagged to toxins are examples of therapeutic applications of the technology.
5. Biosensors. Biosensor technology couples biology and microelectronic technologies. A
biosensor is a hybrid detecting device involving a biological component, such as a cell or
antibody, attached to a microtransducer that can identify and measure substances at extremely
low concentrations. Biosensors may be used to locate and measure environmental pollutants and
toxins, provide bedside measurements of vital chemistries and measure the nutritional value,
freshness, and safety of food. The common glucometer used by diabetics to monitor glucose
concentrations in blood samples is an example of biosensing technology.
6. Tissue Engineering. Tissue engineering technology is used to create semi-synthetic tissues
and organs using cultured cells and biomaterial scaffolds. Cells can be induced to grow in a
variety of scaffold matrices such as collagen or other synthetic polymers. Skin and cartilage are
21

the first engineered tissues. The ultimate goal of tissue engineering is to create complex organs,
using a number of tissue types, to replace diseased or injured organs.
7. Nanobiotechnology. Nanotechnology fuses microelectronics with physical, organic and
inorganic chemistry to create ultra-small structures and machines as small as one molecule in
order to manipulate and operate on other molecules. Bionanotechnology seeks to understand,
access and manipulate the nanostructures and nanomachines inside a cell, drive reactions
between molecules, measure and image the forces binding molecules, investigate physiological
function at the molecular level, and machine individual molecules at the atomic level. Some
properties of biomolecules, such the self-assembling of lipids to spontaneously form liquid
crystals, may be used to create specialized biochips. DNA itself provides a natural assembly line
for nanostructures and as an electrostatic antenna and energy source to drive molecular motors.
Furthermore the information storage capacity of DNA may serve as the basis for the next
generation of computers. A recent report estimates that 1,000 DNA molecules can solve in four
months a computational problem that a computer could solve in a century. Some immediate
applications of bionanotechnology include miniaturizing biosensors, improving the specificity and
timing of drug delivery, increasing the power of diagnostics, and creating bionanostructures to
introduce functional molecules into cells
8. Microarrays. Microarrays, or "biochips”, are silicon chips or glass slides where DNA or
proteins are “etched” by chemical synthesis or photodeposition so that thousands of genes or
proteins may be analyzed simultaneously in a single test. DNA microarrays are used to monitor
gene activity, detect mutations in disease-causing genes, diagnose infectious diseases,
characterize genetic polymorphisms, identify genes important to agricultural productivity, and
screen for microorganisms used in bioremediation. Protein microarrays may be used to identify
protein biomarkers involved in disease, assess potential efficacy and toxicity of drugs before
clinical trials, measure differential protein synthesis across cell types and developmental stages in
health and disease, identify new drug leads, and evaluate binding characteristics of proteins and
molecules.
9. Cloning. Cloning technology has broad applications and may be used to generate genetically
identical molecules, cells, plants or animals. Molecular cloning, or recombinant DNA technology
seeks to introduce gene(s) or DNA fragment(s) into microorganisms, insect, plants and animals,
where they are replicated in each cell. Cellular cloning refers to the production of cell lines
consisting of identical cells with conserved function. Many of the technologies described above
depend on producing genetically identical copies of cells. Animal cloning refers to the creation of
an animal from a single cell. The first cloned animal, a sheep named Dolly, brought animal
cloning into the public consciousness in 1997. Cloning technologies have provided us with
animal models for aging, cancer, and disease and will in the future help us discover drugs and
develop gene and cell-based therapies.
10. Genomics. Genomics refers to the role genes play, individually and collectively, in
determining structure, directing growth and development, and controlling biological functions.
The field is divided broadly into structural and functional genomics. Structural genomics focuses
on the physical characteristics of genomes such as sequence and gene structure, location, and
characterization, and includes the construction and study of various types of maps. The Human
Genome Project and the less publicized Plant Genome Research Program are large scale
structural genomics projects. Functional genomics seeks to translate structural genomic
information into biological functions. Private and public structural genomics projects have yielded
complete DNA sequences from many organisms and generated many genome maps from other
organisms. Functional genomics has identified essential genes in microorganisms, plants, and
animals, disease-causing genes in microorganisms, and genes in yeast that are essential to the
22

food processing and brewing industries. Information generated by genomics projects will have
wide applicability in a number of industrial sectors.
11. Proteomics. Proteome refers to the collection of proteins within a cell. Proteomics refers to
the study of the structure, function, location, and interaction of proteins within and between cells.
While genomes are constant regardless of cell type (with a few exceptions) and age, proteomes
vary in different cell types, stages of development, and in response to other cells and external
environmental conditions, from one year to the next, and even from moment to moment.
Proteomics seeks to catalogue the proteins produced by different cell types; determine how age
and environmental conditions affect the proteome; assess protein differences between healthy
and diseased cells; chart the progression of a process such as differentiation or pathogenesis;
determine the three-dimensional structure of proteins and identify the key characteristics in
protein structure affecting function.
12. Transgenic Animals, Gene Knockouts and Antisense Technology. The targeted
mutation or knockout in a genetically altered animal is one of the most powerful tools available to
the biotechnology industry today. The resulting transgenic animal can be used to understand the
relationship among genes, proteins, traits, and disease. A wide variety of genetically identical
mice with specific gene mutations are presently available to study gene regulation, tumor
development, immunology, and DNA repair. Antisense technology, the use of pieces of DNA or
RNA to block gene expression and production of the protein encoded in the blocked DNA, may
be used to assess gene function. RNA interference or RNAi, a form of antisense technology, is
being investigated to control viral infections and disease, inhibit inflammatory cascades, and treat
asthma, cancers, and other diseases.
13. Stem Cells. Stem cells are at the cutting edge of biotechnology. The technology involves
methods to identify and isolate from tissue and propagate in tissue culture pluripotent stable cell
lines that can give rise to specific cell types in response to defined growth factors. These cells, in
turn, may be used to replace defective or diseased cells in a variety of conditions such as
diabetes, Parkinson's, Alzheimer's, stroke and spinal cord injuries. Stem cells are cells that have
not yet differentiated and display varying degrees of plasticity about their potential fate. In adults,
some tissues maintain a population of stem cells to replenish cells that have been injured or died
while others do not appear to have stem cell populations. Stem cells in the bone marrow can
differentiate into red blood cells, T-cells and lymphocytes, and bone. Stem cells in the liver may
become any of the specialized cells of the liver-bile-secreting cells, storage cells, or cells that line
the bile duct. In contrast, embryonic stem cells retain greater plasticity than adult stem cells.
Mouse embryonic stem cells were discovered in 12-day-old mouse embryo cells cultured in the
late 1950s. In 1981, embryonic stem cells were identified in mouse embryo just 4 days old.
Human embryonic stem cells were cultured from primordial germ cells and the inner cell mass of
5-day-old embryos in 1998 and were found in umbilical cord blood. In the future we may be able
to grow new cells, by starting with undifferentiated adult and embryonic stem cells, to replace
tissue damaged from heart disease, spinal cord injuries and burns, and to treat diseases such as
Parkinson's, diabetes and Alzheimer's. The potential of stem cell therapy and tissue engineering
will be best realized when a patient receives therapeutic stem cells and the tissues derived from
them are genetically identical to his own. Thus the stem cells may need to be “reprogrammed”
by exchanging the nuclei from a patient’s own mature tissue cells into the undifferentiated stem
cells. This process has been called somatic cell nuclear replacement. At present, this genetic
replacement and reprogramming can be done effectively only with embryonic stem cells.
14. Bioinformatics. Biological science has experienced a tremendous pace in discovery during
the past decades. These discoveries have generated a large quantity of data that can no longer
be collected, analyzed and interpreted by manual means. Without methods for organizing this
23

information, we cannot make sense of the processes we attempt to understand. Bioinformatics
seeks to develop the tools and methods for organizing, entering, processing, storing, accessing,
and integrating data from multiple biological phenomena and sources uniformly. Bioinformatics
uses computational tools such as statistical software, graphical simulation, database
management and data mining. This uniformity enables international collaboration among
scientists studying any microorganism, plant or animal. Many of the technologies developed by
biotechnologists such as genomic and proteomics rely on bioinformatic tools. As a consequence,
the phrase in silico has joined in vivo and in vitro as a descriptor of scientific investigations.
24

GENERAL ANALYSIS OF PRINCIPAL PRODUCT AREAS AND MARKET
CHARACTERISTICS
Biopharmaceutical drugs, vaccines and diagnostics for human and animal health
care
The modern biotechnology industry cannot be separated from the pharmaceutical industry. While
its development in the early 1970s is a relatively recent phenomenon, biotechnology has matured
from an industry focused on the nascent tools of molecular biology to develop biological agents to
an industry focused on developing therapeutic and other agents using an ever growing number of
technologies, both chemical and biological.
The origins of the modern pharmaceutical industry may be traced to the late 1800s when German
and Swiss chemical manufacturers began focusing their attention on the medicinal properties of
natural and synthetic compounds. For example, Bayer was a chemical dye manufacturer that
started by acetylating morphine, a natural product, to produce heroin and, when the addictive
properties of heroin became obvious, by acetylating salicylic acid, a derivative of willow bark, to
produce acetylsalycilic acid or aspirin.
Early on, the pharmaceutical industry developed in Europe, where a large portion of synthetic
organic chemistry originated. The industry was dominated by companies such as Schering
(Germany) and Hoffmann La Roche (Switzerland). As a consequence of the two major World
Wars, the center of gravity of the pharmaceutical industry moved to the US by the 1950s. Such
was its value that the US specifically expropriated aspirin in the Treaty of Versailles.
These origins dictated that early drug discovery relied on the effects of natural products, and
synthetic modifications to those products, on physiology. Once they became known, the industry
moved toward screening large libraries of natural, semi-synthetic and synthetic compounds
against biological targets. Discovering a new drug by these means has always been a slow,
lengthy, and haphazard affair where luck or a scientist’s intuition may drive discovery. A
testimony to this paradigm of drug discovery is that all drugs invented to date either block or
stimulate one of about 500 targets. A modern corollary of this approach is the industrialization of
the process. Nowadays, chemical combinatorial libraries containing millions of compounds can
be screened against panels of multiple targets by robotic high throughput screening methods. In
turn, promising molecules can be tested rapidly in animal models that are genetically modified to
reproduce or simulate disease.
With the explosion of scientific discoveries during this period, scientists began identifying
molecules of biological origin having therapeutic potential. Many of these proteins such as
insulin, albumin, clotting factors, antibodies and others could be collected from biological fluids or
tissues in sufficient quantities for clinical use only by using laborious and expensive procedures.
Because many of these proteins occur naturally in exceedingly low amounts, extraction of these
molecules in quantities useful for medical purposes proved impractical.
Modern biotechnology began with two discoveries reported in the mid-1970s. The first, genetic
engineering, the ability to produce virtually any protein once its amino acid sequence has been
determined, started with a breakthrough discovery in the laboratories of Herb Boyer at UC San
Francisco (California) and Stanley Cohen at Stanford (California). The second, hybridoma
technology, the ability to produce in large scale monospecific antibodies raised against virtually
any antigen, was discovered by Cesar Milstein when he and his colleagues at the MRC in the UK
25

successfully fused an antibody producing cell and a tumor cell, creating an immortal cell line
producing that antibody.
These discoveries have spawned hundreds, if not thousands, of companies dedicated to
producing therapeutic proteins by such means. One of the first, Genentech, developed the first
human therapeutic recombinant protein with the launch of recombinant human insulin by Eli Lilly
(Indianapolis, IN) in 1982. Since then, the boundaries between pharmaceutical and
biopharmaceutical companies have become blurred as both compete and collaborate toward
developing and marketing proprietary products and services.
Markets
The size of the biopharmaceutical market was approximately USD 43.7 billion in 2001.
During the past two decades, recombinant proteins and monoclonal antibodies have not only
advanced the prevention and treatment of many serious diseases but have also swelled
pharmaceutical company pipelines and fueled continued success.
The global markets for biopharmaceuticals and pharmaceuticals may be divided into four blocks:
US, Japan, Europe and the rest of the world. The US dominates the global market for any
therapeutic agent. It accounts for roughly 40 per cent of sales and 60 per cent of profits and is
the only “free market” for prescription drugs. When approved by the FDA, a drug is sold
immediately at whatever price it can be sold. Thus, for global (bio)pharmaceutical companies
most of their revenues come from high-priced sales in the US. Notwithstanding, the US has a
fiercely competitive market for generics, which can be sold after the patent expires on the original
product.
By the standards of other industries and in spite of years of steady consolidation, the
pharmaceutical industry remains highly fragmented. No single company commands anywhere
near 10% of market share. Glaxo SmithKline, for example, was created by the merger of, four
separate companies: Glaxo, Wellcome, SmithKline Beckman and Beecham. The formation of
Aventis consolidated Hoechst (Germany), Marion Merrel Dow (US), Rhone-Poulenc Rorer,
Roussel Uclaf, and Pasteur Merieux (France). In spite of this, GlaxoSmithKline controls 7% and
Aventis controls less than 5% of the global (bio)pharmaceutical market. This may reflect the fact
that the pharmaceutical industry divides more naturally into therapeutic categories such as
cardiovascular, which alone accounts for USD 45billion in annual sales.
Biotechnology introduced protein therapeutics in a commercial scale to the pharmaceutical
market. Prior to the advent of biotechnology, proteins could only be purified from natural sources
in limited amounts. Growth of recombinant proteins as a therapeutic class has increased steadily
and accelerated greatly in the past five years. Approximately 50 different forms of recombinant
proteins are in use in the US and Europe, and accounted for total revenues in excess of USD12
billion in 2000. Over half of all therapeutic proteins were licensed after 1995 and 75% after 1990.
As over two hundred novel proteins are in clinical trials, the exponential increase in the number of
biopharmaceuticals will likely continue for another decade.
Proteins notwithstanding, the drugs industry is still heavily biased towards small molecules.
Small molecules are less expensive to manufacture and can be used orally as tablets instead of
in solution for parenteral use. The major therapeutic areas driving the greatest revenues include
anti-ulcerants, diseases of aging, lifestyle drugs, and anti-arthritics. H2 antagonists and proton
pump inhibitors to prevent esophageal, gastric and duodenal ulceration have been one of the
major successes of the industry, first with cimetidine (SmithKline), then with ranitidine (Glaxo),
26

and later with omeprazole (Astra). Drugs such as sildefanil (Pfizer) for erectile dysfunction
initiated a range of pharmaceuticals targeted as “life style” drugs for conditions of aging when it
was launched in 1998. Arthritis has Cox-2 inhibitors: drugs that target inflammation without
suppressing Cox-1, an enzyme that controls acid secretion. These have also generated
significant revenues.
The prescription pharmaceutical industry generated at least USD 200 billion in revenues in 2000,
and considerably more if hospital and generic drugs are counted. Despite pressure to control
government spending on healthcare, especially drugs, the pharmaceutical industry is one of the
most profitable and best performing of the past decades. The top 20 pharmaceutical companies,
which mostly have operating margins above 30 per cent, target annual sales and profit growth of
at least 10 per cent.
The biopharmaceutical industry is more R&D-intensive than the electronics, communications, and
aerospace industries. In 2000, the global biopharmaceutical industry invested USD 58 billion in
R&D and, over the last decade, this investment has exceeded that for pharmaceutical R&D. For
example, biotechnology R&D increased by 262% and pharmaceuticals R&D rose by 121%
between 1990 and 2000. R&D-to-sales ratios of about 18% are common for mainstream
pharmaceutical companies but are considerably higher for biopharmaceutical companies. This
level of expenditure predicts that biotechnology will make a significant contribution to new drug
output in the future. This increase in R&D investment has not resulted in a notable increase in
output of NCEs, however. In fact, a decline in new drugs reaching the market accompanied the
rise in R&D. In 2001, the output of the global biopharmaceutical industry was the lowest in 10
years with only 31 new drugs launched by the whole industry.
Approved biotechnology drugs
The Pharmaceutical Research and Manufacturers of America (PhRMA) estimate that 95
biopharmaceuticals are now in general medical use. The number of approved biopharmaceuticals
has increased exponentially since 1982.
Early biopharmaceutical products used recombinant DNA technology to produce large quantities
of therapeutic proteins approved as replacement therapies (e.g., human insulin, Factor VIII,
growth hormone and glucocerobrosidase). Techniques such as site-directed mutagenesis made
production of proteins with altered amino acid sequence possible. In the case of insulin, the
mutagenized hormone is faster acting. In the case of monoclonal antibodies, generation of
chimeric and humanized antibodies reduced or eliminated the immunogenicity of their murine
origin while allowing Fc-functions such as activation of complement. Techniques such as protein
engineering allowed generation of hybrid fused antibody toxin conjugates. Ontak and Enbrel are
two such products.
A notable benchmark was the approval of the first antisense-based biopharmaceutical in the late
1990s. Vitravene is an 21-base oligonucleotide that inhibits human cytomegalovirus (hCMV)
replication by means of an antisense mechanism to several proteins responsible for regulation of
viral gene expression and essential for production of infectious hCMV.
Nowadays, biopharmaceuticals include an increasing proportion of engineered hybrid molecules.
Major target indications of approved biopharmaceuticals include cancer, metabolic disorders,
cardiovascular problems and infectious disease.
27

Biotechnology drugs in development
According to current estimates, approximately 500 biopharmaceuticals are undergoing clinical
trials. US (bio)pharmaceutical companies are developing the majority of these products.
According to the Pharmaceutical Research and Manufacturers of America (PhRMA), 371
biotechnology products were in development in the US alone in 2002. A detailed description of
these products is referenced in the Appendices to this report titled “2002 Survey. New Medicines
in Development. Biotechnology” produced by PhRMA. These 371 products spanned 17 separate
indications for nearly 200 diseases. The products are being developed by 144 companies and
the National Cancer Institute. Almost half of these products (178) are aimed at treating cancer,
predominantly melanoma, colorectal, breast, and prostate cancers. Other indications include
infectious diseases (47 products), autoimmune disorders (26 products), neurological disorders
(22 products), HIV and AIDS (21 products), respiratory conditions (19 products), digestive
disease (17 products), skin disorders (15 products), heart disease (15 products), diabetes (10
products), genetic disorders (10 products) and several other categories. Vaccines are the largest
single product type with some aiming to treat or prevent various forms of cancer and others aim
at respiratory conditions, HIV and various other infectious conditions; monoclonal antibody-based
products are the second largest product type. The World Health Organization’s World Health
Report lists heart and vascular disease, cancer, acute lower respiratory infections, and chronic
pulmonary disease as the major causes of mortality in developed countries. Following the
market demands, drug development efforts largely address these developed world needs.
Gene therapy is the third largest product category with over 25 products in phase I/II trials. Nine
antisense-based products are in clinical trials sponsored mainly by ISIS Pharmaceuticals
(Carlsbad, CA). A large number of cytokines and hormones are in trials for specific indications
but many have already been approved for other indications (eg, Proleukin, Actimmune, Avonex,
Intron A, Leukine, Neumega, Rebif, Betaseron, Genotropin, Serostim, and Gonal F). For the
most part, recombinant proteins approved for medical use have been produced in Escherichia
coli (34 products), Chinese hamster ovary cells (14 products), baby hamster kidney cell lines (2
products), or Saccharomyces cerevisiae (11 products). The industry continues assessing
alternative recombinant production systems in fungi, insect cell culture, transgenic animals and
plants. In addition to protein-based and nucleic acid-based products, four cell- and tissue-based
therapeutics have been approved. They include Apligraf (Novartis), Carticel (Genzyme), Ceprate
(CellPro) and DASC (Dendreon). Sixteen additional cell- and tissue-based therapeutics are
undergoing clinical trials.
Product timelines
Typical timelines for discovery and development stages of biotechnology products vary in
accordance with the type of product. In the case of biopharmaceuticals, clinical trial stages can
be particularly lengthy. Some estimates range from 10 to 15 years with financial investments of
up to $800 million.
28

Figure 1.
Figure 2. Time to International Launch (in two out of the three ICH regions) for
Biopharmaceuticals and NCEs.
Source: Nature Biotechnology
29

Figure 3. Mean Development Time (three-year moving average) for Biopharmaceuticals
and NCEs Launched on their First World Market between 1985 and 2000.
Source: Nature Biotechnology
Figure 4. Mean Development Time (three-year moving average) for Biopharmaceuticals
and NCEs Launched on the US Market between 1986 and 2000.
Source: Nature Biotechnology
30

Figure 5. Mean Development Time (three-year moving average) for the Development of
Products up to the Date of BLA/NDA Submission for Biopharmaceuticals and NCEs
Launched between 1986 and 2000.
Source: Nature Biotechnology
Figure 6. Mean FDA Approval Time (three-year moving average) for Biopharmaceuticals
and NCEs Approved between 1985 and 2000.
Source: Nature Biotechnology
The current state of the industry in 2003-2004
With exponential advances in biopharmaceutical knowledge and technology, many biotechnology
companies have matured from boutique research start-ups to fully integrated companies.
31

Pharmaceutical companies, in turn, have realized the power of the new technology and have
begun using biological techniques in product development and continue to fill their pipelines with
biological products via alliances with biopharmaceutical companies. Getting new drugs to the
market requires regulatory approval. Companies continue to face long timeframes, daunting
costs and immense risks. Although the number of new drug applications submitted to the FDA
tripled from 1996 through 2001, the number of new drugs receiving final approval remains small.
Of every 1,000 experimental drug compounds in some form of preclinical testing, only one
actually makes it to clinical trials. Then, only one in five of those drugs makes it to market. The
amount of time required to develop a new drug and get it to market has not lessened, and
development costs continue to rise rapidly for biopharmaceutical firms. According to the Tufts
Center for the Study of Drug Development at Tufts University, the cost of developing a new drug
and getting it to market now averages USD 802 million, up from about USD 500 million in 1996.
Averaged into these figures are the costs of developing and testing drugs that never reach the
market. The average time elapsed from the synthesis of a new chemical compound to its
introduction to the market remains 12 to 14 years. This is the same timeframe that
pharmaceutical companies have seen during the past decade. As a result of these costs and the
lengthy time-to-market, young biotechnology companies face a harsh financial reality: commercial
profits take years and years to emerge from promising beginnings in the laboratory.
However, advances in systems biology (the use of a combination of state-of-the-art technologies,
such as molecular diagnostics, advanced computers and extremely efficient genetic databases)
will eventually lead to more efficient, faster drug development at reduced costs. Much of this
advance will stem from the use of technology to target the genetic causes of and develop novel
cures for niche diseases efficiently.
For example, in May 2001 the FDA gave approval for Novartis’ new drug Gleevec (a revolutionary
and highly effective treatment for patients suffering from chronic myeloid leukemia) after an
astonishingly brief two and one-half months of review (compared to a more typical six years). This
fast track approval was possible because of two factors in addition to the FDA’s cooperation.
First, Novartis mounted a targeted approach to this niche disease. Its research determined that a
specific genetic malfunction causes the disease, and its drug specifically blocks the protein that
causes the genetic malfunction. Second, due to its use of advanced genetic research
techniques, Novartis was so convinced of the effectiveness of this drug that it invested heavily
and quickly in its development.
Observations on current trends in the biopharmaceutical industry
1. Market Conditions. Investors lose patience while financing declines and biotechnology
stocks plummet. In the most recent economic boom, particularly during late 1999 and much of
2000, venture capitalists and investment bankers bet heavily on biotechnology, which they saw
as a promising technology-based alternative to investing in information technologies such as the
Internet. A veritable frenzy of new financing poured into biotechnology startup companies and
initial public offerings in 2000. This infusion of capital funded very aggressive research,
development and marketing plans. New investments in U.S. biotechnology firms totaled about
USD 32 billion in 2000, more than had been invested during the previous six years combined.
The level of funding dropped quickly thereafter, largely as a result of the infotech industry crash of
March 2000. New U.S. biotechnology capital totaled only USD 12 billion in 2001, and about USD
10 to USD 12 billion in 2002.
Future levels of new funding will depend to a large extent on the ability of young biotechnology
firms to get their new drugs successfully through Phase III trials and into the marketplace. Much
of the investment burden will be borne by mature, global drug firms that partner with or acquire
32

smaller biotechnology companies. New drugs and profitable drug companies take a long time to
develop. Historically, the years of operation required to reach profitability at leading
biopharmaceutical firms ranges from, for example, six years at Amgen to 10 years for Chiron and
15 years for Cephalon. These timeframes do not fit the requirements of many investors.
2. Consolidation. Profits are elusive and many startups are out of cash. Meanwhile, mature
global drug companies lose market share to generics as blockbuster patents expire.
Restructuring, mergers, and bankruptcies will be regular occurrences at smaller firms, as their
cash hoards from IPOs or initial rounds of venture capital dry up. Many of these companies are
unable to achieve meaningful levels of revenues, and some of them are incurring immense
annual losses due to the costs of research, development and regulatory requirements.
The major pharmaceutical firms, such as Bristol-Myers Squibb, Merck & Co., Eli Lilly and
Schering-Plough, have seen decreasing profits because many blockbuster drugs have lost patent
protection and face vast competition from generic versions. In the U.S., generic drugs now hold
about a 50% market share. This puts pressure on these major, global drug firms to develop new
avenues for profits. One such avenue is partnerships with and investments in young
biotechnology companies, but profits from such ventures will, in most cases, be slow to appear.
At the same time, these giant firms are investing billions in-house on biotechnology research and
development projects. In 2001, publicly held drug firms in the U.S. invested over USD 15 billion in
research and development, double the amount invested in 1994. Despite this level of investment
in R&D, the industry launched only 24 new drugs. Meanwhile, management scandals at ImClone
and Elan, along with a heightened emphasis on corporate accountability in general, put pressure
on CEOs and dampened the enthusiasm of investors despite the extraordinary long-term promise
of the biotechnology era.
3. Regulatory Hurdles. New drug approval times slowed dramatically during 2001 and 2002,
and the agency is in a state of reorganization. The FDA finally has appointed Dr. McCallum after
21 months with no one in the top office. At the same time, the FDA has suffered a crisis in its
finances that further complicates the regulatory process. The results have been difficult for the
drug industry. After dropping to as little as 11.7 months during 1998, the average amount of time
required for approval of a new drug soared to 18.8 months during 2002.
4. Failures in Clinical Development. Dozens of new drugs that initially seemed promising led
to disappointments when they failed in Phase II or III trials. Many drugs seem effective in the
small patient populations studied in Phase I trials but have dangerous side effects or limited
efficacy when tested on hundreds or thousands of patients. Unfortunately, in the first 10 months
of 2002 alone, 30 biotechnology drugs that made it all the way through development and Phase I
trials later showed unacceptable results in Phase II or III.
5. Emphasis on Predictive Medicine. Diagnosing the individual patient at the genetic level will
lead to predictive medicine and ultimately preventative medicine as an individual’s predisposition
to be at risk for certain diseases, based on his or her genetic makeup, is revealed. The booming
field of molecular diagnostics includes gene-based testing of patients and the use of
immunoassays to determine the presence of specific antigens. This field will grow very rapidly as
scientists develop hundreds of new gene-based and protein-based assays that will enable
physicians to determine how to best treat patients based on their genetic makeup and the
presence in their bodies of specific infectious agents. Companies with superior technologies to
watch in this area include Diagnostic Products Corporation, Orchid Biosciences, and Abbott
Laboratories.
33

6. Regenerative Medicine. Many firms are conducting product development and research in the
areas of skin replacement, vascular tissue replacement, bone graft and regeneration and stem
cells, as well as transgenic organs harvested from pigs for use in humans. At its highest and most
promising level, regenerative medicine may eventually utilize human stem cells to create virtually
any type of replacement organ or tissue.
7. Biosecurity. Both in U.S. domestic and military uses, biosecurity is receiving more emphasis
in an effort to thwart bioterrorism and to combat bioweapons on the battlefield. The U.S.
Government is investing about USD 40 billion yearly in this effort, including the purchase of
millions of doses of smallpox vaccine.
8. Personalized Medicine. Perlegen Sciences, Inc. of Mountain View, California has decoded
the genomes of about two dozen people. Each person’s genetic makeup took about 10 days and
USD 1.5 million to complete. Meanwhile, a highly successful biologist entrepreneur, J. Craig
Ventner, has announced that he is seeking people who are willing to pay about USD 500,000
each to have their personal DNA sequenced. He recognizes that the costs are currently limiting
the number of people who can be studied. Ventner, former head of Celera Genomics, is on the
board of a relatively new firm named U.S. Genomics. This new company was founded by
researcher Eugene Chan. Chan has developed what he calls the GeneMachine, with the intent to
sequence personal genomes in about 45 minutes for about USD 1,000.
A Washington, D.C.-based firm called Alphagenetics plans to offer USD 1,000 personal profiles
that predict how a person will respond to certain foods, based on the study of about 300 specific
genes. The point to such a profile is “nutrigenomics,” the study of how food interacts with genes.
For example, people with certain genetic makeups face a higher risk of heart disease and should
therefore eat fewer foods containing harmful cholesterol. Other firms are already selling at-home
DNA testing kits. Meanwhile, organizations ranging from the Mayo Clinic to drug giant
GlaxoSmithKline are experimenting with personalized drugs that are designed to provide
appropriate therapies based on the patient’s personal genetic makeup. The holy grail in all of this
activity is for physicians to be able to receive a genetic model of a patient’s DNA, determine from
there whether a particular drug will work effectively without daunting side effects, and thus
prescribe the drug that is most likely to effect the desired cure.
9. Systems Biology. Advanced technologies blending computer science, mathematics,
engineering and biology will enable scientists to view genetic predisposition by integrating
information about entire biological systems, from DNA to proteins to cells to tissues. Integrating
information from evolving bioinformatics databases into patient therapies and individual care will
accelerate the ability to cure and prevent disease.
For example, in January 2002, the FDA approved the Visys PathVision HER-2 new Probe, a
diagnostic tool developed by Abbott Laboratories. This test helps determine whether a patient
has the HER-2 protein, a marker for a certain type of breast cancer. Patients can thus be
identified who should be treated with the breast cancer drug Herceptin, manufactured by
Genentech. From the standpoint of drug development, benefits of a systems biology approach
will include: faster selection of the most promising novel protein targets, better, targeted trial
patient selection, better analysis of trial patient response, safer drugs with fewer side effects, and
faster time to market.
10. Cost of Medical Care. Cost of patients’ pharmaceuticals are soaring in the U.S. and lead to
calls for price controls and government aid for seniors. Factors driving soaring drug costs in the
American health care system include:
34

• Chronic illnesses are increasing as the population ages.
• The drug industry is making an intensified sales effort. Direct-to-consumer advertising and
legions of sales professionals calling on physicians increase demand for the newest, most
expensive drugs.
• Convoluted and uncoordinated lists of drug "formularies" (available drugs, their uses and
their interactions) require increased administrative work to sort through, thus forcing costs
upward.
• Physicians continue to prescribe name-brand drugs when a generic equivalent may be
available at a fraction of the cost.
• Research budgets are escalating rapidly. Breakthroughs in research and development are
creating significant new drug therapies, allowing a wide range of popular treatments that
were not previously available. An excellent example is the rampant use of antidepressants
such as Prozac. Meanwhile, major drug companies face the loss of patent protection on
dozens of leading drugs—they are counting on expensive research, partnerships and
acquisitions to replace those marquis drugs.
• “Lifestyle” drug use is increasing, as shown by the popularity of such drugs as Viagra (for
the treatment of sexual dysfunction), Propecia (for the treatment of male baldness) and
Botox (for the treatment of facial wrinkles).
11. Stem Cell Research and Cloning. Controversies surrounding stem cell research and
cloning, and their potential uses, abound in the U.S. while research in these fields flourishes
overseas. During the 1980s, Irving L. Weissman isolated the mammalian hematopoietic cell.
Later, Weissman isolated a stem cell in a laboratory mouse and went on to co-found SysTemix,
Inc. (now part of drug giant Novartis) and StemCells, Inc. to continue this work in a commercial
manner. In November 1998, two different university-based groups of researchers announced that
they had accomplished the first isolation and characterization of human embryonic stem cells
(ESCs). One group was led by James A. Thomson at the University of Wisconsin at Madison.
The second was led by John D. Gearhart at the Johns Hopkins University School of Medicine at
Baltimore. The ESC is among the most versatile basic building blocks in the human body.
Embryonic stem cells may be obtained in one of three ways: by inserting a patient’s cell nucleus
and DNA into an enucleated egg and thus producing a blastocyst that is a clone of the patient: by
harvesting stem cells from aborted fetuses; and by harvesting stem cells from embryos that are
left over and unused after an in vitro fertilization. Ethical and regulatory difficulties have arisen
from the fact that the only source for human embryonic stem cells is human embryos. A rich
source of similar but non-embryonic stem cells is bone marrow. Several other non-embryonic
stem cell sources have great promise. In the fall of 2001, a small biotech company called
Advanced Cell Technology announced the first cloning of a human embryo. The announcement
set off yet another firestorm of rhetoric and debate on the scientific and ethical questions that
cloning and related stem cell technology inspire. While medical researchers laud the seemingly
infinite possibilities stem cells promise for fighting disease and the aging process, conservative
theologians, policy makers and pro-life groups decry the harvest of cells from aborted fetuses and
the possibility of cloning as an ethical and moral abomination. Congress, under the Bush
Administration, has banned the use of Federal funding for the creation of new embryonic stem
cell lines. This action was taken in spite of impassioned testimony regarding the healing potential
of stem cells by physicians, researchers and celebrities, such as actor Michael J. Fox on behalf of
research for Parkinson's disease, actor Christopher Reeve for spinal injury study and former first
lady Nancy Reagan on behalf of Alzheimer's research. Stem cell research has been underway
for years at biotech companies such as Stem Cells, Inc., Geron, ViaCell, and Osiris Therapeutics.
Stem cell (and cloning) research activity is brisk in certain nations outside the US. Several
institutions around the world, such as the National University of Singapore, Monash University in
35

Australia and Hadassah Medical Center in Israel, have stem cell lines in place and some make
them available for purchase. More importantly, several Asian nations, including Singapore, South
Korea, Japan and China are investing intensely in biotech research centered on cloning and the
development of stem cell therapies. The global lead in the development of stem cell therapies
may eventually pass to China, where the Chinese Ministry of Science and Technology readily
sees the commercial potential and is enthusiastically funding research. In addition to funding
from the Chinese government, labs and research are being backed by Chinese universities,
private companies, venture capitalists, and Hong Kong investors. Stanford University announced
plans in December 2002 to develop a privately funded library of human stem cell lines so that it
can operate outside of the restrictions placed on federally funded ESC research and
development. Furthermore, scientists have recently begun isolating stem cells without embryos,
from “post-embryonic” cells in diverse places in the human body. Such cells show the ability to
differentiate and function in animal and human recipients and may not be plagued by problems
found in the use of ESCs, such as the tendency to form tumors when ESCs develop into
differentiated cells. The biggest challenge at present is to discover the signals that induce
differentiation of these cells.
The clearest path to therapeutic cloning may lie in “autologous transplantation.” Many obstacles
must be overcome before such a transplant is possible but autologous transplantation offers the
potential to revolutionize medicine. One type of bone marrow stem cell, recently discovered by
scientists at the University of Minnesota, may be able to differentiate into many different tissues,
which means it may become the first cell type that is widely used to grow useful replacement
tissue in the laboratory.
Cloning is a controversial technology, especially in the US. Although no one has successfully
cloned a primate, large domestic animals have in fact been cloned. Reproductive cloning of a
human being is illegal in the US. A US firm, Advanced Cell Technology, reports that it has
engineered the birth of cloned cows that appeared healthy at first but developed severe health
problems after a few years.
12. Changing Business Models. Partnerships and collaboration among biotech startups, major
drug manufacturers and the research departments at major universities are at an all-time high.
Small to mid-size biotech firms continue to look to mature, global pharmaceutical companies for
cash, marketing, distribution channels and regulatory expertise. Despite the problems in the
ImClone partnership with Bristol-Myers Squibb, major partnerships and acquisitions continue to
be signed. A good example is the agreement between Millennium Pharmaceuticals and Abbott
Laboratories to develop new diagnostics for obesity and diabetes.
13. Rise of Agricultural Biotechnology. Genetically modified foods offer tremendous promise
in agriculture, particularly in low-income/high-population growth nations like China and India.
Although scientists have been able to engineer highly desirable traits in genetically modified
seeds for crops (such as disease-resistance and insect resistance), such modified foods face stiff
resistance among many consumers, particularly in Europe. The biotech era of “molecular
farming” will soon lead to broad commercialization of human drug therapies that are grown via
agricultural methods. For example, scientists can manipulate plants into growing certain human
proteins by inserting human genes into plants such as corn. The growth in plants of transgenic
protein therapies for humans may become widespread. Such drug development methods may
prove to be extremely cost-effective. At the same time, hundreds of antibodies produced in farm
animals for use in human drug therapies, are currently under development or clinical trials.
36

Challenges facing the biopharmaceutical industry
The challenges facing the biopharmaceuticals industry from 2003-2010, among many, include:
• Working with government to develop methods to speed approval of new drugs safely and
effectively.
• Working with the investment community to build confidence and foster patience on the
part of investors for the lengthy timeframe required for commercialization of promising
new compounds.
• Working with civic, government, religious and academic leaders to deal with ethical
questions centered on stem cells and other new technologies in a manner that will enable
research and development to move forward.
• Overcoming, through research, the technical obstacles to therapeutic cloning.
• Enhancing sales and distribution channels so that they educate patients, payors, and
physicians about new drugs in a cost-effective manner.
• Emphasizing fair and appropriate pricing models that will enable payors (both private and
public) to afford new drugs and diagnostics while providing ample profit incentives to the
industry.
• Developing appropriate standards that fully realize the potential of systems biology in a
manner that creates the synergies necessary to accelerate and lower the total cost of new
drug development.
• When a large stable of new biopharma drugs becomes available, fostering payor
acceptance, diagnostic practices, and physician practices that will harness the full
potential of genetically targeted, personalized medicine.
Outlook
Overall, the drug industry is one of the world's most profitable industries. Among the Fortune 500
companies in 2001, pharmaceutical firms ranked first in return on revenues at 18.5% (health care
ranked 20th at only 3.3%). About 20% of pharmaceutical revenue is redirected toward
discovering new medicines, well above the average of 4% reinvested in research and
development in most industries. Advanced technology has allowed drug companies to saturate
their development programs with smarter, more promising drugs. R&D budgets are staggering.
Pfizer invested USD 4.9 billion in R&D in 2001, and Merck invested USD 2.6 billion. Until recently,
pharmaceutical research was focused primarily on curing life-threatening or severely debilitating
illnesses. But a current generation of drugs, commonly referred to as “lifestyle drugs,” is
economically and socially transforming the U.S. pharmaceutical industry. These lifestyle drugs
target a variety of medical conditions, ranging from the painful to the inconvenient. Hundreds of
millions of dollars are being poured into research for drugs to treat obesity, impotence, memory
loss, depression and arthritis. Drug companies also continue to develop new treatments for hair
37

loss and skin wrinkles in an effort to capture their share of the huge anti-aging market aimed at
the baby boomer generation.
As the pressure and demand for new and improved treatments intensifies, so does the ability of
modern technology. In addition to expediting the process and lowering the costs of drug discovery
and development, advanced pharmaceutical technology promises to increase the number of
diseases that are treatable with drugs, enhance the effectiveness of those drugs and increase the
ability to predict disease, not just the ability to react to it. New technology aided by very fast
computers will help control the cost of drug development. For example, development of new
chemical compounds for potential drugs was previously a tiresome process that could easily
require a full week of a laboratory worker’s effort, and a cost of USD 5,000 to USD 10,000 per
compound. Now chemists can produce thousands of test compounds in a day, and test
thousands of drugs in one day, automatically.
Consumers' voracious appetites for new drugs continue to grow. Insurance companies may raise
co-payments for drugs, strike deals with drug companies and employ pharmacy benefit
management tactics in an effort to fend off rising pharmaceutical costs. Also, as they enter the
market, new drugs have no generic equivalent to force costs downward. In coming years, taming
pharmaceutical costs will be one of the biggest challenges facing the health care system.
Managed care must be able to determine which promising new drugs can deliver meaningful
clinical benefits proportionate to their costs. At the same time, if the FDA can improve its inhouse
handling of drug reviews, the incubation period required to develop, test, review and
commercialize a new drug could be substantially reduced, at significant cost savings.
Herbal medicine and nutraceuticals
Herbal medicines and nutraceuticals represent some of the fastest growing markets in the
developed world. These markets encompass a heterogeneous group of products that include
herbs, botanical extracts, vitamins, minerals, sports supplements, food supplements and
functional foods grossly defined, for regulatory purposes, as dietary supplements.
In the US, the Dietary Supplement Health and Education Act (DSHEA), passed in 1994 as an
amendment to the Federal Food Drug and Cosmetic Act, regulates all of these products.
DSHEA established the authority of the Food and Drug Administration (FDA) to regulate dietary
supplements. Prior to DSHEA, dietary supplements were regulated either as foods (articles
which contribute taste, aroma or nutritive value) or drugs (articles intended for use in the
diagnosis, cure, mitigation, treatment or prevention of disease).
DSHEA defined a dietary supplement as “a product, other than tobacco, intended to supplement
the diet that contains at least one or more of the following ingredients: a vitamin, a mineral, a herb
or other botanical, an amino acid, or a dietary substance for use to supplement the diet by
increasing the total dietary intake; or a concentrate, metabolite, constituent, or extract or
combination of any of the previously mentioned ingredients.”
DSHEA allows labeling of dietary supplements with statements known as structure-function
claims. Such claims “describe the role of a nutrient or dietary ingredient intended to affect the
structure or function in humans” or “characterize the documented mechanism by which a nutrient
or dietary ingredient acts to maintain such structure or function.” In marked contrast to health
claims allowed under the Nutrition Labeling and Education Act (NLEA), manufacturers making
structure-function claims under DSHEA are not required to obtain prior approval but must notify
the FDA no later than 30 days after first marketing the dietary supplement that will carry the
38

structure-function statement and must have documents on file substantiating that the statement is
truthful and not misleading.
Under DSHEA, a dietary supplement cannot make a drug claim, such that the supplement is
“intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease.” In
addition, the labels of such products must carry a disclaimer stating: “This product has not been
evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat,
prevent or cure any disease."
In response to the supplement industry’s increasingly aggressive stance in making certain health
claims, the FDA has attempted to refine the distinction between disease and other claims. In
January 2000, the FDA issued final DSHEA regulations clarifying acceptable and unacceptable
structure-function claims for several health conditions. Supplements invoking disease treatment
must undergo the rigorous FDA approval used for prescription drugs and demonstrate safety and
efficacy in randomized, placebo-controlled clinical trials, in addition to complying with strict
manufacturing regulations. For example, the claim that a product may be used "for the relief of
occasional sleeplessness," is an acceptable claim for a nutritional supplement under DSHEA. In
contrast, the claim that the same product "helps to reduce difficulty falling asleep," is not an
acceptable claim for a nutritional product because it implies a treatment for insomnia, a disease.
After reviewing some 235,000 comments from consumers, advocacy groups and supplement
makers, the FDA has provided many examples of acceptable and unacceptable language in label
claims drawn from both real and hypothetical labels. Examples of acceptable structure-function
claims include: “helps to maintain cholesterol levels that are already within the normal range,”
“supports the immune system,” “helps support cartilage and joint function,” “improves
absentmindedness,” “maintains healthy lung function,” and “relieves stress and frustration.”
Examples of unacceptable disease claims include: maintains healthy lungs in smokers,” “lowers
cholesterol,” “inhibits platelet aggregation,” “maintains normal bone density in post-menopausal
women,” “promotes general well-being during the cold and flu season,” “dietary support during the
cold and flu season,” “supports the body's antiviral capabilities,” and “references to helping a
'nervous tension headache' or 'joint pain'.”
These regulations allow manufacturers to make structure-function claims about normal conditions
associated with the aging process, menopause, premenstrual syndrome, teenage acne, minor
pain not due to disease, occasional indigestion, occasional constipation, appetite suppression for
weight loss not considered obesity, claims of sexual performance and aids for occasional relief of
sleeplessness.
Global Market Characteristics
The Nutrition Business Journal forecasts that global growth in nutritional products will range from
5% to 10% with the greatest growth potential being the Latin American countries, followed by
Europe, Canada, Asia, Australia and New Zealand, and Africa.
Current world consumption of natural health products, nutraceuticals and functional foods is
estimated at between USD 70 and USD 250 billion annually depending upon the product
categories that are included in the statistics. In 2001, the Nutrition Business Journal estimated
the global market at approximately USD 140 billion (Anon. 2000). And the primary markets for
these products as the US, EU, Japan and Asia (Anon. 1998).
Generally, the largest markets for nutraceuticals and functional foods are regions and countries
with greater levels of economic development and populations with higher levels of education and
39

greater personal wealth. Paradoxically for these developed economies, traditional use is a factor
that impacts consumption of herbal remedies, nutraceuticals and dietary supplements by region.
Because of cultural reasons, Asian countries are large consumers of these products. Many of the
products we use today have their roots in ancient Chinese medicine and, while in North America
we call these products “alternative” therapies, in Asia they are considered “traditional” therapies.
Asian countries use herbal remedies more in their natural state, e.g.,. dried herbs and roots, while
in the US and EU herbal remedies are used in a more processed form, e.g., capsules and liquid
extracts.
In 2001, “hard numbers” indicate that the global nutraceutical industry reached a market volume
of USD 50.6 billion. North America (US and Canada excluding Mexico) is the largest market for
nutraceuticals with a sales volume of USD 16.3 billion, followed by Europe (USD 15 billion) and
Asia (USD 7.8 billion). Japan is the fourth-largest market in total sales (USD 7.2 billion) but has
the highest sales per capita. The fastest growing market is Asia, followed by South America and
the Middle East. As a function of GDP or per capita spending, many countries have larger
market shares than the US for nutraceuticals and functional foods, despite smaller economies
and smaller markets. Japan is the major market for functional foods. Finland has a higher per
capita spending on functional foods, but its market and economy are much smaller. Nations with
proportionally larger markets than the US as a function of GDP include Japan, Finland, Sweden,
Switzerland, and the U.K. Germany and France are major markets roughly similar in size to the
US. The US, Japan and European functional foods markets represent over 90% of global sales.
Figure 7. Global Sales of Nutrition Products by Region
Source:Aarts,2002
40

In terms of product categories, the vitamin, mineral and herbal supplements market is the largest
segment and accounts for USD 20.6 billion (40% of total sales). The herbals and botanicals
market accounts for USD 19.6 billion (39% of total sales). Sports and specialty foods has the
smallest market share with USD 10.4 billion (21% of total sales) but, especially in the US, is the
fastest growing segment. Segregation of this segment from functional foods is problematic
because market analyses often include functional beverages and energy bars. Globally, sales of
vitamin supplements have diminished between 3% and 5% since 2000, as a consequence of lost
consumer confidence in herbal supplements. The global industry for raw materials for vitamins is
facing consolidation driven by price pressures from increased competition from China. Hoffmann
La Roche is the largest vitamin producer with a global market share of 40% with one-fifth of the
company’s worldwide vitamin sales in the food and nutraceutical sector. BASF has recently
expanded its business by the acquisition of Takeda Fine Chemicals and is the second largest
vitamin producer with a 21% market share. China has emerged as the third leading producer.
The minerals market seems to be poised for fastest future growth as European and Japanese
governments are beginning to relax their food supplement and fortification regulations in attempts
to come closer to DHEA in the US. The mineral supplement market may even outpace the herbal
supplement market as the population in developed countries ages and marketing efforts target
older people, women’s health and balancing mineral deficiencies due to a poor diet. Markets for
calcium and magnesium are the most established and fastest growth is predicted for chromium,
selenium and zinc. The most prominent conditions targeted by the mineral supplements industry
include menopause, premenstrual syndrome, and migraine. Opportunities exist for expanded
label indications for specific disease conditions as evidence increases that minerals are
appropriate adjunct therapies in fighting major diseases such as arteriosclerosis and cancer.
Despite its success during the 1990s, the herbal supplement market has been affected seriously
and sales have fallen continuously. In the US, the herbal market had two periods of high sales.
One was in 1994 with the introduction of the Dietary Supplement Health and Education Act. The
other was in 1997 and due mainly to launches of highly reputed European botanicals with drug
status. Experts agree that the decline in sales of the herbal supplement market has been due
mainly to negative coverage leading to a substantial negative effect on consumer confidence in
herbal products. This decrease in consumer confidence reflects concerns about efficacy and
safety, products of minimum quality, reports on possible interactions with other drugs, and reports
of herbal supplements adulterated with heavy metals and pharmaceuticals. Recently, the
prestigious New England Journal of Medicine published an editorial and article addressing some
of these issues. The EU market, which is and has always been the predominant herbal market,
grew evenly over the past years, and is currently showing signs of saturation. The US decline of
botanicals has clearly affected the European market but the reasons for stagnation in Europe are
more complex.
Functional foods represent one of the fastest growing markets in the developed world. The term
”functional foods” is a marketing device that includes “any product with added ingredients or
fortification to a functional level specifically for health or performance purposes" (Nutrition
Business Journal, 2002). The market size for functional foods worldwide was approximately USD
55.5 billion in 2001. According to statistics published by the Nutrition Business Journal (2002),
US functional food sales amounted to about USD 18.5 billion in 2001(3.7% of total food sales) in
comparison to USD 17.2 billion in 2000. The market for functional foods grew 7.3% while those
for “non-functional” food and total food sales grew 1.4% and 1.6% respectively. The Nutrition
Business Journal expects functional food sales will represent 5.2% of total food sales in the US,
or approximately USD 31.2 billion, by 2010.
41

Drivers behind the growth in markets for functional foods include: an increase in nutritional
knowledge, the expectations of consumers that food should provide health benefits beyond
simple nutrition, the concerns of an aging population moving from preventing deficiency diseases
to longer-term prevention of chronic disease, and increasing awareness of the relationship
between diet and disease. Expanding scientific and clinical research have demonstrated the
influence of diet on “diseases of affluence” such as cardiovascular disease, obesity, diabetes
mellitus, and cancer. The industry has successfully linked the potential physiological benefits
beyond basic nutrition of functional foods in reducing the risk of chronic disease with the notions
of “natural” foods and the deleterious effects of Western diets with “synthetic” foods. A corollary
to this linkage is that many consumers favor supplementation in the form of food instead of pills,
capsules or powders (i.e., dietary supplements or natural health products).
Table 1. Global Nutrition Industry Consumer Sales (USD millions, 1999)
Latin Rest of
US Europe Japan CanadaAsia America World Global
Vitamins & Minerals 7070 5670 3200 510 1490 690 990 19620
Herbs & Botanicals 4070 6690 2340 380 3170 260 580 17490
Sports, Meal, Hom &
Spec 4230 2510 1280 250 970 250 470 9960
Total Supplements 15380 14870 6820 1140 5640 1200 2040 47080
Natural Foods 9470 8280 2410 700 710 460 670 22700
Natural Personal Care 3590 3660 2090 330 880 250 220 11020
Functional Foods 16080 15390 11830 1500 1450 360 1060 47670
Total Nutrition 44520 42200 23150 3670 8670 2270 3990 128470
Source: Nutrition Business Journal, "Global Nutrition Industry 2000"
Cosmeceuticals or dermaceuticals constitute an interesting and emerging market.
Cosmeceuticals or dermaceuticals are topical cosmetic products that take advantage of the
“natural” marketing concept and contain naturally derived plant or animal extracts that may have
medicinal properties such as protecting the skin from water loss and reducing redness, irritation
and/or inflammation. Projections estimate that the demand for these products will increase 7.6%
per annum to USD 4.3 billion in 2005. Multinational corporations such as The Body Shop and
Origins are attempting to capture these markets. A stream of new and innovative products will
drive growth in response to demands of an aging population for more effective appearanceenhancing
and age-defying preparations. The value of specialty botanical extracts and chemicals
used in these cosmeceutical formulations may increase 9.2% per year to USD 1 billion in 2005.
Increasing and intensifying competition in most cosmeceutical product segments is forcing
manufacturers to focus on unique active ingredients to differentiate their offerings. Accordingly,
demand for specialty botanical extracts and chemicals will grow faster than shipments of
products. Given present trends, the cost of specialty botanical extracts and chemicals will
amount to 24% of the total production value of cosmeceuticals in 2005.
The rapid migration of these value-added ingredients from professional or prestige products to
“customized” commodities represents one of the most striking transformations in the
cosmeceutical market over the past decade. Skin care cosmeceutical products will lead demand
and will account for 60% of total demand in 2005. Improved formulations, increasing concerns
about sun damage and the entry of the relatively affluent baby boomer generation into middle and
old age will accelerate the use of value-added age-defying and sun-protecting products.
42

US Markets
The sale of natural health products (including dietary supplements and herbs), natural and
organic foods, functional foods, and natural personal care products amounted to approximately
USD 53 billion in sales in the US in 2001 (Nutrition Business Journal, 2001). Consumer sales
growth in 1999 was approximately 8% or roughly twice that of the US economy (Nutrition
Business Journal, 2000).
The same sources estimate that dietary supplements, functional foods, and nutraceuticals will
grow approximate 10% annually with the greatest gains in mass-market sales rather than in
health food stores. In comparison, the conventional food business (USD 466 billion) is growing at
only 2-3% annually (Nutrition Business Journal, 1998).
The Nutrition Business Journal (2002) published statistics showing that, in 2001 in the US, the
supplement market generated USD 17.6 billion, and the functional foods generated USD 18.5
billion. The Nutrition Business Journal uses a broad definition of functional foods that includes
“any product with added ingredients or fortification specifically for health or performance
purposes”. This definition includes “designer foods” ranging from cholesterol-lowering spreads
such as Benecol and Take Control to ready-to-drink teas with herbs, “performance” foods like
sports drinks and bars, hypoallergenic baby foods, and soymilk and “enriched” foods like cereal,
milk, and yogurt.
Figure 8 shows that the highest rates of growth in the US industry for the year 2001 occurred for
sports foods (sports and energy bars and weight-loss supplements), meal and specialty
supplements, natural and organic foods, and functional foods. Figure 11 shows that these
product areas will remain robust. Annual growth in the "healthy" foods area (i.e. natural and
organic foods, functional foods) will be strong through 2004 and will surpass overall growth rates
for the nutrition industry on the whole.
Figure 8. Growth of US Sales of Sports & Weight-Loss Growth Products in 2001
43

Source: Aarts, 2002
Figure 9. US Consumer Sales of Sports Nutrition & Weight-Loss Supplements in 2001
(USD 10 Billion)
Source: Aarts, 2002
Figure 10. US Consumer Sales of Herbal Supplements in 2001 (USD 4 Billion)
44

Source: Aarts, 2002
Figure 11. Forecasted 2001-2004 Annual Growth
Source: Aarts, 2002
45

Figure 12. Expected Growth of the US Functional Food Market
Source: Aarts, 2002
Figure 13. Market Growth of Functional Foods by Major Product Categories in 2001
Source: Nutrition Business Journal's “Functional Foods Report 2002”
The largest product categories in the US supplement industry include vitamins and herbs and
botanicals. Specialty products include essential fatty acids (such as fish oil and plant based oils
such as flaxseed, borage, and evening primrose oils), glucosamine, chondroitin, sage, coenzyme
Q10, and others. The US herbal industry generated approximately USD 4 billion in sales in 2001.
The Internet is the fastest growing outlet for these products, followed by direct sales through
practitioners and mail order.
46

Figure 14. US Consumer Sales of Nutritional Supplements in 2001 (USD 17.7 Billion)
Source: Aarts, 2002
The US functional food market is characterized by a focus on disease and its prevention. The
most popular products are aimed at lowering weight, blood cholesterol levels and cancer risk. The
use of botanicals in functional foods is much more popular than in Europe or Japan. The principal
functional foods in the US market are breads and grains, especially enriched breakfast cereals
and beverages (teas and energy drinks) supplemented with botanicals. Functional foods will
continue to grow at a steady pace according to the Nutrition Business Journal as consumer
interest and acceptance of these products and scientific substantiation of safety and efficacy
increases. Designer snack foods and functional beverages are the fastest growing segments in
the functional food industry. These products are sold primarily through multi-level marketing and
retail outlets including natural health food and market stores.
In 2000, functional foods had replaced supplements as the leading market segment of the US
nutrition industry and the gap is increasing. Vitamins, with sales of approximately USD 6 billion,
and herbal supplements, with more than USD 4 billion in sales, account for well over half of total
nutraceutical consumer sales; however, these two categories show the lowest growth rates. For
vitamins this is not surprising as this market is highly concentrated. Total US supplement growth
in 2000 was calculated to be 4.2%.
In 2000, sales of sports nutrition and weight loss products increased by 12.4% and amounted to
USD 8.65 billion in the US and represents 17% of the total USD 49.7 billion sales for the nutrition
industry in the US. The Nutrition Business Journal predicts a growth of 9.9% per year during the
years of 2001 to 2004 in this sector.
Sports nutrition, meal supplements and specialties display high growth. At projected rates, the US
sports and fitness nutrition market will double by 2007 and reach a volume of USD 4.5 billion.
Producers market these products as “lifestyle solutions.” The segments of the sports nutrition
market include bars, protein, creatine, recovery and energy foods. Protein sales have been
47

oosted by interest in low-carbohydrate diets and an increasing awareness of soy products.
Sales of designer beverages, bars, confections and chewing gum show the most promise of
growth. Weight-loss supplements show growth rates between 10% and 25%.
Outstanding facts on the nutrition industry market in the United States include: (i) Ginkgo biloba,
echinacea, garlic, ginseng and St. John's wort are the top five herbal supplements sold in the US.
Botanical supplement sales in the US in 2000 amounted to USD 4.2 billion; (ii) the most frequent
supplements derived from plants are for: common cold, influenza, fatigue, stress, depression,
angina, allergies, amnesia, anxiety and immune insufficiency; (iii) sales of nutritional bars
increased by 23% in 2000 with sales of USD 1 billion while energy drink sales increased by 10%;
(iv) soya derived products increased in all categories, such as: functional supplements, food and
whole foods. According to Information Resources Inc., soya supplement sales increased by 70%
in 2000. Moreover, the sales of soya milk increased by 25% with sales totaling USD 640 million;
(vi) ephedra (Ma Huang), a popular supplement high in ephedrine and used because of its
stimulating and thermogenic, effects has come under regulatory scrutiny because of safety
concerns due to several reports. This will lead to demands for safe but equally effective
alternatives.
PepsiCo, with the sports drink brands Gatorade and Allsport, and Unilever, with its SlimFast line,
led sales in the USD 10 billion sports nutrition and weight-loss market in 2001. Royal Numico
and American Home Products led sales for the whole nutraceuticals industry.
The leading suppliers of herbal supplements for the US market are: Martin Bauer Group in
Germany (USD 60–70 million in annual raw material sales); Hauser, Inc. in the US (USD 60–65
billion); Indena in Italy) (USD 35–40 billion); and Degussa AG in Germany (USD 30–40 billion).
The herbal and botanical supply industry appears to be concentrating and consolidating via
mergers and acquisitions. Martin Bauer acquired Finzelberg and Müggenburg, Degussa AG
acquired SKW Trostberg (formerly the largest German specialty chemicals company), and
Hauser, Inc., acquired Botanicals International.
Figure 15. US Consumer Sales of Nutritional Products in 2001 (USD 53 Billion)
Source: Nutrition Business Journal's “Functional Foods Report 2002”
Public interest groups in the US have spurred changes in food labeling regulations in order to
increase health awareness of consumers. The Nutrition Labeling and Education Act (NLEA) of
48

1990 directed the FDA to change food label regulations to make additional nutritional information
available to consumers. As defined by NLEA, a health claim is a “statement that characterizes the
relationship of a substance to a disease or a health-related condition, typically in the context that
the regular dietary consumption of a substance 'may reduce the risk of a specific disease or
health condition'”. NLEA does not allow claims that the food is intended to “cure,” “mitigate,” or
“prevent” any disease.
In 1994, the FDA reviewed several relationships between diet and disease and allowed seven
health claims that can be made on conventional foods purporting reduction in risk as long as they
meet specific nutritional criteria related to fat, saturated fat, cholesterol, sodium, vitamin A,
vitamin C, iron, calcium, protein and fiber: Calcium and osteoporosis; dietary fat and cancer;
sodium and hypertension; dietary saturated fat and cholesterol and risk of coronary heart
disease; fiber-containing grain products, fruits and vegetables and cancer; fruits, vegetables and
grain products that contain fiber, particularly soluble fiber and risk of coronary heart disease; fruits
and vegetables and cancer. Subsequent claims allowed by the FDA included: folate and neural
tube defects, and dietary sugar and dental caries.
In January 1997 and in response to a petition from the Quaker Oats Company, the FDA approved
the first food-specific health claim under the NLEA. This health claim describes the relationship
between consumption of whole oat products and reduction in risk of coronary heart disease.
Products containing a certain minimum level of soluble fiber from oat bran per serving may carry
one of the following statements: “Soluble fiber from foods such as oat bran, as part of a diet low
in saturated fat and cholesterol, may reduce the risk of heart disease,” and “Diets low in saturated
fat and cholesterol that include soluble fiber from oatmeal may reduce the risk of heart disease.”
In February 1998. the FDA approved a health claim linking soluble fiber from psyllium seed husk
and reduced cholesterol. In October 1999, the FDA approved a claim linking soy protein with
reduced risk of coronary heart disease.
In November 1997, the US Congress passed the FDA Modernization and Accountability Act
(FDAMA). FDAMA contains provisions reducing the regulatory hurdles in the approval process of
health claims for foods. In particular, FDAMA directs the FDA to authorize health claims based on
published authoritative statements from US Government agencies such as the Centers for
Disease Control (CDC), the National Academy of Sciences (NAS), or the National Institutes of
Health (NIH). A published study “about the relationship between a nutrient and a disease or
health-related condition” by any of these agencies constitutes an authoritative statement. A food
label making specific health claims is permitted on the basis of an authoritative statement without
going through the FDA review process and requires only a 120 day pre-market notification to the
FDA. In July 1999, General Mills did not receive objections for a claim linking whole grain foods
to reduced risk of heart disease and cancer, based on statements from the National Academy of
Sciences. On 5 September 2000, the FDA issued an interim rule allowing products containing
plant stanol or sterol esters to state that the product may lower the risk of heart disease when
consumed as part of a diet low in saturated fat and cholesterol. In the US, “Benecol,” a margarine
produced by McNeils that contains plant stanol esters and “Take Control,” a margarine produced
by Lipton that contains plant sterol esters, were the first products to carry this claim.
49

Figure 16. Growth in US Nutrition Industry Sales by Category (2001)
Source: Nutrition Business Journal's “Functional Foods Report 2002”
Figure 17. Growth in US Nutrition Industry Sales by Channel (2001)
Source: Aarts, 2002
European Union Markets
The markets in the European Union for herbal and botanical extracts and remedies,
nutraceuticals and functional foods are well developed. Germany, the United Kingdom, France
and Italy account for more than three quarters of regional sales but growth slowed in the late
1990’s especially in the supplement area.
50

European consumers spent USD 44.8 billion on functional foods and USD 15 billion in
nutraceuticals in 2000. In comparison, US consumers spent USD 49 billion and USD 16.3 billion
for similar products in 2000.
At present, the European vitamin, mineral and herbal supplements market is approximately USD
5.6 billion. The European vitamin, mineral and herbal supplements market grew 63.4% between
1993 and 1999 and growth is expected to continue at 6%to 7% per year past 2003. The largest
single European vitamin, mineral and herbal supplements market is Germany with sales of €138
million (USD 135 million). Herbal medication sales across Europe amounted to USD 6.8 billion in
2001 and 2002. Market growth in South America and Asia at an average rate of 5.9% may yield
a slight market recovery in the EU.
Herbal supplements average a share of 24%, and range between 14% and 33% (with the UK,
Italy and France at the lower and Germany at the upper end), of the European over-the-counter
preparations market. Herbal supplements has the largest market share in Germany with 42%
(USD 2.7 billion), followed by France with 25% (USD 1.6 billion) and Italy with 9% (USD 0.6
billion).
Distribution channels for herbal remedies differ markedly between the European and the US
supplements markets. In Germany, herbal drugs are distributed by pharmacies (86%), chemists’
shops (9%) and food retailers (5%). This is the consequence of two separate market segments:
the prescription (41.4%) and the self-medication (58.6%) segments. For Europe as a whole, lack
of reimbursement in several countries (e.g. the UK and the Netherlands) limits the semi-ethical
status of OTC herbal products. In 2000, the total OTC herbal market in Europe was
approximately €25 billion (USD 24.5 billion). The semi-ethical portion of this market was 37.5%
and accounted for €9 billion (USD 8.8 billion). Between 1996 and 2000, the total OTC herbal
market grew by 1.5% and the self medication market grew by 5.5%, at the expense of the semiethical
market (-4.6%).
OTC markets in Europe suffer from a number of problems. First, they have too many products.
Only the top 100 products, of the 33,000 products, in the OTC market generate 25% of total sales
revenues. Second, they have too many companies. Only 5.9% of the 32,000
manufacturers/distributors competing for a market share generate 70% of sales.
Third, they suffer from lack of innovation. Products introduced in the last 10 years generate 10%
of the European turnover. On average, only 7.5% new market launches since 1992 occurred
among the top 20 products. Fourth, the market is regionalized. At most, 1% of all products is
represented in three European countries simultaneously.
Market growth in the EU will be slower than that in the US as many member countries require
prescriptions for sales and the registration of single dose forms, inhibiting over-the-counter
growth. Major companies will continue to become dominant players based on the ability to
conduct clinical studies and to invest in acquisitions and purchases. The development of
supplements targeting specific consumer groups will increase in attempts to capture the aging
baby boomer market.
51

Table 2. Current Market Trends in Selected European Countries
Trend
Country
Germany • Herbals in single dose form (tablet or capsule) must be registered
• Herbal remedies are regularly prescribed by some 80% of GPs
• Garlic and Echinacea are the most popular supplements
St. John’s Wort accounts for significant sales of prescription
antidepressants
U.K. • Herbal and natural supplement sales have fallen
• Sales of long-established supplements such as fish oils (which present half
of all herbal and natural supplement sales) and garlic have fallen
• Sales of new introductions, such as ginseng and ginkgo biloba, are
boosted by I consumer interest
France • Herb products have a strong heritage and are widely accepted by
the health profession
• In general, sales are limited to pharmacies, with mass market sales under
Challenge
• Ginkgo biloba is the leading supplement due to its positioning for circulatory
problems
• Other popular herbals include ginseng, St. John’s Wort and Echinacea
Italy • Sales are stable
• Most popular supplements are lecithin and royal jelly
• Ginseng and fish oils have smaller sales
• Garlic supplements have a limited presence
Japanese Markets
The Japanese have a strong functional food market and an underdeveloped nutraceutical market,
in comparison with the US and the EU. Foreign and domestic manufacturers face potential
growth due to deregulation of the market in 1998. Multinational brands (under license) have led
early growth.
Several factors have hindered development of a significant herbals and botanical markets in
Japan. These include the popularity of liquid tonics (bottled nutritive drinks and mini-drinks), the
popularity of functional foods and, until 1998, a ban on the sale of many herbals and botanicals in
dosages and formulations resembling drugs such as tablets and capsules. As a result, US and
EU herbal and natural supplements have not had a major role in Japan. The most popular herbal
and natural supplements in Japan include royal jelly and bee propolis, blueberry, ginkgo biloba
and saw palmetto supplements. Ginseng is generally marketed in liquid form. Joint ventures and
marketing agreements may result in introduction of supplements from US and EU manufacturers
as many Japanese companies prefer to manufacture under license rather than develop their own
products. Direct marketing already has a high level of penetration in Japan and many herbal and
natural supplements will be sold direct through those channels in the future. The continuing
popularity of tonic drinks will act as a barrier to entry for supplier of herbal and botanical
supplements and thus the Japanese market may not experience the dramatic expansion seen in
the US.
52

Japan is the most developed and established market for functional foods in the world. The range
and diversity of products and the role that the government plays in promoting functional foods are
two unique features of this market. Japan is the only country with a regulatory framework for
functional foods. Foods containing a functional ingredient with a specific health effect, designed
to promote or maintain good health are “Foods for Specified Health Uses” (FOSHU). After the
US, Japan is the largest market with sales of USD 11.8 billion in 1999 (Nutrition Business
Journal, 2002). Approximately 80% of the functional foods available on the Japanese market are
now "market standard," e.g., are not marketed for their functional benefits. The official FOSHU
market of government-approved functional foods was approximately USD 3.43 billion in 2001, up
170% from USD 2 billion in 1999 (Japan Health Foods and Nutrition Foods Association).
The Japanese Ministry of Health and Welfare has approved 12 health claims in seven health
benefit categories. As of December 2001, 288 foods were approved under the FOSHU system.
FOSHU food products represent 63% of the USD 5.4 billion Japanese functional food market and
37% of the health and nutrition market. Functional pre- and probiotic drinks and yogurts
dominate this market. Approximately 20% of functional foods contain lactic acid bacteria cultures,
oligosaccharides, calcium, non-cariogenic sweeteners, polyphenols, phytochemicals, chitosan,
beta-carotene, green tea catechins, DHA, iron, peptides and amino acids. Japan has launched
more than 2,000 functional foods and drinks since the late 1980s.
Success Factors for Market Growth
• Effective regulatory framework ensuring public and private interests, protection of public
health and of the environment
• Uniform standards ensuring quality
• Scientific credibility associated with products. The evidence linking diet to health
outcomes is arguably the leading factor driving the interest in natural health products and
functional foods. Of the ten leading causes of death, coronary heart disease, certain types
of cancer, stroke, diabetes mellitus and atherosclerosis are associated with diet. Cancer
and cardiovascular disease have been closely linked to dietary patterns.
• Increasing consumer interest in self-care and alternative medicine.
• Increased health care costs associated with an aging population.
• Advances in technology. Applications of biotechnology such as “nutrogenomics,” the
genetic differences determining a person's susceptibilities to foodstuffs, may lead to
designer diets specifically targeted to a defined genetic profile, thereby allowing
individualized diets to prevent many diseases.
• Growth of the foods market. Changes in food regulation. At present, Japan is the only
country with an established regulatory category for functional foods where foods granted
FOSHU status are eligible to bear a seal of approval from the Japanese Ministry of Health
and Welfare
53

Figure 18. Global Growth of Nutritional Products Sales by Region (2000)
Source: Aarts, 2002
Outlook
Future growth of the herbal and nutraceutical markets depends on innovation. Innovation and
increased market share could be achieved in a variety of ways that include;
• Profiting from the success of functional foods by making use of the same ingredients. As
an example, products in the different market segments could use a number of plant
chemicals with pronounced antioxidative activity, such as resveratrol from grapes or
sulphoraphane from broccoli, that have gained increasing market significance at the
expense of the classical A, C and E vitamins;
• Identifying new products to address the multiplicity of symptoms of modern human beings;
• Performing convincing clinical trials that ultimately determine market growth strongly;
• Exploiting new natural resources for functional ingredients, e.g., algae, mushrooms and
exotic plants;
• Employing new technology for consumer-friendly point-of-care diagnostics to control the
physiological parameters (e.g. vitamin deficiency);
• Developing unique and proprietary supplement mixes;
• Identifying nutritional genomics and single nucleotide polymorphism of humans for
customizing nutraceuticals; and
• Developing sophisticated cultivation, processing, and delivery technology to accumulate
and maintain stability and increase the bioavailability of natural ingredients.
Foremost, the most crucial component for profitability in these markets involves regaining
consumer trust. In the EU, regulatory harmonization will lead to increased safety and reliability
54

and ultimately to consolidation of the market. In the US, the introduction of a separate category
of “traditional medicines” developed under GLP, CGMP and GCP guidelines will raise the status
of botanicals enormously. Eventually, national borders will become permeable thereby expanding
the market for nutraceuticals considerably. Finally, licensing agreements with, and exporting of
superior products from underdeveloped markets, e.g. South America, will also increase the
performance for all commercial organizations.
Cosmetics and personal care products
The US cosmeceutical industry is growing between 10% and 15% a year, almost doubling the
pace of the cosmetic industry. Introduction of new cosmeceutical chemicals providing unique
benefits and projected to record double-digit growth through 2005 due to their novel or improved
performance include a wide range of botanical and herbal extracts which have crossed over from
the nutraceutical industry and bring with them an established reputations of safety and health
benefits (Functional Foods & Nutraceutical, The Freedonia Group, April 2002, published in
Chemical Online). Combined US and EU sales of anti-aging skin care products were at between
USD 140 million to USD 150 million in 2001. Cosmeceutical skin care sales alone grew from USD
980 million in 1995 to USD 1.5 billion in 1999 and continue growing by up to 10% annually.
According to the Nutrition Business Journal (2002), the natural personal care market represents
10% of total US sales in the health and beauty care category. Of the USD 37 billion that US
consumers spent in this sector in 2001, cosmeceuticals represented USD 2.2 billion (6%) and
natural personal care products represented USD 3.3 billion (9%) respectively.
Market trends
According to COLIPA, the European Cosmetic, Toiletry, and Perfumery industry, the public often
narrowly defines cosmetics as mascara, eyeshadow lipstick or beauty products. However the
'cosmetic industry' is a broad term which encompasses products dealing with facial care, skin
care, toiletries, and perfume. These products embrace six principal functions for the end user: to
clean, protect, change the appearance, correct body odors, perfume, and in general help
maintain the body in good condition.
55

The European Market
Mintel is a market analysis company which reviews cosmetics and skincare markets in France,
Germany, Italy and the UK. Consumption of the various categories of products varied from
country to country. France had the largest retail sales in cosmetics and skincare at current prices
with an estimated 3,581mn [euro], representing a 5.5% increase over the review period of 1997-
2001. After France came the UK, which was closely followed by Italy and Germany with 2,557mn
[euro], 2,536mn [euro] and 2,490mn [euro] respectively. Between 1997 and 2001, Italy showed
the largest market increase with a rise of some 7%. By 2001, UK retail sales had increased by
5%, and Germany produced sales 2% above their 1997 level.
Figure 19. US Consumer Sales of Natural Personal Care Products in 2001 (USD 3.8 Billion)
Source: Aarts, 2002
56

Figure 20. US Consumer Sales of Health and Beauty Care in 2001 (USD 37 Billion)
Source: Aarts, 2002
United States
The Cosmetics and Toiletries market in the United States is expected to grow by 8.4% in constant
value terms to 2005. However, because of a weakening US economy there has been some
softening of the market. The combination of continued competitive pricing at the retail level and a
weaker demand brought about by a general recession is expected to slow growth in sectors of
the market which are subject to "commoditization." . This refers to the conversion of the market
for a given product into a commodity market, which is characterized by declining prices and profit
margins, increasing competition, and lowered barriers to entry.
The U.S. market for personal care products remained steady in 2001 as a result of a number of
new product introductions that caught the attention of both mainstream and “natural” shoppers,
those consumers who are concerned about purchasing “ethical” or “green” products. Retailers
and distributors saw the strongest sales in the area of emerging products, especially those
featuring unusual ingredients in their formulations, and from nutraceuticals.
Many manufacturers are now developing innovative products specifically to address the needs of
an aging population as well as segmenting the market in order to meet different consumer needs
such as teenagers, men, and those who are “environmentally conscientious.”
The sectors of skin care, suncare, and color cosmetics are expected to post strong gains and will
be the primary drivers of market growth. Global trends reveal strong consumer interest in
products which address aging skin and which promote a more youthful appearance.
A major trend in the past few years is the development of technology which helps reduce the
signs of aging in cosmetics and toiletry products. Product innovation in the area of skin care will
continue to develop and expand into color cosmetics and sun care. The same technology used to
57

develop anti-aging nourishers and body-firming lotions will be applied to subsectors within sun
care and color cosmetics to add value and raise selling price.
Table 3. Value of the Aging Baby Boomer Market in the U.S., 1996 to 2006
($ Millions at Manufacturers’ Level)
1996 1997 2002 2006
AAGR%
1996-2006
Menopause therapeutics 1,202 1,370 2,808 5,037 715.4
Impotence treatments 65 74 152 302 16.6
Skin care products 450 520 943 1,459 12.5
Sunscreen products 220 246 490 828 14.2
Hair regrowth products 150 180 270 344 8.7
Total 2,087 2,390 4,663 7,970 14.3
Source: Business Communications Company, Inc.
There is a growing market for cosmeceutical ingredients which suggest efficacy, such as
progesterone creams and menopause-related items which come from natural products. Dr.
Nicholas Perricone, an American dermatologist whose two books, “The Perricone Prescription”
and “The Wrinkle Cure,” have topped the New York Times best seller list for the past two years,
promotes products which include DMAE [dimethyl-aminoethanol] creams, CoQ 10 enzyme, and
Ester-C creams as well as other supplements. His appearances on public and commercial
television has created a heightened awareness among consumers willing to pay higher prices for
skin care containing the more expensive cosmeceutical ingredients. Wide coverage of his
“prescription for skin care” in popular magazines has created a whole new market for these more
expensive products.
There is a continued trend toward the use of organic ingredients in personal care products,
especially in items such as soap, shampoos, and conditioners. Interest in organics will grow as
more people look for healthier, more natural alternatives to the products which they use on a daily
basis. For example L’oreal, a major producer in the U.S. and Europe, has been marketing its
Organics shampoos, conditioners and body cleansers successfully for some years now.
Functional cosmetics are being taken to a new level and it is projected that larger cosmetics
manufacturers will continue to incorporate more organic and natural ingredients in response to
increased interest. Consumers have demonstrated continued interest in the use of vitamin E oils,
which have both internal and external nutritive benefits and are showing up in many products as
an ingredient which will diminish scar tissue and stretch marks. Market trends reveal that antidandruff
shampoos have become more popular and demand is increasing with brands such as
Head & Shoulders and Pantene dominating the market.
Specialty marketing plays an important role in new product development. For example a Texasbased
firm specializes in skin care formulations featuring Emu oil, a product extracted from Emus
(large, flightless birds). Use of this oil originated in Australia where traditional beliefs of Aboriginal
communities who were widely separated geographically corroborated the beneficial properties of
Emu Oil as a natural remedy to reduce pain and stiffness in sore muscles and joints. This oil,
which is used for chronic dry skin conditions, targets a broad span of the market from children
with childhood eczema to the elderly. This product has been particularly helpful for diabetics,
people who are on dialysis, or those who are bedridden and need to have their skin deeply
nourished.
58

The Cosmetic and Toiletry market covers a range of product lines aimed at various age groups
especially in the areas of skin care, hair care, skin care, and color cosmetics sectors. U.S.
manufacturers continue to cater to the teenage/young adult market, who have substantial
purchasing power. Cosmetic and toiletry products are promoted in teen magazines, which feature
everything from entertainment to cosmetics. The marketing strategy is to attract young
consumers who will continue to purchase the same brand in the coming years. It should be noted
this is group has very distinct taste from their parents’ generation which is why manufacturers are
reaching out to young consumers by designing products specifically for them.
Market data: Global market figures for selected product types
COLOR COSMETICS: Global Value
Table 4. Sales of Color Cosmetics by Sector 1995-99 (US$m)
1995 1999
Facial make-up 7,817.0 8,139.4
Eye make-up 4,760.2 5,608.7
Lip products 5,912.5 6,840.7
Nail products 2,331.9 2,841.5
Source: Euromonitor
Table 5. Sales of Color Cosmetics 1995-99 (US$m)
1995 1999
US 4,702.7 6,336.5
Japan 3,980.6 3,499.2
France 1,249.6 1,261.0
Germany 942.7 1,120.6
UK 922.9 1,118.0
Italy 704.3 938.2
Source: Euromonitor
Table 6. US and West European Consumption Of Specialty Raw Materials
for Cosmetics & Toiletries, 2001
Product Area Market Value ($MM) Market Share (%)
Conditioning polymers 450 23
Specialty surfactants 350 18
Hair fixatives 170 9
Rheology control agents 190 10
Specialty actives 180 9
Antimicrobials 220 13
Emollients 200 10
UV absorbers 160 8
Total 1920 100
Source: Kline & Company
59

Europe
Table 7. Europe's Leading Color Cosmetics Brands, 2000
France Germany Italy Spain UK
1 Yves Rocher Jade L’Oreal Margaret Astor Avon
2. Gemey Ellen Betrix Deborah Avon Rimmel
3. Bourjois Margaret Astor Rimmel Yves Rocher Boots 17
4. Agnes B. Yves Rocher Pupa Pinaud Boots No. 7
5. L’Oreal Manhattan Avon L’Oreal Body Shop
Source: Taylor Nelson Sofres
Euromonitor anticipates that the US and Western Europe color cosmetics markets will see their
value sales rise by 25% and 23%, respectively, between 2000 and 2004. Worldwide market sales
of facial make-up products grew from $7,817.0 mil in 1995 to $8,139.4 mil in 1999. ( Perfumery
& Cosmetics, 2001)
Table 8. Top 10 Body Care Categories & Subcategories
SPINSCAN -- Natural Product Supermarkets
Category Subcategory
Skin Care Body Lotions & Cremes
Skin Care Facial Lotions & Cremes
Hair Products Shampoo
Oral Care Toothpastes/powders
Soap & Bath Preparations Bar Soap
Aromatherapy & Body Oils Essential Oils
Soap & Bath Preparations Liquid Soap
Skin Care Facial Cleansers/Exfoliants
Soap & Bath Preparations Body Wash/Bath
GelHair Products Conditioner
Table 9. 52 Weeks Ending Feb. 23, 2002 vs. 52 Weeks Ending Feb. 24, 2001,
Total U.S.
Category Dollar Volume Dollars %Growth
Skin Care $28,069,094 $24,908,634 12.6%
Skin Care $21,815,685 $19,494,440 11.9%
Hair Products $15,226,405 $12,885,600 8.1%
Oral Care $14,714,326 $12,492,843 17.7%
Soap & Bath Preparations $14,224,036 $12,604,748 12.8%
Aromatherapy & Body Oils $11,339,096 $12,987,751 14.5%
Soap & Bath Preparations $10,584,866 $8,931,397 18.5%
Skin Care $ 9,869,280 $8,372,300 17.8%
Soap & Bath Preparations $ 8,975,366 $7,762,292 15.6%
Hair Products $8,615,454 $7,425,957 16.0%
Body lotions and cremes lead personal care sales at more than $28,000,000; liquid soap
experienced the most growth (18.5%).
Source: SPINS/ACNielsen
60

Table 10. Forecast U.S. Sales of Cosmetics and Toiletries by Sector (2000-2005)
US$ million, constant 2000 rsp
2000 2001 2002 2003 2004 2005
Hair care 8,288 8,318 8,323 8,315 8,336 8,371
Skin care 6,552 6,916 7,311 7,705 8,075 8,312
Color cosmetics 7,054 7,307 7,620 7,872 8,043 8,251
Fragrances 6,024 6,019 6,019 6,002 5,953 5,889
Oral hygiene 4,235 4,262 4,300 4,339 4,374 4,399
Bath and shower products 4,276 4,300 4,306 4,288 4,261 4,223
Men's grooming products 2,394 2,449 2,488 2,519 2,545 2,569
Deodorants 1,949 1,969 1,976 1,978 1,976 1,974
Sun care 1,071 1,115 1,163 1,211 1,258 1,306
Baby care 729 764 796 819 838 852
TOTAL 42,571 43,419 44,301 45,048 45,659 46,144
Source: Chemical Specialties, 2001
Asia
Table 11. Asia-Pacific: Sales of Cosmetics & Toiletries by Distribution Format:
% analysis 2000 % value
PH GR DI DS SP
China 2.5 23.9 – 72.7 0.9
Hong Kong 31.7 22.9 – 21.6 20.3
India 19.8 52.6 – 15.6 3.1
Indonesia 3.8 45.2 11.2 18.6 3.4
Japan 23.5 28.6 4.7 8.0 22.0
Malaysia 18.5 41.7 – 14.4 4.2
Philippines 16.7 39.1 0.6 21.9 6.2
Singapore 16.4 30.6 – 35.9 13.2
South Korea 3.4 24.8 – 10.0 38.5
Taiwan 10.7 44.0 – 30.2 10.0
Thailand 12.0 20.6 – 18.1 9.5
Vietnam 0.8 8.4 – – 6.9
TOTAL 17.4 30.8 2.8 20.0 16.5
Key: PH = Pharmacies; GR = Grocery; DI = Discounters; DS = Department Stores; SP =
Specialists
61

Table 12. Asia-Pacific: Sales of Cosmetics & Toiletries by Distribution Format:
% analysis 2000 % value
PH GR DI DS
China – – – 100.0
Hong Kong 3.4 – – 100.0
India 1.4 7.6 – 100.0
Indonesia 8.8 6.7 2.3 100.0
Japan 11.5 – 1.6 100.0
Malaysia 17.3 2.9 1.1 100.0
Philippines 10.7 4.0 0.8 100.0
Singapore 1.4 0.2 2.2 100.0
South Korea 20.9 – 2.4 100.0
Taiwan 4.5 – 0.5 100.0
Thailand 28.2 11.0 0.6 100.0
Vietnam 0.1 83.6 0.1 100.0
TOTAL 9.6 1.7 1.2 100.0
Key: PH = Pharmacies; GR = Grocery; DI = Discounters; DS = Department Stores
62

China
Table 13. Premium Sun Care: Major Manufacturers' Shares by Region 2000
% value sales of premium sun care
WORL WE
D
NA A-P LA EE Af&ME Aus
L'Oréal SA 11.7 17.0 18.6 0.9 7.4 – – 1.9
Shiseido Co Ltd 9.5 3.2 – 43.8 – – – –
Estée Lauder Cos Inc 8.2 1.0 38.1 1.5 – – 1.0 45.6
Clarins SA 5.7 6.0 – 12.1 – – 3.5 14.3
Kanebo Ltd 3.6 – – 18.6 – – – –
Kao Corporation 1 2.8 – – 14.3 – – – –
Johnson & Johnson 2 2.2 4.2 – – – – 1.9 –
Coty 1.6 3.2 – – – – 0.9 –
Kosé Corporation 1.4 – – 7.1 – – – –
Antonio Puig SA 1.3 1.7 – – 8.7 – – –
Source: Euromonitor
Key: WE = Western Europe; NA = North America; A-P = Asia-Pacific; LA = Latin
America; EE = Eastern Europe; Af&ME = Africa & the Middle East; Aus = Australasia
Table 14. Sector Sales of Cosmetics and Toiletries 1996-2000
$ Sales 2000 % Change % Change
1996/2000 1999/2000
Baby care 163,100,000 40.8 8.4
Bath and shower 1,002,056,359 40.6 7.7
Deodorants 10,886,658 149.9 8.3
Hair care 1,137,534,777 66.4 12.7
Color cosmetics 368,694,811 47.2 10.1
Men's grooming 45,119,148 12.9 2.3
Oral hygiene 1,408,975,445 21.9 2.9
Fragrances 105,479,618 42.4 8.9
Skin care 1,151,687,432 74.2 13.8
Sun care -- -- --
Total 5,393,492,198 45.8 8.8
Source: Euromonitor
Note: -- indicates non-existent or negligible presence.
63

Table 15. China: Market Share by Company
Company 2000
Procter & Gamble Guangzhou Ltd. 22.1
Unilever (China) Ltd. 8.7
Guangzhou Colgate Co. Ltd. 5.0
Shanghai Jahwa Co. Ltd. 4.8
Yue-Sai Cosmetics Co. 2.9
Guangxi Liuzhou Liangmianzhen Co. Ltd. 2.7
Shiseido Liyuan Cosmetics Co. Ltd. 2.5
Beijing San Lu Factory 2.5
Guangzhou Si Bao Precise Chemical 2.5
Industrial Co. Ltd.
Source: Euromonitor.
Japan
Avon Products Inc. 2.1
Others 44.2
Total 100.0
Table 16. Value Sales of Cosmetics and Toiletries, 1998-1999
(yen)
Current rsp Constant 1995 rsp
1995 2,148,562.8 2,148,562.8
1999 2,265,452.6 2,214,341.5
Source: Official statistics/trade associations/trade press/company research/store checks/trade
interviews/Euromonitor estimates
Table 17. Forecast Value Sales of Cosmetics and Toiletries, 1998- 2004
(yen, % constant)
Constant 1999 rsp Growth
1999 2,265,452.6 1.6
2004 2,493,946.3 2.1
Source: Ken Tanaka Official statistics/trade associations/trade press/company research/store
checks/trade interviews/Euromonitor estimates
64

Latin America
Table 18. Latin American Market for Color Cosmetics, 1999
Lip products 35%
Nail products 26%
Face make-up 22%
Eye make-up 17%
Table 19. Color Cosmetics Market, % Country Shares, 1999
Brazil 45
Mexico 21
Argentina 13
Chile 8
Colombia 5
Others 8
Table 20. Latin America Hair Care Market, 1995-99 (US$m current prices)
Source: Euromonitor
1995 1999
Total Latin America 3849.1 4582.0
Argentina 612.8 748.0
Brazil 1798.8 2076.8
Chile 172.1 214.7
Colombia 164.7 192.1
Mexico 541.4 693.9
Venezuela 141.4 156.6
Others 418.0 499.9
Global Aromatherapy Market
An interest in wellness and natural products is found in all regions across the globe.
Aromatherapy, the practice of prescribing "natural essential oils and herbs for the treatment of
mental and physical disorders” has moved out of the specialty health and beauty or “whole foods”
stores into the mainstream where products are now appearing on the shelves of local drugstores
and supermarkets
The search for relaxation in a world fraught with tension is believed to be a driver in the personalcare
market. It has spilled into the salon and spa industry which once targeted wealthier
consumers. In 1998 the aromatherapy market in France, Germany, Japan, the UK, and U.S. was
valued at $574.5 million and is projected to reach approximately $800 million by 2003. (Source
Datamonitor)
Products that utilize the healing powers and mood-enhancing effects of aromatherapy offer an
inexpensive way to promote relaxation. The aromatherapy market includes environmental
fragrances such as candles, room and linen sprays. The transition from spa to mass market has
65

made spa and aromatherapy an affordable luxury. It also reflects a return to “folk medicine” as
new customers seek out blended oils which treat everything from morning sickness to insomnia.
Recent product launches include bath salts and inhalation beads. Popular blends include
lavender, chamomile, and sage. Recently Shiseido launched Zen which is a collection of
relaxing and energizing fragrances developed to “capture the purifying and balancing essence of
the Zen philosophy” This product includes valerian and eastern kyara wood which Shiseido
describes as a breakthrough in “aromachology” technology. The Sense of Smell Institute defines
aromachology as the study of the interrelationship between psychology and the latest in
fragrance technology to transmit through odor a variety of specific feelings directly to the brain.
Shiseido claims that Zen has an effect on reduced stress levels. Its "floral spiritual woody" scent
is made up of top note blend of gentian, hyacinth, and modified valerian; the middle note contains
eastern mousouchiku (bamboo) and hair cup moss, combined with violet and iris; and the base
note is a blend of ryokuyu kyara and musk. Shiseido's skin treatment line also uses
aromachology to strengthen skin's response to stress.
Love Thy Hair is a specialized hair-care collection that incorporates fragrances, oils, and
botanicals into shampoos and conditioners. Indeed some salon owners are creating customblended
collections selecting from a menu of fragrances, and aromatherapeutic essential oil
blends which when combined with botanicals treat individual hair properties. Customer favorites
are blends of chamomile, patchouli, cedarwood, carrot, spearmint, and lavender or patchouli,
musk, orange, and vanilla. An ad for one of the product blends states, “Serenity Aromatherapy
blend removes impurities from your hair and worries from your mind “ Clearly multifunctionality
and multiproduct lines, as well as spa products are on the rise.
According to the Mintel Report on Complementary Medicines (1999-2000), “the most popular oils
have been, and are currently: lavender, citrus (including grapefruit, orange, and tangerine),
peppermint, eucalyptus, tea tree, and rosemary. These ingredients have maintained popularity
from both a scent and an end-benefit appeal. New ingredients appearing on the scene include
basil, a natural anti-depressant that stimulates memory and uplifts the spirit; lemon, which
sharpens the memory and clarifies the intellect; and amber, used to cleanse the soul and
harmonize the spirit and body. Clary sage (muscatel sage) has been used for its medicinal and
aromatherapeutic properties since the times of ancient Greece. Olive blossom, a "total beauty
ingredient," can be used for cleansing, hydrating, and softening skin and hair. Its leaves may be
used to heal skin abrasions, while the ground pits are ideal for exfoliation. “ (Mintel)
The Fragrance Foundation states that scent will play an increasingly more critical role in
lifestyle. Aromatherapeutic scents can be filtered through ventilation ducts on transportation
systems, especially subways. Countries which use air conditioning units may transmit fragrance
to aid sleep and relaxation. Workplaces may feature aromatherapy rooms that play music-replacing
water cooler and smoking breaks, and allowing workers to take a few minutes to relax
and clear their minds.
(Source: “Comfort Zone Aromatherapy products market in the US, the UK, Japan, France and
Germany” February 2001 )
66

Table 21. Premium Fragrances: Regional Presence of Top 10 Global Brands 2000
% value sales of premium fragrances at rsp
Chanel No. 5 WE NA A-P LA EE Af&ME Aus
Pleasures 2.22 1.50 2.73 0.61 0.21 0.84 2.91
CK One 0.54 2.73 1.04 0.45 1.09 1.51 4.05
Happy 2.23 0.27 1.53 3.39 1.97 0.91 3.13
Trésor 0.21 3.23 0.38 – – – –
Beautiful 1.08 1.73 – 0.49 0.46 0.52 –
Eternity – 2.56 – – 1.71 1.16 5.76
Davidoff Cool Water 0.67 1.69 1.46 0.87 0.24 1.16 0.47
Eternity for Men 0.99 1.35 0.23 0.26 – 0.28 0.46
Tommy Girl 0.57 1.32 0.96 1.28 0.87 0.55 1.89
0.33 1.94 0.21 0.75 – – 1.20
Source: Euromonitor
Key: WE = Western Europe; NA = North America; A-P = Asia-Pacific; LA = Latin America; EE =
Eastern Europe; Af&ME = Africa & the Middle East; Aus = Australasia
Selected Markets: United Kingdom
Table 22. UK: Top Ten Fine Fragrances
[pound]m 52 w/e
32 w/e
32 w/e %[+ or -]
11 Feb 2001 13 Feb 2000 11 Feb 2001
Total Market 28.99 24.39 22.12 -9
Chanel No. 5 1 1 1 -30
Anais Anais 2 4 2 +30
Jean Paul 3 7 3 +26
Gaultier
Opium 4 2 4 -32
Aromatics Elixir 5 10 5 +26
Samsara 6 3 6 -28
Dolce & 7 6 6 -22
Gabbana
Allure 8 9 9 -22
Cerruti 1881 9 8 8 -11
Eternity 10 4 9 -36
Source: Taylor Nelson Sofres
Table 23. UK: Women's Fragrance Market Value
[pound]m 1998 1999 2000
Total 357.4 353.3 355.0
Mass 107.4 101.1 61.6
Premium 250.0 252.2 293.4
Source: Industry estimates
67

Table 24. UK: Top Ten Mass Fragrances
[pound]m 52 w/e
32 w/e
32 w/e %[+ or -]
11 Feb 2001 13 Feb 2000 11 Feb 2001
Total market 51.54 37.69 35.91 -6
Avon Far Away 1 4 2 +53
Avon Perceive 2 2 1 +17
St Michael 3 3 3 +17
Avon Timeless 4 5 5 +21
Avon Dolce Aura 5 10 4 -
Avon
Rubies
Rare 6 1 6 -38
Coty
7 8 10 +98
Exclamation
Vanderbilt 8 6 8 -17
Avon Millennia 9 7 7 -6
Body Shop 10 8 8 +146
White Musk
Source: Taylor Nelson Sofres (Source: The Market Report: Women's Fragrances: UK European
Cosmetic Markets, 18(5): 181+, May 2001.)
Asia and Pacific
Table 25. Asia Pacific Fragrance Market ($m)
1996 2000
Asia Pacific 1,715.4 1,628.0
China 73.6 105.0
Hong Kong 122.8 148.9
India 134.9 151.8
Indonesia 59.8 29.9
Japan 491.9 501.4
Malaysia 52.3 42.2
Philippines 182.0 102.0
Singapore 37.0 43.5
South Korea 160.1 30.7
Taiwan 135.0 154.7
Thailand 67.4 36.0
Vietnam 3.5 5.4
Source: Euromonitor
68

Table 26. Premium Fragrance vs Mass Fragrance 2000 (% retail value)
Premium Mass
Asia Pacific 58.0 42.0
China 35.6 64.4
Hong Kong 88.2 11.8
India 16.2 83.8
Indonesia 38.5 61.5
Japan 65.6 34.4
Malaysia 49.8 50.2
Philippines 43.6 56.4
Singapore 86.3 13.7
South Korea 51.1 48.9
Taiwan 92.8 7.2
Thailand 29.1 70.9
Vietnam 34.7 65.3
Source: Euromonitor
Skin Care: The Global Market
Globally the skin care market is the fastest growing sector within cosmetics and toiletries. There
has been a significant rise in recent years with the US and Japan accounting for 21 percent of the
total skin care market. According to Euromonitor International, the leading market research
analyst, there is a trend +11.7 percent in the last five years with an anticipated +27 percent
growth in the upcoming three years.
“Within the skin care market, the facial care sector dominates the category representing a 70
percent of the global skin care market in 2000. The nourishing/anti-aging and facial cleanser
subsectors, worth US $4.5 billion and US $4.4 billion in 2000, experienced more substantial +6
percent market share growth. This is evidence of the widespread desire to combat signs of aging
and the stepped up activity of new product introductions.”
Table 27. Skin Care By Region % Analysis 1996-2000
% value 1996 2000
Asia – Pacific 35.3 34.9
Western Europe 32.1 27.7
Northern America 17.3 22.6
Latin America 7.5 7.0
Africa/Middle East 4.3 4.6
Eastern Europe 2.4 2.3
Australasia 1.2 0.9
Source: Euromonitor
69

Skin Care Selected Markets
United States
Table 28. “U.S. Department Stores Top 5 Brands Prestige Skin Care
January – September 2001
1. Clinique
2. Estee Lauder
3. Lancome
4. Clarins
5. Origins
Source: NPD Beauty Trends
Table 29. Facial Skin Care by Sub Sector
US $Billion % CAGR 1996-
2000
Facial Moisturizers 10.4 1.6
Nourishers/Anti-Agers 4.5 6.1
Facial Cleansers 4.4 6.0
Toners 1.7 -1.8
Face Masks 0.8 1.0
Source: Euromonitor. (Source : “Skin care: The market report: Soap & Cosmetics, 78(1): 34(4),
January 2002. ISSN: 1523-9225)
Skincare: Selected Countries
United Kingdom
Table 30. Top 10 Skincare Brands
1. Oil of Olay
2. . Boots
3. Synergy
4. Nivea
5. Vaseline
6. . Plenitude
7. Simple
8. Nivea Visage
9. Crookes
10 Superdrug
Ranked on value sales (52 w/e 3 March 2002) TNS Superpanel
70

Table 31. Total Skincare Market (K)
52 w/e
y-o-y
March 3 '02 % change
Value 652,022 12.4
Volume (units or packs 37,657 16.7
% share by sector % % change
Cleansers 32.3 1.3
Facial moisturizers 26.1 -6.3
General purpose 24 7.6
Baby skincare 5.5 5.8
Hand preparations 5.4 -5.6
Lip preparations 3.3 -0.6
Toners 2.6 -8.9
Petroleum jelly 0.8 -5.9
Source: Taylor Nelson Sofres Superpanel (Source: Market for skincare products in UK grows
12% to UKPd 652 mi - Grocer (The), 225(7551): 43(2), April 27, 2002.)
Table 32. UK: Leading Mass Market Facial Skin Care Brands 2001
Cleansers Toners Moisturisers
Oil of Olay Boots Oil of Olay
Simple Synergie Plenitude
Clean & Clear Simple Boots
Source: Taylor Nelson Sofres Superpanel
Table 33. UK: Mass Market Facial Skin Care, 2001
[euro]m Value Volume %[+ or -]
Cleansers 335.7 129.0 +22.0
Toners 26.9 9.6 -8.0
Moisturisers 268.7 54.9 +8.8
Source: Taylor Nelson Sofres Superpanel
Italy
Table 34. Italy: Facial Skin Care Products 1999-2000
[euro]m 1999 2000 %[+ or -]
Cleansers/makeup removers 117 132 +13.3
Toning lotions (+) 45 47 +3.4
Eye contour products (+) 82 95 +15.8
Moisturising/nourishing/anti-aging (+) 512 563 +9.9
Beauty masks 28 34 +20
Products for skin impurities 60 58 4.3
Total 845 929 +9.9
Source: Unipro, converted to [euro] by ECM - (+)Underrated data in 1999 statistic
71

Spain
Table 35. Spain: Facial Skin Care Breakdown by Category 2001
(12 months to May/June 2000-2001)
% Volume Value
Cleansing 52.2 34.3
Cleansers 10.9 9.3
Toners 6.3 5.2
Towelettes 28.1 12.7
Eye make-up removers 2.9 2.1
Exfoliators 1.3 1.7
Masks 1.0 1.5
Cleansing strips 1.7 1.8
Creams/lotions 47.8 65.9
Moisturisers 30.1 34.6
Nutritive creams 4.2 5.4
Whiteners 0.5 1.1
Anti-wrinkle 7.8 15.7
Specific treatment 2.9 5.0
Eye contour 2.3 4.1
Source: DroquerPress based on ACNielsen data,
Table 36. Spain: Facial Skin Care Brand Shares 2001
%
Plentiude (L'Oreal) 21.5
Pond's (Lever Faberge/Unilever) 16.9
Diadermine (Schwarzkopf & Henkel) 16.4
Nivea (Beiersdorf) 13.9
Margaret Astor (Coty/Reckitt Benckiser) 9.0
Vitesse (Antonio Puig) 6.0
Synergie (Laboratorios Garnier/L'Oreal) 3.1
Johnson's (Johnson & Johnson) 1.6
Sanex (Cruz Verde-Legrain/Sara Lee) 1.4
Source: Drogueria & Perfumeria
72

Latin America
Table 37. Latin America Skin Care Market, 1995-99 (US$m current prices)
1995 1999
Total Latin America 1898.2 2119.3
Argentina 261.4 284.9
Brazil 716.8 724.5
Chile 79.3 118.7
Colombia 127.6 156.9
Mexico 368.9 396.3
Venezeula 88.9 118.5
Others 255.3 319.5
Source: Euromonitor
Table 38. Argentina: Key Cosmetic and Toiletry Sectors, 2001
$m (rsp) [+ or -]%
Hair care 412.0 0
Deodorants 270.0 0
Bath care 145.0 -5
Hand and body care 66.0 -3
Facial skin care 63.0 -8
Sun care 25.0 -10
Shaving products 19.0 0
Source: ACNielsen.
Figures do not include sales of Avon products.
The consumer demand is for products to reduce lines and wrinkles. In the US this has driven
sales of prestige products. The luxury segment of skin care (products priced above $50) grew +8
percent January-September 2001 and products categorized as "age specialists" experienced a
modest +4 percent upward trend. Two brands, Clinique and Estee Lauder, lead the prestige
product category. Other prestige skin care products are Lancome, Clarins, Origins, Chanel,
Christian Dior, Shiseido, Bobbi Brown, Orlane, Prescriptives, Decleor, Lierac, Prada, and Nars.
L'Oreal, Oil of Olay, Almay, Neutrogena, Aveeno, and Almay are making affordable cosmetics
and targeting the 30+ year old consumer who is anxious for new products such as Almay's
Kinetin Skincare Advanced Anti-Aging Series which includes Kinetin (a stable, antioxidant plant
growth factor) which had only been available through prescription. Revlon holds the exclusive
license to market Kinetin skin care technology with the Almay brand.
Japan takes first place when it comes to the amount of money spent per person on skin care
products. Asia-Pacific is the largest regional skin care market which accounted for 34.9 percent of
global sales in 2000. This is followed by Western Europe with North America considered the
fastest growing market in the world.
Premium product sales in the Asia-Pacific region were strongly influenced by the demand for
moisturizers and anti-aging creams which targeted the 50+ age group. Shiseido pioneered a new
73

whitening product which promotes a brighter more luminous skin which reduce age spots. Skin
lightening remains a key area for this greatly expanding product arena.
The Teenage Market
Young consumers are being introduced to skin care with companies like Jane and Noodé which
seek to establish a new customer base. With catchy product names like Clean Me and Wash
Me Everywhere Noodé has focused it's research on developing a line of natural skin care
products using Kava Kava as a key ingredient. This plant indigenous to the region of the islands
of Polynesia is known for its unusual soothing and calming properties. Jane markets to the teen
set in a big way with an interactive web site which features everything from “hot tips” to a virtual
coloring book where consumers can try out endless color combinations. Many of these products
contain SPF 12 or higher to ward off the sun’s uv rays and are packaged in attractive counter
presentations which are selling well to image conscious teens.
The Male Market
This is the area to watch especially in the US, which has the largest national market for men's
grooming products and accounts for more than 23 percent of global sales. In response to this
trend, Clarins and Clinique are expected to enter the market soon. The target is a customer in his
mid- to late twenties who has money to spend and is conscious of his personal appearance and
grooming habits. The best selling producer of male products is Zirh whose range of products
state they will “Clean, Correct and Protect” dominates the department store market. Along with
popular ingredients such as aloe vera, chamomile, ginseng and gingko, Zirh products use an
extract derivative from Saragassum filpendula, the red and brown seaweed of the northeastern
Brazilian coast and sea botanical extract which contains a seaweed extract. Detailed product
information on their website claims the health benefits of their “natural“ men’s product line.
Market penetration is strong in the United States, UK, Norway, and Sweden but a global launch
projected for 2003 will make these products available in Latin America, Asia, and more European
countries.
Cosmetic Regulation Among European Union (EU) Countries
The imminent final version of the 7th Amendment to the EU Cosmetic Directive includes an
animal testing ban by 2009 for both cosmetic ingredients and finished products.
The new EU Directive will also require cosmetic products to be labeled with a period of minimum
durability dependent upon the product stability or shelf life as it relates to consumer use. While
the exact language is not yet available, products with less than 30 months durability must state
the acceptable time period for use. Conversely, when a product is durable for more than 30
months, the product will be required to show a symbol of an open container and state the time
period during which the consumer can expect to use the product after opening. These labeling
requirements will probably go into effect two years after the Commission approves the Directive.
Following publication of the approved Seventh Amendment to the Cosmetic Directive, member
states will have two years adopt and implement the new law in their respective countries. The
impact on these efforts will be felt throughout the various member states as well as their
worldwide trading partners, especially the United States, Japan, and the growing Asian markets.
There will be many more issues and requirements addressed in the language of this new
legislation. There will need to be additional product labeling and testing to assure product
stability. A second and more difficult challenge will be the urgent requirement to develop
74

alternative test methods to assure consumer safety. (Source: The 7th Amendment: A new year's
resolution? (Rule & Revelations) Analysis of pending cosmetics regulation in the European Union
Global Cosmetic Industry, 171(1): 20, January 2003.) More information can be found at the
Colipa website.
CEW (Cosmetic Executive Women, the leading beauty industry trade organization for women
gives yearly awards to a series of new beauty products. At their 2002 Beauty Awards, they gave
an award to Lancome Paris, for Absolue, Absolute Replenishing Crème SPF 15 claims to help
the skin restore itself by boosting the function of its cells. It includes a component called
Bionetwork, which is a combination of wild yam, soya and brown sea algae. The cream also
features capriloyl salicylic acid and oils of bergamot, cardamom, green tea, cedar, iris, jasmine
and black tea.
The latest product launch from Aveda, whose outlets world wide are referred to as Aveda
Environmental Lifestyle Stores has just announced the launch of “Aveda Uruku Makeup”.
According to the press release, this makeup uses extracts from a urukum palm tree in the
Brazilian Amazon which yields a red seed-pigment called uruku. The Yawanawa tribe uses this
extract to decorate their bodies and faces. Aveda is collaborating with the Yawanawas to
organically grow these trees, thus fostering economic independence for the Indians and bringing
the a new cosmetic to conscientious consumers.
New Markets
Changes within the US Market: New Possibilities
The United States is undergoing rapid changes in consumer demographics with a strong growth
in diversity fueled by immigration from Asia, Latin America, and Eastern Europe. This
immigration is beginning to change the face of the American cosmetic and toiletry industry and
the raw materials which are used to make those cosmetics
Currently minorities represent around 32% of the US population, or 90 million people. Cultural
influences of these diverse ethnic groups are beginning to have an impact. Those who market
products and provide raw materials need to plan for an increasingly diverse and multicultural
America which impacts not only the products which they buy but their cultural beliefs and buying
habits.
(Source: Cosmetics raw material suppliers fill a growing appetite for multifunctionality. (Focus
2002: Consumer Specialties). (Chemical Market Reporter, 262(17): FR3, November 11, 2002.)
Green Market
The impact of the green market or “ethical” personal care is forecasted to grow and to reach a
market value of [euro] 3 billion in Europe by 2006 according to reports in the Global Cosmetic
Industry.
“Green consumerism" especially in Europe has the capacity to make a serious impact on the
personal care industry. Ethical personal care products have been developed as a direct result of
consumer requests for these products. People are carrying out their personal and social
convictions at the local pharmacy, grocery or retail store. Green consumerism reflects the
customer’s belief in supporting a cause or greater good. These consumers will then choose to
select ethical personal care products or toiletries which reflect their values and which incorporate
75

ethically responsible production techniques including conservation, no animal testing, or “fair
trade”.
In Europe these personal care products have begun to make a significant impact by capturing
more than 5 percent of the market share of skin care, hair care, and makeup products. Sales of
these products were estimated at [euro] 1.45 billion in Europe with hair care and skin care
comprising roughly three-quarters of the market. The United Kingdom and Germany are the
largest markets for these products capturing [euro] 468 million and [euro] 403 million in sales in
2001.
Because these products are also "natural," they tend to reinforce the consumer’s beliefs that the
products are less harmful to the hair, skin, and body, and are also fresher. Thus a functional
product provides an emotional benefit and allows consumers to feel they are helping a cause they
support.
According to the results of a European consumer survey carried out for Corporate Social
Responsibility (CSR) in 2000, consumers in Sweden and Netherlands are considered the most
ethically motivated compared to those in France and Italy. This “ethical” personal care market is
forecast to reach 15.7 percent of market value of [euro] 3.0 billion by 2006. The United Kingdom
is projected to grow as the largest market for ethical personal products.
The “Green Market” Sector Value
Table 39. Value of the Ethical Personal Care Market in Europe for 2001, [euro]m
Hair care Personal
Hygiene
Skincare Makeup
France 51 14 38 15
Germany 155 55 174 20
Italy 10 8 26 2
Netherlands 27 16 26 2
Spain 20 10 10 6
Sweden 18 7 28 2
UK 171 127 151 18
Other
Source : Datamonitor
90 48 91 14
A new association, the European Organization of Cosmetic Ingredients Industries and Services
(UNITIS), has been set up to work with producers, evaluators and distributors of cosmetic
ingredients, particularly those of natural origin. UNITIS will work with administrative authorities by
providing a dialogue between the 40 European companies who are founding members and
authorities to ensure that consumers obtain products which have been verified for toxicological
and qualitative aspects. (Source: Perfumery &Cosmetics, Dec 2002 V75 )
China
China is a rising market. With a population approaching 1.3 billion who increasingly live in urban
areas, China's expanding market offers great opportunity to cosmetics and toiletries
manufacturers. In 2000, the total cosmetics and toiletries market in China was worth RMB44.6
billion ($5.4 billion), representing impressive growth of 46% between 1996 and 2000. Retail sales
of cosmetics and toiletries were closely related to macroeconomic conditions with sales growth
76

due to relatively successful economic reforms. A rise in demand for a wider range of cosmetic
products comes from consumers with more disposable income in both urban and rural areas.
Also there are now more women in the workplace including those in better paid positions.
The China State General Administration of Industry and Commerce (SGAIC) reported that
cosmetics companies spent RMB 3.1b ($374mn) on advertising in China during the first half of
this year. This translates into the cosmetics industry as the fourth largest advertiser in terms of
value. (Source: Cosmetics International, 26(596): 3, October 25, 2002.)
With greater numbers of China's population exposed to the media, coverage of new cosmetics
and toiletries has risen. The fastest growing segment of the population is the elderly. Companies
are aware of this age group as a significant market. These elderly are also spending money on
products for their grandchildren. Due to population control exercised by the Chinese government,
parents may only have one child so they and their immediate families frequently lavish gifts on
these children.
In 1970, China had about 50 manufacturers of cosmetics and toiletries. Today there are some
5000 such manufacturers, including more than 1000 joint ventures and wholly foreign-owned
companies. Faced with comparatively slow growth in many Western markets, major multinational
players have increasingly turned their attention to China, eyeing its massive growth potential
which has resulted in heavy investment.
The largest product sectors are skin care, hair care and oral hygiene, which account for more
than two-thirds of cosmetics and toiletries sales. Urban residents represent only 30% of the total
population but account for 70% of sales. Rural dwellers who are 70% of the total population
account for only 27% of sales. However, the proportion of urban dwellers is rising. It is hoped this
will impact sales, even though retail prices have been inflated by high taxes and represent a
barrier to many Chinese consumers.
The oral hygiene sector represented the single largest share of cosmetics and toiletries sales in
2000 or 26% of the market. Products such as toothpaste and toothbrushes are available even in
remote areas. Again, in major cities nearly 100% of residents of all age groups clean their teeth at
least once and sometimes twice a day. However, in rural areas, the number of people who brush
their teeth with frequency is much lower. Future growth will be aimed at greater penetration in
rural areas. Foreign brands such as Colgate lead the market. However, in 2000, local household
cleaning product companies (such as Libai, Nice, and Nafine) began to expand into this
subsector.
Deodorants are the most dynamic sector of the market, and they increased by about 150%
between 1996 and 2000. The growth of deodorant can also be attributed to Henkel's substantial
investment in the sector, which has consolidated its market share.
As in the rest of the world, skin care in now one of the most competitive product areas in the
Chinese-market. Skin care products accounted for the second largest portion of sales,
representing 21% of total market value in 2000. Sales increased nearly 14% in 2000 to $1.2
billion.
Multinational companies dominate the sector with popular brands such as Procter & Gamble
Guangzhou's Oil of Olay, Yue-Sai's Yue-Sai, Shanghai Pond's Pond's and Vaseline, and
Shiseido Liyuan Cosmetics' Aupres. These global companies are able to optimize their
considerable marketing resources. They appeal to a growing market which has beauty
consultations in department stores and are aimed at consumers with more disposable incomes.
77

However, the Chinese have a strong preference for natural ingredients and have used Chinese
herbal ingredients in their formulas for centuries.
The suncare market is part of the skincare market, and in 2000, there were new product launches
including L'Oreal with its La Roche Posay and Vichy brands, Procter & Gamble Yulanyou and
Yulanyou Whitening, and Estee Lauder with Day Wear.
After skin care, the second fastest product sector last year was hair care, another of the largest
components of the Chinese market. Sales rose nearly 13% to $1.1 billion in 2000. The bulk of
hair care sales came from shampoos. Conditioners with 2-in-1 products or shampoo plus
conditioner products dominate with 65% of the share. They have outpaced individual sales of
shampoos and conditioners. The multinational market is strong with active marketing which has
eroded domestic products.
Color cosmetics are the third fastest growing sector with lip products and facial makeup as the
major subsectors accounting for 86% in 2000. Multinational joint ventures are a major factor. In
1998 the Chinese government banned direct sales including companies such as Avon, Amway
Asia Pacific, and Mary Kay. These companies have since set up special cosmetic counters and
outlets. Both Avon and Amway set up manufacturing plants in China which was the condition for
allowing them to operate. Avon saw a large increase in sector value share in 2000. The men’s
grooming sector is not significant. Men in China are not as concerned about facial hair and many
are now switching to electric shavers.
Joint ventures dominate the Chinese market with about 450 joint ventures or wholly foreign
owned manufacturers controlling 70% of China's cosmetics and toiletries market. Leading
cosmetics and toiletries joint ventures in 2000 were Procter & Gamble Guangzhou Co. Ltd.,
Guangzhou Colgate Co. Ltd., and Unilever (China) Co. Ltd. Procter & Gamble had the strongest
presence in all major sectors with a market share of 22%. It’s well known products are Head &
Shoulders shampoo, Crest toothpaste, Safeguard soap, and Oil of Olay which is the number one
skin care lotion.
Major domestic manufacturers include Shanghai Jahwa Co. Ltd., Shanghai Toothpaste Factory,
Liuzhou Liang Mian Zhen Co. Ltd., Tianjin Toothpaste Factory, and Beijing San Lu Factory.
Shanghai Jahwa, one of the largest domestic cosmetics and toiletries conglomerates in China.
Their brands Maxam, Liu Shen and Chinf & Chinf are known nationwide.
Department stores represent the major outlet for cosmetics and toiletries. China is seeing a new
generation of upgraded department stores which offer a better range of quality goods and
services that have helped boost sales. The grocery store channel has also grown in importance
for this market as they have expanded into residential areas.
Opportunities Abound
“According to Euromonitor, the Chinese cosmetics and toiletries market is expected to grow by
63% in constant terms by 2005, making it the fastest growing country in the Asia-Pacific region.
Development of the smaller sectors in urban areas and of larger sectors in rural areas will
underpin growth. In particular, color cosmetics, fragrances, and deodorants all have potential for
growth in urban areas, while hair care, oral hygiene and bath and shower products have
significant growth potential in rural locations, and skin care will continue to see its value share
increase across the country.”
78

As in the rest of the world, new product development will be a key to market development. Valueadded
products such as those including aloe vera or vitamin E will command higher prices. The
whitening, anti-aging and anti-wrinkle cosmetics being embraced by other consumers world wide
will also experience growth, with skin care predicted to overtake oral hygiene as the most
important sector in the Chinese market.
China's low levels of product penetration offer unparalleled opportunity to both domestic and
multinational companies to profit from expanding consumption as spending on non-essentials
becomes more widespread. With all the major players now well established in the country, solid
foundations are in place for a promising future performance across all sectors. (Source:
Overview of current state and potential of China's cosmetics and toiletries market” Happi-
Household & Personal Products Industry, 39(2): 53(5), February 2002.)
Additional Information:
Cosmetic Ingredient Review: Ingredient Reports Ingredients with a literature citation (Journal of
the American College of Toxicology - JACT, Journal of Environmental Pathology and Toxicology -
JEPT, and International Journal of Toxicology - IJT) last updated on December 30, 2002.
http://www.cir-safety.org/publications.shtml
The Fragrance Foundation was established in 1949 by six industry leaders affiliated with
Elizabeth Arden, Coty, Guerlain, Helena Rubenstein, Chanel and Parfums Weil, to develop
educational programs about the importance and pleasures of fragrance for the American public.
America is the largest fragrance market in the world and The Fragrance Foundation has become
an international source for historic, cultural, scientific and industry related reference materials.
http://www.fragrance.org/main.html
Sense of Smell Foundation
http://www.senseofsmell.org/resources/aromachology.asp
Jane Cosmetics website: http://cgi.janecosmetics.com/products/mainpage.php
Noodé website: http://www.noode.com/index.html
Zirh website: http://www.zirh.com/home.asp?top=key_ingredients
Colipa website: http://www.colipa.com/7th_amendment.html
CEP website: http://www.fashionwindows.com/beauty/2001B/beauty_awards.asp
Aveda website: http://www.aveda.com/
Enzymes for use in food, food processing and non-food industries
The nature of enzymes, types of products and sources
Enzymes are proteins consisting of long chains of amino acids held together by peptide bonds.
As catalytic agents, they help speed up chemical processes by transforming their specific
substrate. The catalytic activity of enzymes has been exploited since ancient times. The
manufacturing of beer, wine, cheese, and bread is thousands of years old, and each of these
fermentation processes harnessed the activities of enzymatic organisms. Because a particular
enzyme operates on only one substrate, the catalyzed reaction will generate only one product.
Another virtue is their money-saving mild temperature requirement. Still another is that they
generally operate in aqueous solution, some of them alternatively work in organic solvents.
Enzymes are coadjuvants for industrial processes and green technology.
79

Information from Dyadic, Inc., one of the major producers in this field, describes enzymes as very
large, complex protein molecules consisting of folded chains of amino acids. They are formed
within the cells of all living creatures, including humans, animals, plants, fungi, bacteria, and
microscopic single cell organisms. They are highly biodegradable inanimate chemical compounds
which pose no threat to the environment but serve as catalysts for chemical reactions at work in
nature and the human bodies with applications in industry. Enzymes are highly efficient at
increasing the reaction rate of biochemical processes as they have a highly specific target which
can break down or synthesize certain compounds. (Source: Dyadic )
Of the seven thousand enzymes which have been identified and characterized, approximately
3000 are known to catalyze a large variety of different reactions. Of these, only a small fraction
is commercially available and an even smaller fraction is of industrial relevance. Most
commercial enzymes are derived from bacteria and fungi through a process of fermentation.
Enzymes can be genetically modified to enable them to perform different functions. New
advances in enzyme engineering enable scientists to grow microorganisms but also to modify
and adapt enzyme protein properties to customer requirements. (Source: Phillipa Maister,
Atlanta Business Journal)
Commercial enzymes include the following groups:
• lipases which split fats into glycerol and fatty acids;
• amylases which break down starch down to produce simple sugars;
• proteases which break down proteins and peptides;
• cellulases which break down cellulose.
According to Menrad, et. al., the following steps are involved in the production of industrial
enzymes:
• Screening for interesting enzymes in source organisms such as bacteria, yeast, fungi, plants
and animals
• Enzyme isolation and characterization of enzyme properties
• Development of source organization into a production strain
• Development of a production process
• Downstream processing procedure to obtain maximum enzyme yields
Formulation of the enzyme preparation
Enzymes can be manufactured for commercial purposes through a fermentation process where
the broth in the form of a sterile nutrient medium is metabolized. The microorganisms release
hydrolytic enzymes to carry off digestion processes. When fermentation is complete, centrifugal
filtration processes separate the enzyme from the fermentation broth.
The introduction of genetic engineering into enzyme technology has significantly changed this
production process,
The results are:
• significant cost reduction in the development and production process of enzymes
• the exploitation of new types of enzymes and new source organisms
• drastic shortening of development times form screening to market
• improved product safety and fewer production risks
• optimization of enzyme properties by protein engineering
80

For this reason, enzyme producing companies are using genetic engineering as a core
technology together with protein engineering, as well as rational design and high-throughput
screening activities. Currently more than 60% of the industrial enzymes produced “are produced
by genetic engineering organisms” The enzymes from these sources, however, are primarily
applied in non food applications such as detergents, textile and pulp and paper industry.
Companies are exploring extreme environments in search of enzymes having properties more in
tune with industrial needs. Researchers are applying molecular evolution to stretch and alter
enzyme specificities. Enzymes are being harnessed to work in partially organic solvents so they
can have new applications. The prospects for this industry look bright, with increased market
penetration expected in several existing applications, as new applications under exploration come
to fruition and new technologies improve the needed performance characteristics enzymes must
have for industrial applications.
(Business Communications Company, Inc.)
A new era of advances in enzyme technology now exists. Genetic engineering is being applied,
not only to produce enzymes in easier-to-grow microorganisms but also to tailor enzyme
properties to customer needs.
A team of researchers at the Pacific Northwest National Laboratory of the US Department of
Energy have developed a way to control genes that are transplanted into potato plants. This
laboratory has been able to direct desirable traits into a specific portion of the potato plant,
allowing dual-use of one crop. The experimental potatoes have sprouted valuable enzymes in
the vines, while the tubers remain unchanged. These transgenic plants have been engineered to
produce cellulase enzymes in the foliage; an enzyme used to break down plant material with
applications in food processing. The process can be adapted to create additional enzymes such
as lipases and proteases used in pharmaceuticals, specialty chemical and industrial products.
When industrial enzymes are grown in fermenters, it represents a labor- and time-intensive
process that is relatively costly. Researchers say using plants as "bioreactors" to grow the
enzymes is much easier and cheaper. The fermentation process costs range from $50 to $250
per gram of desired product, while Pacific Northwest estimates that growing the enzymes in
plants would cost less than a penny per gram, including processing costs.
Applications
Food and animal feed applications dominate the market, accounting for just under half of the total
value in 2000. Carbohydrates and proteases are the principal enzyme types serving these
applications. Cleaning compounds are the next most important, with about 22% of the total and
is also the second fastest growing sector with an AAGR of 5%. This category includes laundry
detergents, dishwashing detergents, and other cleaners. Proteases, amylases, lipases, and
cellulases all serve this market. The manufacture of chemicals is the third most important
market, with about 14% of the value. Fermentation alcohol makes up most of this market
segment, and has grown more rapidly than any other part of the entire market. Other segments
include pharmaceuticals (steroids and antibiotics), amino acids, proteins, and lipids (triglycerides,
phospholipids).
Textile, leather, and fur applications follow with about 9.5%. The major part of this application is
cotton and cellulosic textiles, which use mainly cellulases and amylases. The last major market is
pulp and paper, which accounts for about 6%. The most notable use is that of xylanase for the
prebleaching of pulp, which helps to reduce bleach requirements and thus reduces pollution
problems. Amylase is also used here. A big potential market in pulp bleaching exists, if enzymes
could perform direct bleaching instead of the chemicals, especially chlorine, that are now used.
81

The market
The current market for industrial enzymes in the world today is estimated at $1.5 to $1.8 billion a
year and is expected to grow at an average annual growth rate of at least 10% . Europe is a
leader in industrial enzymes providing from 60-70 % of the world’s supply. Fifteen percent is
produced in North America, which is aggressively developing its market, and up to 15 % in
Japan. The food and beverage sector is the largest sector in the industrial enzymes market,
contributing about half of the total market.
According to a Business Communications Company, Inc. study, the areas of food and animal
feed continue to dominate the industrial enzymes market on a worldwide basis. The food and
animal feed applications segment increased from $705.0 million in 1997 to $833.1 million in 2002.
Leading applications are the manufacture of starch-derived syrups, alcoholic beverages, dairy
products and animal feed. Lesser applications are baked goods, fruit and vegetable processing,
protein processing and vegetable oil extraction. While the food market for enzymes is relatively
mature, opportunities exist for new and improved enzymes in niche uses, and the animal feed
sector has considerable room for growth. Detergents are the next most significant market outlet
for industrial enzymes. Enzymes for laundry detergents dominate this sector, followed by
enzymes for dishwashing detergents. This segment rose from $475.2 million in 1998 to $600.9
million in 2002. Textile enzymes are the third most significant segment of this market. The major
enzymes in this category are enzymes for processing cotton and cellulosic textiles, followed by
enzymes for processing leather and fur. Enzymes for silk and wool are minor. Other outlets for
industrial enzyme applications include pulp and paper and chemicals manufacture. Although
estimates vary a great deal, enzymes for industrial applications in the USA alone are estimated to
be close to $650 million by 2005.
Table 40. Industrial Enzymes: Worldwide Market Forecast, 1997-2002
($Million)
Market Sector 1997 1998 2002
AAGR%
1997-2002
Food and animal feed 705.0 729.7 833.1 3.5
Detergents/cleaners 475.2 498.0 600.9 4.8
Textiles, leather and fur 161.0 164.2 182.7 2.0
Pulp and paper 97.6 104.3 136.0 6.9
Chemicals manufacture 59.2 60.8 67.6 2.7
Total 1,498.0 1,557.0 1,820.3 4.0
Source: Business Communications Company, Inc.
82

Table 41. U.S. Consumption of Industrial Enzymes by Major End Use,
Through 2005 ($ Millions)
Market Sector 2000 2005
AAGR%
2000-2005
Food and animal feed 251.0 294.5 3.2
Detergents/cleaners 113.4 145.0 5.0
Chemicals manufacture 70.8 89.5 4.8
Textiles, leather and fur 48.7 58.7 3.8
Pulp and paper 30.2 41.6 6.6
Total 514.1 629.3 4.1
Food and Food processing applications
Within the world market for industrial enzymes, food enzymes have the largest market share,
approximately 50%, of which two thirds are used by the dairy and starch industry. Enzymes are
critical to the food processing industry. Innovations in food enzyme technology require extensive
understanding of genetic engineering , protein engineering , rational protein design and new
screening processes for new enzymes, fermentation, downstream processing and combinations
of different methodological approaches. Enzymes can contribute to increasing competitiveness
within the food industry and the key barrier is a lack of innovation within the food industry itself.
The workforce in this industry as a whole is not yet entirely equipped with the skills and technical
knowledge in areas of biotechnology, genetic engineering and enzyme technology. To date few
enzymes produced by genetically engineered organisms are commercially available. (Business
Communications) .
83

Baking
By altering the structure of the key biopolymers within the flour, enzymes are used in the bread
industry to improve the baking process, increase palatability and shelf life. Starch is transformed
using specialized amylases during production. Hydrolytic enzymes have been shown to have a
positive effect on the rheological properties of the gluten, thus improving overall quality.
Fruit Juice
Within the fruit juice industry, enzymes such as pectinases, cellulases and others, can aid in the
liquefaction and maceration of many fruits for the juice industry. These enzymes help degrade the
cell walls and provide increased juice yields compared with conventional methods.
Starch
Bakery 8%
Fruit and vegetable
processing, juices 10%
Flavors fragrances,
proteins, fats and oils
4%
Alcohol, beer and wine
10%
Animal feed 2%
Dairy industry 28%
As early as 1960, enzymes were for used in the starch industry as an aid for processing. High
quality enzymes for the production of many grades of starch reflects a transition from harsh
chemicals. Usage of these enzymes has decreased processing time thus increasing higher
quality yields.
84
Starch industry 38%
Figure: Market share of the most important applications of enzymes within
the Agro-Food sector (Source: Husing, et.al. 1997 reproduced in Menrad,
et.al. 1999

Alcohol
Starch is a main ingredient in the production of alcohol. The conversion of starch into fermentable
sugars requires liquefaction and saccharification processes. Enzymes speed up the process by
breaking down the long chain glucose molecules. Newly developed industrial enzymes increase
standardized yields and help lower costs.
Animal Feed
External enzymes added directly to animal feed serve as supplements to those enzymes such as
cellulases, hemicellulases, and others which are naturally present in the animal. These microbial
enzymes help break down materials and improve digestion.
Non-food Industrial Applications
Independent from the use of enzymes for the processing of food products it should be noted that
another important application relates to the improvement of the environmental impact of the
conventional food processing procedures themselves. This is to say that enzymes working at
ambient temperatures and aqueous solutions can reduce the consumption of raw materials and
energy and minimize the production of harmful by-products in the industrial effluent. Non-food
industrial applications for enzymes has increased because of the high specificity of enzymes
which allows their application in such areas as pulp and paper and the textile industry. (Source:
Enzymes for Industrial Applications, June 2001 ).
Pulp and Paper
Paper pulp is essentially made up of lignin, cellulose, and hemicellulose. The use of certain
industrial enzymes such as cellulases, hemicellulases, esterases and others serves to modify the
processes. Through the addition of cellulase, an enzyme which degrades cellulose in the pulp,
the paper mill can increase the tonnage of paper produced by running the paper machine faster.
Lignin which is present in the paper pulp has color causing qualities. It is often attached to the
hemicellulose. This compound reduces brightness and affects the color of the end paper product.
In the past, chlorine-containing compounds were used to remove the lignin to improve the
bleaching process. New enzyme treatments can be used to remove the bonds between
hemicellulose and lignin, to improve the effectiveness of bleaching and reduce need for chlorine
compounds. The use of these enzymes for degrading the lignin is a form of “biobleaching.”
Information from Dyadic, Inc. points out that “Enzymatic enhancement can also improve the
effectiveness of de-inking. Writing and printing grades for office use are among the most valuable
papers manufactured and sold. Unfortunately, less than 10% of office waste paper is recycled
back into printing and writing grades. This is due to the wide variety of contaminants present in
ink, including difficult-to-remove non-contact polymeric inks from laser printing and copy toners.
Enzymatic treatment with cellulase removes both impact and non-impact inks more effectively,
making the washing and floatation processes more successful. By increasing the use of cellulase
in the de-inking process, the amount of recyclable office waste paper could grow significantly
from 10% to 40%.” (Source: Dyadic).
During the growth of the industrial enzyme sector, various applications have been demonstrated
in the pulp and paper sector. These include enhanced bleaching in elemental or total chlorinefree
bleaching sequences, enhanced pulp dewatering, deinking of various fiber sources, as well
85

as modifications to the fiber properties. Some experts are furthering their research on the
application of enzymes in enhancing pulp and fibre properties, fiber modification and bleach
boosting pulps, bioconversion of lignocellulosic residues to ethanol, microbiology of waste water
treatment; and application of fungi to upgrading and modification of forest products, pulp and
paper and waste streams. At the University of British Columbia , the Chair of Forest Products
Biotechnology is examining the effect of enzyme treatment on mechanical and chemical pulps
derived from Douglas-fir. It has been found that low enzyme dosages improve hand-sheet density
and fiber coarseness with only minute losses of strength to the paper properties. (Source:
Saddler, J. et al, 1996) .
Textile Industry
An enzyme widely used in the manufacturing process by the textile industry is amylase.
According to Dyadic, this enzyme is used to remove the starch warp sizing from fabric. Warp
sizing protects the warp yarn with a coating of starch that minimizes yarn breakage during
weaving. Certain cellulases are also used in biofinishing for the removal of surface hairs from
garments for increased comfort and fashion. Catalase is an enzyme which decomposes
peroxide. A biological product, it does not require removal by excessive washing between the
bleaching and dyeing stages, and it is an environmentally friendly alternative to the traditional
processes. (Source: Dyadic ) .
Major Players
According to a recent press release regarding Novozymes A/S, a Danish company, and the
world's largest producer of enzymes , “On February 1, 2003, Novozymes took over the activities
of Semco Bioscience, Inc. This company, located in Wisconsin, USA, produces and sells
naturally occurring microorganisms for use in cleaning products and for the treatment of industrial
and municipal wastewater. The company, which had a turnover of approximately DKK 30 million
in 2002, will be an integrated part of Novozymes Biologicals in Virginia, USA. Ted Melnik,
president of Novozymes Biologicals, commented: ’The acquisition of Semco Bioscience reflects
Novozymes’ further commitment to this market and also an improvement in our production
technology. Semco Bioscience’s technology for spray-drying microorganisms is very effective and
opens up new possibilities for the formulation of finished microbial products.’ Starting with the
acquisition of Sybron Biochemicals in July 2001, Novozymes has built up an industrial
microorganisms group, adding George A. Jeffreys in June 2002, InterBio in July 2002, and now
Semco Bioscience in February 2003. Novozymes’ criteria for possible acquisitions are that the
companies must fit in strategically with Novozymes’ objectives, support Novozymes’ technology
base, e.g. within fermentation technology, match or have the potential to match Novozymes’
profitability level, and be of a size that allows them to be easily integrated into Novozymes…”
Novozymes is the largest global producer of food enzymes with a market share of roughly 20%
to 22%. The number two industrial enzyme producer is Genencor International which recently
acquired the Wisconsin-based Enzyme BioSystems Ltd. (Source: Chemical Market Reporter,
2002 )
Genencor International says it has agreed to acquire Rhodia's brewing and enzymes business for
about $9 million in cash. Genencor supplies enzymes for baking, brewing and potable alcohol,
digestives, dairy, feed ingredients, food ingredients and food processing, and protein processing.
It estimates the world enzymes market at about $600 million-$700 million/year.
(Source:“Genencor to acquire Rhodia's enzymes. Chemical Week, 2003.)
86

On another scale, there are some Georgia (US) based companies that are examples of smaller
firms involved in innovative enzyme applications. One is called Enzymatic Deinking Technologies
LLC (EDT) which uses enzyme technology to remove ink from recycled paper. EDT's technology
is also used to clean virgin pulp. They both develop and purchase enzymes. The enzyme's
applications in recycling and processing pulp can cut a paper mill's costs by improving the
efficiency of its equipment, enhancing the quality of the final product and lowering environmental
damage.
Aureozyme is another Georgia company that develops enzymes derived from anaerobic fungi
found in the stomachs of herbivores. Aureozyme has active enzymes that are promoted as being
effective in the pulp and paper industries and in animal nutrition. Company officials have
reported that the company's first products are ready to enter the market, Aureozyme will produce
the enzymes on a commercial scale through contract manufacturers, or grant licenses to enduser
companies with the capability to manufacture the enzymes themselves. (Source:
Stikeman,Technology Review 2002 )
Nautilus Biotech is another company worth mentioning as its industrial proteins business is
dedicated to becoming the leader in providing proprietary enzymes for the manufacture of
biopharmaceutical products. The strategy of Nautilus Biotech's industrial proteins business is to
partner and independently develop new and optimized products. Nautilus' industrialized process
for the rational evolution of proteins allows them to undertake many products simultaneously.
(Source: Nautilus Biotech, 2002)
87

Agriculture
Modern agriculture has made it possible for food production to keep pace with expanding human
population. Demographics show that, by 2020, world population will increase from 6 billion to 7.5
billion. During the same period, economic growth will lead to a 40% increase in demand for grain
(International Food Policy Research Institute (IFPRI)). Most of the population growth will be in the
least developed countries (United Nations 1995) ; this is where there will be the most need for
food security (see Figure 21).
Figure 21.
The decreasing availability of arable land due to development pressure requires strategies that
will continue to increase yields of crops while maintaining or improving quality, and maintaining
the health of the agricultural environment. Present and future technologies bring needed
productivity increases through conventional cross breeding of plants to develop hardier plants,
through chemical crop protection and seed production, and through biotechnology, which can
provide new methods of crop protection and efficiently introduce new traits into seeds.
For the livestock sector, productivity has been increased by the use of growth promoters such as
bovine somatotropin (BST) and porcine somatotropin. Dairy productivity has also been
significantly increased. Spinoffs from human health research to domestic animals have resulted
in recombinant diagnostics and vaccines for animals. Pioneering beyond the bounds of
traditional agriculture are the transgenic animals (and plants) engineered to produce human
proteins for drug development.
The private sector is the driving force for the development of biotechnology initiatives in the
developed world. In the developing world, countries rely on international initiatives to support
agricultural research organizations which bring biotechnology to bear on agricultural production.
(Tzotzos and Skryabin 2000).
The World Agriculture Market
88

The total value of worldwide trade in agriculture (including fishery and forest products) more than
doubled from 1980-1999, to $661 billion. As more countries have industrialized, the share of
agriculture has decreased to the current level of 12% of total world trade in all products. Of
course, this does not reflect the situation in many developing countries, where agriculture
accounts for the greatest share of their trade.
According to The State of Food and Agriculture 2002 of the FAO, agricultural production in the
developed market economies grew in most years of the '90's, but declined in all these sectors in
2001, especially in cereals and crops.
Table 42. Net Production Growth Rates in Developed Market Economies (%)
Year
Developed market economies
Agriculture Crops Cereals Food Livestock
1992-96 1.5 2.6 4.0 1.6 0.9
1997 1.6 2.1 -2.1 1.5 0.9
1998 0.7 -0.1 2.9 1.2 1.9
1999 2.1 2.0 -2.7 2.0 1.7
2000 0.9 1.4 3.9 1.0 0.4
2001 1 EC
-1.9 -3.8 -8.0 -2.2 -0.4
1992-96 0.3 1.3 1.6 0.3 0.0
1997 0.3 1.2 -0.7 0.2 -0.1
1998 0.2 -0.8 3.4 0.2 1.7
1999 2.4 3.5 -4.6 2.3 0.6
2000 -0.2 1.4 6.9 -0.1 -1.3
2001 1 North America
-2.6 -4.1 -7.2 -2.6 -1.1
1992-96 3.0 3.8 5.8 3.1 2.4
1997 3.1 3.6 -1.8 3.2 1.3
1998 1.3 0.6 3.9 2.3 2.5
1999 1.8 0.2 -2.8 1.4 3.3
2000 2.0 1.5 1.4 2.2 2.0
2001 1 Oceania
-1.7 -3.2 -7.1 -2.3 -0.2
2
1992-96 2.9 11.0 20.5 4.9 0.6
1997 2.1 -2.9 -10.7 1.2 4.6
1998 3.3 7.6 5.2 4.3 1.8
1999 3.4 9.5 8.7 4.2 0.5
2000 0.6 0.5 4.9 0.1 1.8
2001 1 Japan
1.3 -6.7 -16.3 1.0 2.6
1992-96 -0.4 -0.2 3.9 -0.3 -0.7
1997 0.2 1.4 -2.6 0.1 -0.7
1998 -4.4 -8.1 -10.4 -4.3 -0.7
1999 1.4 2.7 2.8 1.4 -0.1
2000 -0.5 -0.6 4.0 -0.5 -0.6
2001 1 1
Preliminary. Source: FAO
-1.2 -1.2 -4.3 -1.2 -0.9
2
Australia and New Zealand. Source: FAO.
89

However, Latin America and the Caribbean maintained positive growth in the crops, cereals, and
livestock sectors throughout the 1990's and continued with high growth rates in 2000 and 2001.
On a per capita basis, this region is, according to the FAO, "by far the most agricultural tradeoriented
of all developing country regions," exceeding those regions by 3 to 5 times on a $ per
capita/year basis. Agriculture remains a key source of growth, employment and foreign exchange
despite rapid industrialization of the region. According to the FAO, "The more modern and tradeoriented
sectors [have] shown considerable capacity to grasp the new opportunities arising from
greater liberalization and integration of world markets." (FAO, 2002).
Table 43. Net Production Growth Rates in
Latin America and the Caribbean (%)
Year Agriculture Crops Cereals Livestock
1992-96 2.9 2.5 4.5 3.6
1997 3.3 3.7 3.3 1.9
1998 1.7 2.6 -2.4 1.1
1999 5.4 4.5 4.8 6.3
2000 2.1 0.6 2.6 4.4
2001 1 2.7 4.6 7.8 1.8
1 Preliminary. Source: FAO
Valuable and rare local varieties of crop plants
Many countries have cultivars that are unique in the world and offer a range of advantages over
the standard varieties that are mass-produced and exported worldwide. These underexploited
crop plants may or may not require technological improvement to be sold on world markets. In
the Andean region, the Indians have domesticated around 70 separate crop species (Cook,
1925). The best example of an Andean that has been cultivated successfully around the world is
the domesticated potato, now the fourth most highly produced food in the world. Other crops
originating in the Andean region that have become domesticated into crops enjoyed around the
world are lima beans, peppers, and the tomato. Approximately 30 additional crops that were
staples in the Andean region have remained restricted to this geographical area, but "could
become important new contributors to the modern world's food supply "
(National Research Council, 1989.)
What is needed is appropriate basic research for developing and adapting these crops to new
areas and, in some cases, modern plant genetics research and development. The basic
research needed includes collection of seeds (germplasm) made from a variety of isolated areas
to preserve genetic diversity; phenotyping (characterizing the traits and qualities of the different
germplasm; agronomy (analysis of cultural practices, plant establishment, and optimum plant
density, plus fertilizer requirements, if any); genetics (from efficient plant breeding strategies to
sequencing of genomes for crop improvement); handling (improved harvesting, cleaning, and
processing techniques to reduce labor costs, product quality, and added-value); nutritional study
(to specify nutrient and health advantages and complementarity of these foods with others in the
diet); and pest and disease control (optimum application of known methods, or development of
new methods, of chemical or biological control to defend against viruses, bacteria, and
nematodes).
90

The National Research Council's report states that the greatest potential for these "lost crops of
the Incas" are in the Andean region itself. However, they feel that the highland areas of other
developing parts of Asia, Central Africa, and Central America may welcome these crops. Finally,
the developed world is beginning to expand its interest beyond the few major staple foods to
foods both ancient and modern, from foreign places. For example, quinoa has one of the
highest protein contents of all grains, has been readily accepted in the United States and
England, can be grown under stressful conditions (high elevation, poor drainage, cold
temperatures, and flooding), and is sold in supermarkets in an increasing number of countries in
the world. At present, when genetically modified traditional crops are facing bans and boycotts in
many markets of the world, entry of unusual crop plants may have a unique opportunity.
91

The 30 species of ancient crop plants of promise from the Andean region include roots and
tubers, grains, legumes, vegetables, fruits, and nuts (Table 44).
Table 44. Lost Crops of the Incas*
Roots Grains Legumes Vegetables Fruits Nuts
Achira
Canna
edulis
Ahipa
Pachyrhizus
ahipa
Aracacha
Arracacia
xanthorrhiza
Maca
Lepidium
meyenii
Mashua
Tropaeolum
tuberosum
Mauka
Mirabilis
expansa
Oca
Oxalis
tuberosa
Potatoes
Solanum sp.
Ulluco
Ullucus
tuberosus
Yacon
Polymnia
sonchifolia
Kaniwa
Chenipodium
pallidicaule
Kiwicha
Amaranthus
caudatus
Quinoa
Chenopodium
quinoa
Basul
Erythrina edulis
Nunas
Phaseolus
vulgaris
Tarwi
Lupinus
mutabilis
92
Peppers
Capsicum sp.
Squashes
Cucurbita sp.
Berry var.
Rubus sp.
Vaccinium sp.
Myrtus sp.
Capuli cherry
Prunus capuli
Cherimoya
Annona
cherimola
Goldenberry
Physalis
peruviana
Highland
Papaya
Carica sp.
Lucuma
Pouteria
lucuma
Naranjilla
Solanum
quitoense
Pacay
Inga sp.
Passionfruits
Passiflora sp.
Pepino
Solanum
muricatum
Tamarillo
Cyphomandra
betacea
Quito Palm
Parajubaea
cocoides
Walnuts
Juglans
neotropica
*Source: National Research Council, 1989. Lost Crops of the Incas: Little-Known Plants of the Andes with Promise for Worldwide
Cultivation. National Academy Press, Washington, D.C.

International Initiatives in Agricultural Biotechnology*
The application of biotechnology to agriculture in industrialized countries is dominated by the
private sector. New agbio products are funded and developed by large international agricultural
companies in collaboration with or as parent companies to biotechnology companies. In
developing countries, agricultural research is mainly a public sector activity, and since 1985, there
has emerged a wide range of international collaborative opportunities for agresearch
organizations to plan and implement research programs and to develop national capacity in this
field.
Today there are various international initiatives, including international research programs for
plant and livestock biotechnology, international and regional biotechnology networks for specific
crops or regions, special programs of bilateral or multilateral donor organizations, and
organizations providing assistance and advice on policy and research management in
biotechnology. Some examples of these initiatives are the Rockefeller Foundation's International
Rice Biotechnology Program, ICGEB's plant biology program, the Cassava Biotechnology
Network (CBN), and the Special Program in Biotechnology and Development Cooperation of the
Government of the Netherlands. Beside funding, services from such initiatives provide
connections with advanced public and private research institutes around the world, plus
information, service and expertise in research management (e.g. setting priorities, developing
infrastructure, biosafety procedures, and intellectual property matters.) A listing of international
organizations is in Tzotzos & Skryabin, 2000 Appendix III.
One such crop-related initiative specific to Latin America is the Canada-Latin America Initiative on
Biotechnology and Sustainable Development (CamBioTec) centered at the Center for
Technological Innovation, National Autonomous University, Mexico. Other crop-related initiatives
for the Latin America and Caribbean region include CATIE -Biotechnology Research Unit at the
Centro Agronomico Tropical de Investigacion y Ensenanza, Columbia; the Regional Program of
Biotechnology for Latin America and the Caribbean, sponsored by several UN organizations; the
Technical Cooperation Network on Plant Biotechnology, REDBIO, is based in the Food and
Agriculture Organization of the United Nations, Regional Office for Latin America and the
Caribbean, in Chile; and the Support to Agricultural Biotechnology Policies initiative at the
Interamerican Institute for Cooperation in Agriculture in Costa Rica.
(Source: G.T. Tzotzos and K.G. Skryabin, Biotechnology in the Developing World and Countries
in Economic Transition, CAB International, 2000.)
The Market for Agricultural Biotechnology Products
The growth trends for sales of agbiotech products have been remarkable in transgenic seeds and
plants, animal growth hormones, biopesticides, and others. In the US, annual percentage growth
averaged 44.7% and ranged from 6.6 to 80.8% in the individual sectors in 1996, and averaged
5.8% and ranged from 6.4% to 12.4% across the sectors in 2001.
93

Table 45. U.S. sales of agricultural biotech products (million $)*
% ann'l growth
Product Group 1996 2001 2006 1996 2001
Transgenic Seeds & Plants 85 1,640 2,100 80.8 5.1
Animal Growth Hormones 115 255 370 17.3 7.7
Biopesticides 72 99 135 6.6 6.4
Other 55 81 145 8.0 12.4
All Sales 327 2,075 2,750 44.7 5.8
*The Freedonia Group, 2002; Agricultural Biotechnology.
Leading Companies in Crop Sciences
Most of the major players in agricultural biotechnology also deal in traditional crop science.
Looking at companies in terms of sales of agrochemicals, seed, and biotechnology products, we
find that the top 9 companies are ranked as in Table 45a.
Table 45a. 2001 Company Sales - Agrochemicals, Seed, and Biotechnology
Company 2001 Sales ($m)
Syngenta 6,323
Bayer CropScience 5,658
Monsanto 5,073
DuPont 3,820
BASF 3,105
Dow AgroSciences 2,612
Makhteshim-Agan 784
Sumitomo Chemical 733
FMC 653
_____________________________________
Source: Wood Mackenzie Phytofile June 2002
Syngenta is the largest crop science company, due to its larger seed division than Bayer
CropScience, and Monsanto runs a close third because of its high sales of biotechnology
products. Of the top nine companies, the top six are involved in agricultural biotechnology; and
the top six (with the exception of BASF) also have seed operations (Wood Mackenzie 2002).
94

Genetically modified crops (a.k.a. "GM" plants; transgenic crops)
The potential for producing genetically-modified plants of the Andean region is very high. Genetic
modification of other plants around the world (soybeans, wheat, rice, corn), and the increasing
amount of acreage planted with GM crops each year is testament to their future. For example in
the year 2001, 130 million acres of land in 13 countries were planted by 5.5 million farmers
(International Service for the Acquisition of Agri-Biotech Applications). The greatest growth rates
in numbers of farmers cultivating genetically engineered crops is occurring in developing
countries.
However, research and development efforts have focused on the major commercial crop varieties
and a few selected traits that are of commercial interest for the North American and European
markets. The leading countries in acreage planted are the U.S. at 88 million acres (68% of
global); Argentina, at 29 million acres (22%); Canada, 8 million acres (6%) ; China, at 4 million
acres (3%), and South Africa and Australia, both less than 1%. The growth rate was greatest in
China, whose crop of Bt (Bacillus thuringiensis) cotton tripled in acreage from 2000 to 2001.
Table 46 . Major Transgenic Crops Acreage Grown Worldwide in 2001*
(Total=130 million)
acres (millions) % of global
Soybeans 82 63
Corn 24 19
Cotton 17 13
Canola 7 5
Total 130 100
_____________________________________________________________
*Source: Ernst & Young, 2003. Beyond Borders: The Global Biotechnology Report 2002
In 2001, the number of farmers growing transgenic crops grew 67%, from 3.5 million to 5.5
million, mostly small farmers in developing countries (Ernst & Young 2002). The cause of this
explosion of growth in developing countries is the engineering of many positive traits into the
seed, including herbicide and pest resistance. Ironically, the genetic improvement of crops of
importance for the developing world (e.g. sweet potato, cassava, cocoa, coffee, legumes) has
been ignored, as well as local varieties of the world's major crops (rice, potato, corn). The
genetic improvement of crops of little interest to North American and European markets is left to
public sector national and international research initiatives.
There is a trend to introduce new foods to world markets. The "Lost Crops of the Incas"
represent this kind of opportunity.
Seeds
The world market for "high-value" seeds is estimated to be $12-15 billion. In the year 2000, the
ten largest seed companies accounted for 40-50% of this market. The number of seed products
on the market number in the thousands. Buyers purchase seed according to their local growing
conditions and according to the market for the resulting produce. For example, seeds are offered
95

to develop into crops with traits that vary according to yield, germination time, maturation time,
hardiness, resistance to pests, disease, and drought, and other factors.
These traits have historically been enhanced by plant breeders who cross plants to create hybrids
which have more desirable qualities. The genetic material coding for these traits in plants is
called germplasm, the most important element of the seed product. Biotechnology and modern
genomics have made possible the more efficient identification of genes responsible for beneficial
traits, and for the creation of seeds with specific improvements desired by growers, such as
herbicide tolerance. Monsanto has been the most successful company in crop protection by
producing genetically modified seeds that develop into plants that resist a non-selective herbicide
called Roundup. Roundup is a glyphosphate herbicide which kills all plants other than the crop
plant itself. Genetic modifications of plants to resist insect infestation and disease have led to
more high value seeds to market. The patent for Roundup has expired, and many other
companies are entering the market. For example, Dow and Dupont have collaborated on a new
maize seed that is based on a new Bt variant that confers resistance to a wider range of insect
pests and is also resistant to a Dow nonspecific herbicide (Wood Mackenzie 2002). These kinds
of transgenic seeds have had greater rate of acceptance than any other new agricultural
technology. The value of transgenic crop seeds is shown in the next table.
Table 47. Growth in Global Sales of Transgenic Seeds*
(in billions of US$)
1996 1998 2000
0.16 2.0 3.0
________________________________________
*Source: Wood Mackenzie Agrochemical Services, cited by Clive James, "Impact of agricultural
biotechnology felt globally." Ernst and Young, 2002. Beyond Borders.
Syngenta, a market leader in transgenic seeds, has developed field crop seeds for corn,
soybeans, sunflowers, oilseed rape, sugar beets, and cereals under brand names NK, and
Hillesog. (www.Syngenta.com).
Crop Protection
Crop protection is an essential part of successful modern agriculture, protecting crop yields and
improving quality by controlling weeds, insects, and diseases. The crop protection field
encompasses traditional pesticides and biopesticides. Biopesticides of different kinds are applied
to the seeds, the soil before planting, and the plants themselves. These include primarily
herbicides, insecticides, and fungicides. Biopesticides are pesticides created by using biological
processes or genetic engineering. Besides external application, protection can be introduced by
transgenic manipulation to engineer a crop plant to produce protective compounds. Many plants
have naturally protective mechanisms. Genetic engineering can be used to enhance the
production of these naturally occurring compounds, or to introduce new ones. Genetic
engineering can also confer protective traits on plants to withstand cold temperatures ("antifreeze
genes"), drought, flooding, fire, and other stresses.
In 2000, the crop protection market was approximately $28 billion, consisting of herbicides (51%),
insecticides (25%), fungicides (20%), and other products (4%).
96

Table 48. Market Share by Region for Crop Protection by Conventional Agchemicals in
1999*
% of global
North America 31
Western Europe 23
East Asia 23
Latin America 16
Other regions 7
___________________________________
*Source: Phillips McDougall, Pathhead, U.K.
Crop Protection Companies
The largest crop protection companies in the world are shown in Table 49. Bayer CropScience
was the largest agrochemical company in the world in terms of sales in 2001. In June of 2002, it
acquired Aventis Seeds and has grown even larger. Second in sales is Syngenta, the previous
world leader. Together, these two companies command 40% of the world agrochemical market.
The top nine companies listed in Table 48a account for 88% of the market.
Table 48a. 2001 Company Sales - Agrochemicals*
Herbicides
Company 2001 Sales ($m)
Bayer CropScience 5,467
Syngenta 5,385
Monsanto 3,366
BASF 3,105
Dow AgroSciences 2,321
Makhteshim-Agan 784
Sumitomo Chemical 733
FMC 653
_______________________________________
*Source: Wood Mackenzie, Phytofile, June 2002.
Herbicides kill or impede the growth of weeds, which lower yields by competing with crop plants
for nutrients, light, and water, and also reduce the efficiency of automated harvesting. Herbicides
reduce or eliminate the need for human or mechanical weeding, saving labor costs and
equipment and fuel costs. The total herbicide market for 2001 was about 14 billion (US$). This
market consists of non-specific herbicides, which eliminate all vegetation, and are commonly
used before planting and after harvest, and selective herbicides, which control weeds without
harming the crop. The largest crop herbicide markets are in cereals (wheat, barley, and rice),
97

corn, oilseeds (soybean, rapeseed, and sunflower seeds), fruits, vegetables, sugarbeets, and
cotton. Bayer CropScience is first in world sales of herbicides.
Fungicides
Fungicides are used to cure and prevent fungal diseases of plants in order to preserve crop yield
and quality. The global fungicide market estimate for 2000 was about $6 billion. Fungicides are
used primarily on wheat in Europe and rice in the Asia Pacific region. The fungicide market for
fruit and vegetable crops is well distributed around the world. The market leader is the Syngenta
corporation with the following leading products: Acanto, Score, Amistar, Tilt, Ridomil Gold, and
Unix. Bayer CropScience ranks second in the world in fungicide sales.
Insecticides
Insecticides help maximize crop yield and quality by controlling insect pests. The global market
for insecticides was estimated to be $7 billion in 2000. The largest markets for insecticides are
fruit, vegetables, cotton, rice, and corn. Bayer CropSciences ranks first in the world in
insecticides.
In addition to their use in agriculture, insecticides are used to control insect vectors (e.g.,
mosquitoes and flies) of diseases such as malaria and Chagas disease, that occur largely in the
developing world. With greater international concern about these diseases, and with global
tourism growing, there is an increasing market demand for such insecticides.
Other Pesticide Markets
Besides the large agricultural market, there are many non-crop specialty pesticide markets.
These include herbicides, insecticides, and fungicides for professional use in public health,
forestry, industrial week control, and in golf courses, parks, and gardens. In addition, there is a
consumer market for such pesticides. Also included it this category are seed treatments that
protect the early stages of crop growth.
Biopesticides
The market for Agricultural Biotechnology crop protection is small but growing rapidly compared
to the mature agrochemicals market, which is very large and is slowly declining. According to
Frost & Sullivan, biotechnology alternatives, especially transgenic seeds, have had the greatest
impact on the recent decline of the agchemical market. Transgenic corn, soybean, and cotton
seed use is up. In the US, the proportion of soybean acreage planted from transgenic seed was
74% in 2002; in 2001, the proportion for transgenic cotton was 71%; and for transgenic corn,
32%. These three crops account for more than 45% of US pesticide use.
Table 49. Global Sales (millions of US$) for Crop Protection and (% Change)*
Year AgChemical AgBiotech Total
1997 29,086 670 29,756
1998 28,995 (-0.3) 1,640 (145) 30,635 (3.0)
1999 28,090 (-3.1) 2,370 (44.5) 30,460 (-0.6)
_______________________________________________
*Source: Phillips McDougall, Chemical Week Associates 2000.
98

Forestry
According to the FAO and its Global Forest Resources Assessment 2000, about 30% of the
world's land area is forested. Of these 3,870 million hectares of forest, 95% are natural and 5%
are tree plantations. Forty-seven percent of these forests are tropical, 33% are boreal, 11% are
temperate, and 9% are subtropical. During the 1990's about 16.1 million hectares of natural
forest were lost each year (most of it in the tropics), and 3.6 million hectares of forest were gained
by natural forest expansion and by new plantations (FAO, The State of Food and Agriculture
2002).
The countries with the greatest land area in forests are the former USSR (22% of world, 755
million ha); Brazil (16% of world, 561 million ha); Canada (7% of world, 247 million ha); and the
United States (6% of world , 210 million ha).
In 2002, wood production, including roundwood, lumber, wood panels and wood pulp, generated
about $140 billion in exports, an increase of 6% over 2001. Eighty-three percent of these exports
were from developed countries.
Regulatory Issues
The use and health of the world's vast forest resources with their associated biodiversity are
increasingly under scrutiny. It is estimated that 15.4 million hectares, or about 2%, of tropical
forests were lost per year during the 1980's, and that "the area of severe forest degradation is
perhaps even larger than the area of forest depletion." Even more disturbing is a study by the
International Tropical Timber Organization (ITTO) that reports that less than 1 million hectares of
tropical forests out of the 828 million hectares (i.e., less than 0.12%) in ITTO member countries
were under sustained yield management in the mid-1980's. Critics also complained that forest
values other than timber had been ignored. These include the value of wilderness, wildlife, nonwood
products, environmental services, ecological connections, and biodiversity.
Since that time, sustainable yield management practices have received international support and
have become much more widespread. This change has proven to be economically viable for a
range of wood and non-wood products, and public/private partnerships brokered by Conservation
International have demonstrated profitable models for sustainable development of the forests
(FAO, Forests in Transition, at www.fao.org/docrep/t4450e/T4450E0j.htm;
www.conservationinternational.org).
Biotechnology Applications to Traditional Forestry
Just as biotechnology can improve the quality and economics for raising food crops, cost-savings
and enhanced profitability in traditional forestry may result from a series of innovations using
biotechnology to increase quality of source wood (Table 50). These innovations include cloning
pine with superior growth characteristics that would lead to easier logging and more board length
per foot; genetically engineering an optimal tree branching pattern for better spacing of trees and
more uniform access to light; the use transgenics (e.g., a "wood density gene") to improve
strength of lumber and a herbicide tolerance gene to reduce competing vegetation in plantation
forests (e.g. eucalyptus); improving the fiber character to reduce the pulping costs for paper and
other products; reducing the amount of juvenile wood to produce more usable wood; and
decreasing the lignin content to lower pulping costs.
99

Table 50. Estimated Financial Gains from Future Biotech Innovations in Forestry*
Innovation Benefits Additional Costs
Clone superior pine 20% yield gain after 20 years $40/acre (15-20%)
Raise Wood Density Improved lumber strength none
Optimize branching More usable wood; raises value $15/m3 none
Herbicide tolerance Lower weeding costs; save $350/ha none
Improve Fiber Reduce digester cost; save $10/m3 none
Reduce Lignin Reduce pulping costs, save $15/m3 none
________________________________________________
*Source: R.A. Sedjo, 2000
Non-Wood Forest Products
Non-wood forest products, or "NWFPs," include all tangible forest products "other than timber,
fuelwood, fodder, and charcoal, derived from forest and other similar land-use systems"
(Chandrasekharan 1993). Common NWFPs include food and food additives; fibre and flosses;
phytochemicals and aromatics; oils; resins, and other exudates; and decorative articles. Products
such as fodder and latex are also included, although for this paper prominently commercial
species such as coconut and rubber are excluded. These products tend to play a major role in
local, indigenous agroforestry, and agroforestry is a viable approach to realizing the potential of
underutilized NWFP's. In general, the most important NWFP's have been a) food and food
additives or b) raw materials, e.g. latex, resins, and gums.
However, these forests hold vast underexploited value in their biodiversity and the potential for
enhancement by biotechnological techniques. Making a valuation of biodiversity, even when
acknowledging only the tangible benefits, is not easy. One attempt (Gordon, 1998) estimates the
worldwide value of some "biodiversity ecosystem services" as follows:
Table 51. An estimated valuation of Global Biodiversity Ecosystem Services*
Service Value (millions USD)
Eco-tourism 500
Pollination 200
Nitrogen Fixation 90
CO2 Sequestration 13
Total 925
__________________________________
*Source: Gordon, 1998
Of course, the huge proportion of value from biodiversity comes not from the services, but from
the bioresources extracted and used. Overall, for products and services, Gordon estimates the
100

value of worldwide biodiversity at $2.9 trillion per year. There is much potential in all forests
around the world. The following examples support the view that there is much value in
biodiversity and bioprospecting:
A recent study in Canada showed that 28% of Canadian trees contain substances of medicinal
interest. The Pacific yew tree makes taxol (chemical name, paclitaxel), an effective treatment for
ovarian and breast cancer. This product accounted for sales of $1.5 billion per year for Bristol-
Myers Squibb from 1998 through 2002.
Besides medicines, forests also hold a great deal of potential in the cosmetics and personal care
products area. As mentioned earlier in this report, the Aveda cosmetics company has been
working in the rainforest of Brazil. The Brazilian urukum palm produces pigments which are used
in cosmetics marketed by Aveda. The Babassu palm produces nuts from which the native people
of Brazil derive oil for cooking and cleaning. Aveda has set up a factory in Brazil to hire the local
people to sustainably harvest and process the nuts into skin care products.
Aveda is also working in the Marikue region of Peru, where the local workers collect fallen Brazil
nuts and extract the oil. The leftover meal from the extraction is combined with wheat protein to
make protein-rich complexes for use in hair care products for damaged hair. (www.aveda.com)
In 1999, Shaman Pharmaceuticals curtailed its efforts to pursue drug development due to the
prohibitive time and costs of seeking approvals for such products. Shaman did market a
botanical dietary supplement, an extract from the sap of the Croton lechleri tree (Sangre de
Drago), which treats diarrhea by preventing fluid loss and promoting normal stool formation.
Company Efforts
A number of companies, like Shaman Pharmaceuticals and Bristol Meyers-Squibb, are dedicated
to bioprospecting. Diversa Inc. and BioProspect Limited recently announced the signing of a
biodiversity access and research collaboration agreement that gives Diversa the right to discover
genes from collections of Australian biological material supplied by BioProspect. Like the Andean
region, Australia is considered to be a biological hotspot and is estimated to contain at least 2
million species of plants, animals, invertebrates and microorganisms, many of which are still
unknown or yet to be described. This biota represents nearly one-fifth of the world's
biodiversity, with 80% of the terrestrial and aquatic species found nowhere else in the world.
BioProspect has licenses to collect samples in Australia's two largest states, Western Australia
and Queensland, which are known to have some of the world's highest levels of native species as
well as species diversity and richness. Diversa is directing its integrated portfolio of technologies
to the discovery, evolution, and production of commercially valuable molecules with
pharmaceutical applications, such as optimized monoclonal antibodies and orally active drugs, as
well as enzymes and small molecules (National Public Radio report, Science Friday, February 17,
2003; (www.diversa.com; www.bioprospect.com; www.npr.org).
A relevant South American example of a biotechnology business formed around biodiversity in
Brazil is Extracta, Inc. Extracta specializes in "R&D services related to the discovery of novel
natural molecules" for the pharmaceutical and agrochemical industries. Extracta was formed in
1998 through funding from Brazilian venture capital, including a Brazilian investment bank. The
company has both strong relationship to the Brazilian S&T Community and has had international
contracts with big pharma (GlaxoSmithKline) and big biotech (Genzyme). Through these
relationships, Extracta has managed to serve the needs of the local community and local
industries as well as outside corporations who serve the world markets.
101

Locally, Extracta contributes education and professional training of local populations. who serve
as partners to extract products from and defend the ecosystems of the resource areas. Its
international collaboration with GlaxoSmithKline involved finding novel biological compounds in
the Brazilian biodiversity for significant activity against eight disease targets; Extracta supplied 10
purified compounds to GSK in 2002. In the course of fulfilling its contract to GSK, Extracta built
up its bank of natural materials and became fully equipped to carry out high throughput screening
and chemical characterization of samples. By agreement, Extracta holds the patents to all of the
chemical structures of the identified compounds, and GSK has the rights to license any of the
compounds for development. Royalties on sales of any products derived from the compounds
are shared with collaborators and collaborating institutions within Brazil. Another important role
Extracta has played is that of intermediary shield between GSK and the complex regulatory
environment, which included farmers, scientists and government officials. For GSK, the strategy
of employing a high-tech small or medium enterprise to work with, and one that was linked with
the science and the venture capital in the same coumtry, was a successful one.
Finally, as was so eloquently stated in an editorial in Nature Biotechnology(1996), the creation of
new economic models and strategies for the world’s agricultural and pharmaceutical industries is
clearly required. “ … such strategies must do more than “simply” redress the obscene
underpayment the national sources of biodiversity have so far received. Although lending
agencies, such as the International Monetary Fund and the World Bank, could (and should)
pursue significant “debt for research” and “debt for conservation” exchanges, it is finally less a
task for these, and the plethora of national and international oversight bodies, than it is for
scientists and biotechnology entrepreneurs themselves to organize the necessary restructuring.
Scientists and entrepreneurs can, and must, ensure that source countries participate as equal
partners in all phases of the new biodiversity-centered programs. The mechanisms for achieving
this include establishing on-site facilities for collecting, extracting, and screening; inclusion of
local scientists and local inputs in the numerous genome projects already underway; and the
creation of truly first-rate international laboratories dedicated to the production of economic and
social well-being through the best applications of biotechnology.
By placing emphasis on the inherent ecological soundness of these approaches, biodiversity
prospecting offers a chance to reverse much of the misinformation that has led to the negative
public perception of gene manipulation technologies. Those technologies have not even
delivered an effective malaria vaccine, let alone other promised benefits to the Third World.
Perhaps the economic incentives of enlightened bioprospecting will reactivate these noble
intentions in ways that replace the specter of paternalism with the spectrum of equalities.
(Nature Biotechnology August 1996).
Regulation of Biotechnology in the US
The range of products developed or modified by biotechnological techniques made it impossible
for any single agency in government to regulate them all. The U.S. government is reluctant to
form new agencies; its response to the manifold and new products and issues presented by this
new technology was a cross-agency coordinated framework. The framework centered on four
agencies: the Department of Agriculture (USDA), the Food and Drug Administration (FDA), and
the Environmental Protection Agency (EPA), and the Occupational Safety and Health
Administration (OSHA). Of course, it is likely that public concern about the safety or morality of
new biotechnology products may cause more restrictions in the future (e.g, a ban on human
102

cloning written into law; a restriction on stem cell research on human embryos), and these
agencies will have to enforce the restrictions.
Biotechnology-related Agencies and Laws
Environmental Protection Agency
The EPA is responsible for protecting the environment and safeguarding human health. In this
role, the agency is charged with regulating hundreds of substances and materials that could
adversely affect the environment. The primary laws used by the EPA to regulate the field of
biotechnology are the Toxic Substances Control Act and the Federal Insecticide, Fungicide and
Rodenticide Act. Although it is not widely known, the EPA also administers certain portions of the
Federal Food, Drug and Cosmetic Act, particularly as amended by the Food Quality Protection
Act.
* Toxic Substances Control Act. Among other things, this law authorizes the EPA to review and
regulate new chemicals prior to their introduction into commerce. Under this law, the EPA
regulates intergeneric microorganisms (formed by combining genetic material from organisms in
different genera), such as industrial enzymes, biofertilizers and compounds developed to treat
environmental contamination. The EPA considers intergeneric microorganisms analogous to new
chemicals because they have a sufficiently high likelihood of expressing new traits or new
combinations of traits and, consequently, scrutinizes their introduction into the market.
* Federal Insecticide, Fungicide and Rodenticide Act. This law restricts the sale or distribution of
pesticides anywhere in the United States unless they are first registered with the EPA. A pesticide
is defined in part as any substance intended for preventing, destroying, repelling or mitigating any
pest. To be registered, the pesticide must not cause "unreasonable adverse effects on the
environment" when used according to widespread and commonly accepted practices. The EPA
has indicated that it considers plants that have been genetically modified with recombinant DNA
techniques to resist pests or disease to constitute "substances intended for preventing,
destroying, repelling or mitigating any pest." As such, the EPA regulates these substances as
plant pesticides, defined as any "pesticidal substance that is produced in a living plant and the
genetic materials necessary for the production of the pesticidal substance where the pesticidal
substance is intended For use in the living plant."
* Federal Food, Drugs and Cosmetics Act. The EPA and the FDA share responsibility for
administering this law. The portions administered by the EPA generally are those that relate to
microbial/plant pesticides and novel organisms. The FDA focuses more on food, feed, drugs,
biologics and medical devices.
* Food Quality Protection Act. Among other things, the law authorizes the EPA to govern the
establishment of pesticide tolerances -- the maximum level of pesticide residues allowed in or on
human food and animal feed. The act also sets tougher standards for pesticides used on food
and establishes a single, health-based standard to be used when assessing the risks of pesticide
residues in food or feed.
Food and Drug Administration
The FDA requires that genetically engineered foods meet the same rigorous safety standards
required of all other foods. The FDA's biotechnology policy treats substances intentionally added
to food through genetic engineering as regulated food additives, requiring pre-market approval, if
103

they are significantly different in structure, function or amount than substances currently found in
food.
The FDA has traditionally promoted a collaborative regulatory policy under which developers
consult with the agency on safety and regulatory questions. However, the agency recently issued
draft rules that would require, among other things, notice by food developers of their intent to
market a food or animal feed developed through biotechnology and to provide information to
demonstrate that the product is as safe as its conventional counterpart.
U.S. Department of Agriculture
Generally speaking, the biotechnology-related products regulated by the USDA are plants, plant
pests and veterinary biologics. Its role in regulating biotechnology companies is carried out by
several divisions, including the Animal and Plant Health Inspection Service, which, among other
things, regulates the movement and testing of genetically engineered organisms; Veterinary
Biologics Division, which inspects biologics production facilities and licenses genetically
engineered products; and the Food Safety Inspection Service, which ensures the safe use of
engineered livestock, poultry and related products.
One of the more prominent statutory schemes enforced by the USDA is the Federal Plant Pest
Act. This law regulates the movement and dissemination into the environment of plant pests --
generally defined as any living stage of insects, mites or other invertebrate animals, bacteria,
viruses, infectious substances or any similar organisms which can injure or damage any plants or
plant products. Companies wishing to import or transport plant pests consisting of genetically
engineered organisms and products must first obtain a permit from the USDA.
Occupational Safety and Health Administration
OSHA enforces the statutory and regulatory requirements of the Occupational Safety and Health
Act. One of the biggest weapons available to OSHA in protecting worker safety is the "general
duty clause" of the act. Put simply, this provision requires employers to furnish all employees with
a workplace "free from recognized hazards that are causing or are likely to cause death or
serious physical harm." The broad scope of this clause, and the numerous other regulations
enforced by OSHA, provide the agency with tremendous latitude in assessing an employer's
compliance with its obligations to ensure worker safety. Given that potential workplace hazards
presented by biotechnology operations primarily stem from the hazardous nature of chemicals
used in the process -- and not from the actual biotech products -- OSHA generally seeks to
protect workers from bio-hazards through enforcement of the numerous regulatory restrictions on
chemical exposure in the workplace.
Source: S.T. Parascandola, Businesses face significant regulation bringing biotech products to
market. Business North Carolina, August 2001 v21 i8 p56.
Intellectual Property
The transition from basic research in molecular biology to commercialization of biotechnologies in
the United States has been a rocky one. Step by step, laws were altered in the name of
innovation to ultimately allow researchers and universities to own the rights to discoveries
revealed in the course of government funded research. Discoveries for recombinant DNA
techniques and other essential techniques were submitted for patenting, forcing the US Patent
104

and Trademark Office to figure out which technologies in the patent office and which individuals
were most suited to review the patents. Long review times were the norm, and questionable
judgments on patentability were made and challenged.
Gradually the patent office hired and developed the expertise to adequately review patent claims
and adjudicate on patentability in biotechnology. Along the way, major crises occurred. The
technology was changing so rapidly that patent reviewers had difficulty evaluating the cutting
edge of the field represented in the applications. Also, the best and brightest in the patent office
were being wooed away by technology law firms, biotechnology firms, and pharmaceutical firms,
causing a continual "brain drain." As if this wasn't enough, the patent office was still in the dark
ages as far as computerization. Theirs was a paper review system, and simply couldn't keep up
with the volume and complexity of the patent submissions.
The decision to allow patents on DNA fragments brought the patent office to a screeching halt, as
it became flooded with biotechnology applications. As it happened, similar problems were arising
in software applications and the submission of mathematical algorithms. Unheard of delays at all
stages of review characterized the patent office. This crisis spurred many reforms in the patent
office (Holla and Johnson .
In 2001, plant patents were challenged all the way to the Supreme Court, and were upheld. Also,
elected officials in the US (as well as in Canada and Europe) have challenged genetic patents.
The anthrax mailings in the US spurred demands for compulsory licensing of Cipro to other firms;
Cipro is the only antibiotic approved specifically for treating the disease. In a similar move at the
WTO meeting in Doha, Qatar, calls were made for compulsory licensing of AIDS drugs and
approved. The Council for TRIPS was asked to "find and expeditious solution" for member
nations that lack manufacturing capacity for drugs.
Another major challenge for patenting was that each industrialized country had its own unique
patent system, and many countries had none. Much has been done to harmonize the differences
and to streamline and standardize patent applications. Today there is a harmonized set of legal
standards within the European Community, but there are still major procedural differences.
Member states are being urged to forbid patenting of human cloning techniques, techniques
affecting human development, and human germ line transfer. The directive allows for patenting
of genes only if an inventive step and an industrial use are specified. The next breakthrough in
harmonization will come when a patent granted by an approved international examining office in
one country makes for fast track review elsewhere.
Developing countries were in a position in which they could not use biotechnological techniques
on their own natural resources and commercialize a product without violating the patent from an
industrialized nation. The Trade-related Aspect of Intellectual Property Rights (TRIPS) World
Trade Organization Agreement and the Convention on Biological Diversity (CDB) outline the
rights of all member countries to their bioresources.
New and Emerging Frontiers: Transgenic Animals and Plants
“Farmaceuticals and Biopharming”
A new application of recombinant DNA technologies is the engineering farm animals to be
"bioreactors" for the production of human therapeutic proteins, or "farmaceuticals," in their milk,
eggs, or blood. In this new field, called "agripharming," proteins can be made by animals and
harvested at a fraction of the cost of manufacturing them. Alternatively, if they are engineered into
food crops, they can be harvested by standard techniques and easily extracted, or treatment
105

could be achieved by patients simply eating the food. If a gene for an antigen from a pathogen is
spliced into the plant genome, drug developers could produce "vaccines you can eat."
Legislators in Iowa (US) are considering legislation to help farmers earn higher incomes by
converting their fields into "living factories." These approaches could help control the rising cost
of healthcare, and be an economic boost to farmers. (Economist 2002)
Goats and cows represent the most advance technology for biomanufacturing proteins, and
monoclonal antibodies are among the most attractive therapeutic proteins. Antibodies are
proteins made by B-cells in the blood which react specifically with antigens on the surface of
pathogens. These are among the most potent of the protein therapeutic drugs and diagnostics,
and are also vital tools for research. Production facilities are few; ten antibody drugs fully occupy
the world's production facilities. Producing more antibodies would require building new facilities
at $200-400 million and 3-5 years of investment. But the need for production capacity is great:
at present, over one hundred protein-based drugs are in clinical trials, and many more are in
development. In contrast, a herd of transgenic goats costs about $100 million and takes about
two years to build. Expanding the herd is simply a matter of breeding, not of building additional
production facilities. While traditional techniques to produce protein cost about $150 per gram,
transgenic goats may be able to produce them for $1-2 per gram. A transgenic herd of cows
takes 4 years or more to establish, but a cow can produced 10 times as much milk in a day as a
goat (Economist 2002).
GTC Bioterapeutics in Framingham, MA is developing transgenic goats and cows for drug
production. TranXenoGen, in Shrewsbury, MA is developing transgenic chickens which produce
desirable biotherapeutics in their eggs. Because these are drugs, the firms face the same
regulatory hurdles as any other drug. Another hurdle is public acceptance: fears of crossspecies
infection such as bovine spongiform encephalitis ("mad cow disease") must be calmed.
(Economist 2002).
Aquaculture
While genomics can be applied to local rare varieties of crop plants to make them more resistant
to pests, to frost, and to drought, and to grow faster during shorter growing seasons, this
technology is also being applied to fish in the aquaculture field. Aquaculture, whether in the
ocean or in freshwater or in fish farms on open land or in barns, is an industry that has enormous
potential. The consumption of seafood is expanding rapidly due to health concerns. For
example, in 1999, the US imported $9 billion of edible seafood and exported only $2.8 billion.
The US trade deficit in seafood is $6.2 billion, the largest for any agricultural commodity and the
second largest (after petroleum) for any natural resource product. In the face of declining wild
fish stocks, and a growing national demand, the expansion of aquaculture in the US and around
the world is inevitable. Aquaculture now produces about 30% of world seafood production, and
has grown at a rate of 11% per year since 1984 (Tlusty et al. 2001). Total world fishery
production in 2000 (including marine and inland aquaculture production and wild capture
fisheries) reached a new high of 130.25 million tons; this was an increase of 11.9% since 1995
(FAO 2002).
Besides farm-raising of fish to meet the demand, genomics is being applied in aquaculture to
develop faster-growing, and more cold-tolerant fish. The first US approval for a genetically
engineered salmon that grows at three times the rate of normal salmon is being decided for
AquaBounty of Waltham, Massachusetts. One of the chief concerns is the possibility that such
fish will be inadvertently or intentionally released into the environment and will outcompete native
varieties. One strategy to avoid this is to create only fish of one gender or, better, to produce only
sterile fish.
106

Aquaculture in the oceans is also being applied. Chile and Norway are among the most
successful countries in culturing fish in the ocean. With the vast coastline of countries in the
Andean region, aquaculture should be considered seriously as a means of economic
development.
Concerns about aquaculture include pollution from fish feed and feces, escape of transgenic fish
and subsequent competition of native wild fish, diseases spreading through fish stocks, and
competition with other uses of the ocean and beaches. The state of Massachusetts has set up
guidelines for the development of aquaculture that may be useful to those who are starting such
efforts and wish to set up the policy infrastructure. (See Tlusty et al. 2001, Open Ocean
Aquaculture 1996; US Congress Office of Technology Assessment 1995).
Bioinformatics
Because of the rapid generation of biological data, an industry combining biotechnology and
computer science has emerged. Particularly with the development of combinatorial chemistry,
high-throughput screening of drugs, data from the Human Genome Project on the 30,000 human
genes, data on single nucleotide polymorphisms (SNP's) and other genetic sequence variations,
rapid analysis of structure of proteins, functional studies of proteins, and high-level robotic
automation culminating in massively parallel biochip and microarrays, and the vast amounts of
data generated from their use, biotechnology is increasingly characterized by and dependent
upon megadatabases and high speed software for mining that data. This has been driven largely
by the pharmaceutical firms, the aging of populations in the industrialized world, and the increase
of age-related diseases. But the primary driver is the cost of bring a drug from basic research to
market: as much as 15 years and $800 million. At a time when health care costs and
prescription costs are soaring, genomics, proteomics, and technology are coming together to
keep those costs down. Furthermore, the benefits of techniques to organize and mine
megadatabases in the drug discovery field has benefits that ripple through the other sectors of
biotechnology, including agricultural biotechnology.
Market for Pharmaceutical Informatics
Pharmaceutical informatics refers to the supply and management of information to obtain value
from information generated throughout the development and market life of a drug. Since 1998,
the market has grown at 23.8% per year, from US$2.2 billion to US$6.4 billion.
Table 52. Pharmaceutical Informatics*
Revenues ($ millions) 1998 1999 2000 2001 2002 2003 CGR%**
Total
market
world wide 2,200 2,600 3,300 3,900 4,900 6,400 23.8
Table 53. Informatics for Specific Stages of Drug Development
Revenues
millions)
($ 1998 1999 2000 2001 2002 2003 CGR%**
Development 200 300 400 500 700 900 35.1
Commercialization 1,400 1,600 1,900 2,100 2,400 2,800 14.9
Product Tracking 300 300 500 600 800 1,100 29.7
107

*Source: modified from Advest, Inc: June 18, 2001. **Compound Annual Growth.
The commercialization and product tracking activities in the pharmaceutical area account for
about two thirds of the market.
Bioinformatics Market
Bioinformatics is computer-dependent accumulation, analysis, and representation of biological
data. It normally involves and contributes to massive and complex genomic and proteomic
databases, including gene sequences, protein sequences, for sequence comparisons and
structure/function databases, including data on protein-protein interactions and interactions
between synthetic compounds with biological compounds. The bioinformatics market serves the
publicly-funded basic and applied research base as well as the private sector pharmaceutical and
biotechnology industries.
Table 54. Bioinformatics
Revenues
($ millions)
2000 2001 2002 2003 2004 2005 2010 CGR %
(2000-
108
2005)
CGR %
(2005-
2010
Worldwide 468 609 824 1,120 1,508 1,987 5,421 33.5 22
________________________________________________________________
*Source: Front Line Strategic Management Consulting (FLSMC).**Compound Annual Growth.
The estimated size of the bioinformatics market in 2003 is US$1.1 billion and is growing at a rate
of 33.5%. The bioinformatics research market is estimated to be about 17% of the market for
pharmaceutical informatics, in keeping with the smaller total R&D budget of biotechnology
companies vs. large pharmaceutical companies.
Companies
The number of companies in this sector is large and growing rapidly. Celera Genomics, alone
and in association with Applied Biosystems, is the best known company in the genomics field,
having contributed the private effort to sequencing the Human Genome as well as the genomes
of mouse, Drosophila, and mosquito. While the raw sequence data is offered for free, Celera
sells access to its gene and protein databases and to its proprietary software search interface
through its Celera Discovery System.
Rosetta Impharmatics and others developed GEML, a bioinformatics language that provides a
standard method of collecting, transferring, and exchanging DNA microarray and gene
expression data, independent of database organization. There is a growing GEML community of
users and developers.
The Genome Mapping Software Consortium of The Object Management Group is a software
consortium of over 800 members around the world, including academic, biotechnology,
pharmaceutical, software, and government institutions. This consortium gained final approval for
specifications for standard representations of sequence, alignments, genomic maps, etc. They
have also standardized interfaces for data retrieval and sequence analysis methods. A number
of business and academic groups have developed software products following these
specifications.
Third-party companies that help drug discovery biotech companies mine their data include Strand
Genomics of Bangalore, India, and Anvil Informatics, Inc. of Lowell, MA. Companies such as

Biobase Biological Databases of Braunschweig, Germany, create databases and software in the
area of gene regulation that they license to other companies.
Biochips and Microarrays
Biochips
Biochips and microarrays are miniaturized devices integrating microelectronics and microfluidics
in a massively parallel manner for extremely rapid analysis of biosamples. Microfluidic biochips
are designed to move fluids through networked channels in which they undergo various
bioanalytical processes. Microarray biochips are either two dimensional or spherical to which
thousands of biomolecules can be attached and used for bioanalysis by testing for
complementary molecules in a test sample.
In addition to biochips, the market includes arrayers and scanners used to make and read
microarrays, and appropriate software for collecting, organizing, and interpreting test data.
The Research and Market Need for Biochips
As many of the processes of life involve thousands of genes acting in concert, and only a few
dozen genes related to such processes were known, research progress on complex processes
was restricted to the study of one gene at a time. The only way to gear up to study multiple
genes was prohibitively expensive: hiring more researchers, buying more equipment, using more
reagents. As the Human Genome Project progressed, and thousands of new genes were
discovered and sequenced, the ability to study the action of all the genes related to a particular
process seemed overwhelming. The promise of biochips, the smaller, cheaper, simpler, faster
"lab-on-a chip," brought a welcome solution.
DNA chips, with row upon row of DNA probes mounted on a square inch of silicon wafer or on a
glass grid, were the first breakthrough. Today, high density DNA chips can hold 5,000 to tens of
thousands of spots in one array with a different fragment of DNA attached to each spot. In fact,
researchers from Heidelberg and Berlin recently created the first complete human genome chip
with over 51,000 cDNA probes for representing every known human gene (EMBL 2002).
Types of Chips and their Utility
Chips lined with an array of DNA probes will interact to a sample containing mRNA or cDNA from
cells in a certain stage of growth, or exposed to particular samples and conditions, and generate
information about expression of many thousands of genes simultaneously. The outcomes show
which genes are involved different diseases or stages of disease.
DNA chips that are exposed to DNA samples that have been amplified with primers for a specific
genetic variation, will show whether the donor of the sample has that particular genotype.
DNA chips exposed to test samples containing nucleic acids from infectious agents can be used
to identify the agent; also, pretreating samples of infectious agents with antibiotics, and screening
on the chip, will reveal susceptibility to the antibiotics.
Protein Chips can also be devised to test samples of proteins from cells exposed to different
conditions in order to provide information on protein expression.
109

Cell arrays are also being developed in which arrays of DNA are printed on a wafer or slide, and
cells growing on those areas take up the DNA and produce the protein coded by it. At each
location, clusters of live cells develop that make a specific protein. Researchers can test a
compound against these arrays and identify which target proteins it binds to. Pharmaceutical
companies could use this technique to test many compounds in their arsenals that have no
known targets and determine what diseases a compound may be able to treat and also what its
side effects might be.
Market
Today there is a definite lack of drug leads in the research and development pipelines of
pharmaceutical companies. The path to developing drugs leads is remarkably expensive and
inefficient. There are millions of compounds and extracts waiting to be tested for bioactivity. In
addition, the 30,000 or so human genes that code for all human proteins have been discovered
and sequenced, but only a small percentage have been studied by traditional techniques.
Because of their cost and super-efficiency, biochips are very attractive to industry.
Table 55. Current and Projected Growth in the Worldwide Biochip market*
Revenues ($ millions) 2000 2006 Growth Rate % per year
BioChips 330 2,430 39.5
Microfluidics 150 680 NA
*Source: D&MD Publications, 2001. "Biochips: Progress and Prospects," report 9016,
Westborough, MA.
The growth rate for biochips is expected to be over 50% from 2000-2002, when the base is
small, between 30 and 40% for 2003-2004, and from 20-30% for 2005-2006. for microfluidics,
the growth is expected to be 57% in 2003 on a small base, and decreasing to 37% in 2006 as the
base increases.
New technologies helping discover new products
Biochips and have already played a significant role in pushing new technologies forward,
including high-throughput screening, combinatorial chemistry, functional genomics, proteomics,
and systems biology. Biochips have raised the multitasking ability of the laboratory many orders
of magnitude, allowing mega-parallel investigations of biological systems to the point of looking at
complex interactions efficiently.
Microfluidics is boosting the industrialization of drug discovery, mostly based on the highthroughput
screening of the bountiful compounds produced by combinatorial chemistry.
The markets that can be addressed include point-of-care diagnostics for clinics and hospitals, and
further along, home-based diagnostics, using disposable chips. Biochips will become a real
boost for personalized medicine, using chips to determine susceptibility to disease, dangerous
drug interactions, appropriate antibiotics, etc. The day we will carry our genomic information in
our wallets, and have our DNA, and especially our single nucleotide polymorphisms, on a chip at
our local clinic are not far off.
110

Regulatory Issues and Intellectual Property
As biochips are considered devices for research, there are no significant regulatory barriers to
bringing these products to market.
The few biochip/microarray companies involved are in their adolescence, with some products on
the market, and many products in development. Patent disputes have slowed competitive
activity, though major battles will be resolved soon. Larger companies, with the means to battle
smaller companies in court or to support others in doing so, are now entering the market.
The microfluidics-based products are few and still very new to the market. They are still being
evaluated by potential customers for utility.
There is strong potential for in-vitro diagnostics at a time when the senior population is growing,
third party reimbursement for medical services is growing, and large numbers of people are
suffering from common chronic diseases. But first, research must be done to identify the best
markers for disease susceptibility and drug response, and then for levels of drug sensitivity and
specificity. Millennium Predictive Medicine, Abbott Diagnostics, and Bayer are actively pursuing
this kind of diagnostic product. These types of products will probably not be common in the
marketplace until after 2005.
Major companies
Cambridge Healthtech Partners profiled the following 15 companies in the Biochips and
Microarrays area: Affymetrix, Agilent Technologies, Amersham Biosciences, Applied Biosystems,
Axon Instruments, BD Biosciences Clontec, BioDiscovery, Gene Logic, InforMax, Lion
Bioscience, Molecular Ware, Motorola, OmniViz, Partek, RosettaInformatics/Rosetta Biosoftware,
Silicon Genetics, and Spotfire.
According to D&MD Reports, the biochip market has been dominated by Affymetrix, the leader in
gene expression arrays and in detection of single nucleotide polymorphisms. Clontech provides
microarrays for focused studies on gene expression. Agilent Technologies and Motorola are
most interested in the diagnostics market. Other companies active in this area with applicationspecific
interest include AP Biotech, Display Systems Biotech, DNA Microarray, GeneScan
Europe, Genometrix, Genomic Solutions, Incyte, Mergen, Operon, Perkin-Elmer, SciMatrix, and
Telechem.
In microfluidics, the major companies are Caliper, Aclara (and its partner Applied Biosystems),
and Cepheid, followed by Micronics and Orchid.
111

DETAILED ANALYSIS: SELECTION OF PRODUCT SUB-AREAS
This section builds upon the findings of the “General Analysis of the Market Characteristics for
Products Derived from Andean Region Biodiversity” submitted to CAF February 2003 with
subsequent revisions, also included in earlier sections of this report. The broad market areas
discussed in the General Analysis were:
Biopharmaceutical drugs, vaccines and diagnostics for human and animal health care
Herbal medicine and nutraceuticals
Cosmetics and personal care products
Enzymes for use in food, food processing and non-food industries
Agriculture and forestry products
Bioinformatics
Biochips and Microarrays
In the General Analysis, each of the above mentioned product areas are discussed in terms of
their key market dimensions and characteristics. Following discussions and correspondence
with CAF representatives, these broad market areas of the General Analysis were further
reviewed in terms of market size, market potential, opportunities for value-added activities, and
other market requirements and considerations for purposes of identifying areas to be described in
greater detail. It is the position of the consultant team that all of the seven product areas are
relevant to the Andean Region. Therefore, rather than to select a reduced number of broad
product areas for the Detailed Analysis, it was proposed that the selection of certain product “subareas”
would provide the necessary level of information desired on market potential for products
derived from Andean region biodiversity. In this regard, the following product sub-areas are
considered to be promising areas for further profiling in the Detailed Analysis:
Recombinant proteins: monoclonal antibodies
Functional foods
Skin protection and anti-aging
Enzymes for food processing
Transgenic seeds
Genomic bioinformatics
DNA Chips
The authors of this report propose that current market size and market potential are key criteria
for prioritizing representative product sub-areas of relevance to the Andean Region. The
additional variables relating to value-added activities, regulatory concerns, capital requirements,
and others come into consideration to the extent that they may constitute certain hurdles or
barriers to market entry depending on the institutional capacities of the Andean Region.
Market Size. "Market size" refers to global gross sales associated with the product area or
product category. In the General Analysis this data was given whenever possible for sales in the
entire traditional market and sales of products in that market that are derived from bioresources
and/or employ biotechnology for their development.
For example, the global market for crop protection was $30.5 billion in 1999, including both
agricultural chemicals and agricultural biotechnology. However, the global market for crop
protection using agricultural biotechnology was only $2.4 billion. For purposes of selecting
112

product areas for the Detailed Analysis, no particular absolute quantitative threshold of market
size is necessarily offered. Rather, the consideration of this criterion is more directed at a
comparative proportionate perspective of one product area vis-à-vis other product areas.
Market Potential. For purposes of selecting product areas for the Detailed Analysis, assessment
of "market potential" is based on observation of certain trends in the growth or decline of product
demand and/or trends in parallel factors that are understood to influence said demand
(demographics, cost factors, resource inputs, etc.). Considerations of market potential are based
on the reasonable expectation of the fully-realized mature market for a particular product or
product area.
For the example given in the paragraph above, it is generally accepted that certain agricultural
biotechnology approaches to crop protection can be more technically effective, environmentally
friendly, and less costly than traditional chemical control, that they will eventually replace
protection by conventional chemical methods. In this case, the global market potential for
biotechnology-based approaches would be assumed to be headed in the direction of the entire
crop protection market, or $30.5 billion. Market potential will also be indicated by the annual rate
of growth in percent.
Opportunities for value-added activities. "Opportunities for value-added activities" refers to the
potential of a given product area to generate opportunities along the value chain for new or
existing enterprises to contribute and benefit. This criterion includes considerations of benefits to
the chain of low, medium and high technology-based producers in the form of increased revenue
by including additional processing of the product on its way to intermediate and final markets. For
purposes of selecting product areas for the Detailed Analysis for CAF, the interest is in
identifying product areas that would allow maximization of said value-added activities in the
countries of the Andean region.
Examples of value-added activity can be found in bioprospecting situations where biological
resource materials from rainforest areas are being made available to commercial enterprises. In
these cases, there are opportunities for local entities to add significant value to the base resource
by cataloging the species of the region, creating a herbarium, collecting plant samples, making
extracts from the samples, screening the extracts for different classes of compounds, screening
the extracts for biological activity, determining the genetic composition of the species in the
forest, creating a database of all this information, and making any or all of this information
available with appropriate pricing to potential clients. This kind of added value can be developed
stage by stage as financial resources and experience enable more and more sophistication of the
bioresources offered.
Other market requirements and considerations. In selecting product areas for the Detailed
Analysis it may be relevant to consider the extent to which a given market area is subject to
certain “barriers” that may render market entry or penetration unusually costly or prohibitive.
Said barriers can come in the form of technology requirements, which include capital
requirements, intellectual property considerations, and human resource needs. Other relate to
the regulatory framework including liability issues, and tariffs. Finally there is the issue of
environmental regulations which include biocontrol requirements, and environmental protections.
The degree of technology investment required in a product area refer to the level of infrastructure,
qualified personnel, IP protection, and capital requirements. The need for capital in
biotechnology tends to parallel the technology requirements for reaching proof-of-concept or
initial sales. The "burn rate" of research and development in biotechnology is higher than in any
other technological field, but there is a broad range depending on the product area. The degree
113

of investment in technology is particularly intensive when the product area is characterized by
short life cycles of technology revealed by rapid obsolescence and continual replacement of
technology.
With regard to intellectual property (IP) considerations, different levels of patent support are
required in different product areas. A high level of support can be defined as having freedom-tooperate
as provided by extensive IP holdings. Medium level refers to situations where IP support
is necessary but where the patent holder may only have partial support and may need to inlicense.
Low level refers to situations where IP requirements are minimal.
In the area of human resources, it is relevant to consider the skill levels required to do the work in
the industry. High means that highly skilled management, R&D, etc. are needed, medium means
that experienced management is needed and some specialized technical skills are required. Low
means that only general management and general technical skills are required.
Particularly in the area of biotechnology, not all countries have legislation or regulations in place
and thus the uncertainty or unpredictability of doing business is itself a form of barrier. In
addition, the openness of the market, as described by the level of competition, the maturity of the
market (based on the number of competitors), the dominance of the market by market leaders,
and the availability of market niches, is an important consideration for market access.
The availability of financing from international sources varies widely. Venture capital firms (VC's)
follow the areas with the highest and most rapid returns on investment. In exchange for their
investment, they expect a percentage of company ownership and representation on the board of
directors. International development banks look for programs that will create the most economic
and/or social benefits. Their investments tend to be longer term loans. Research funding from
federal governments are key to helping biotechnology startups survive to proof of concept and on
to commercialization. Biotechnology has been seen as too risky for private banks to make loans.
Biotechnology development is also dependent on a collateral infrastructure: a range of support
services including legal, accounting, and environmental services, as well as a range of suppliers
and distributors of raw materials, reagents, and equipment for research and manufacturing.
Biopharmaceutical Area
The general product area for biopharmaceuticals includes drugs, vaccines, and diagnostics for
human and animal health care. The global market for this sector is US$44 B. The market
potential for this sector is growing rapidly because it is technology-driven and new technologies
are transforming the industry. Genetic engineering , genomics, proteomics, glycomics,
metabolomics, combinatorial chemistry, and nanotechnology, high-throughput screening, and
bioinformatics are all contributing new strategies for drug discovery, and are helping to supply the
product pipeline which was previously becoming anemic. New product growth areas are in the
areas of gene therapy, personalized medicine, and a greater reliance on protein-based drugs and
drugs targeting gene expression. This product area has an excellent track record of support from
capital markets; it has historically provided excellent returns for investors.
Historically, many pharmaceuticals have been based on biomaterials. For this reason, several
pharmaceutical firms have adopted programs for screening natural samples for biological activity.
This creates opportunities for processing biomaterial inputs to varying degrees, using different
methodologies. Research opportunities for pre-screening in the country of origin present another
opportunity to add value. Often, agreements with pharmaceutical firms include benefits which
increase the technology base and the human resource skills in the source country.
114

At the upper levels of entry, for full-fledged pharmaceutical firms developing drugs, capital
requirements are very high, regulatory hurdles are significant, product development time is 10-15
years, patents and patent support are essential. A high level of technology infrastructure and
access to skilled personnel is required. Finally, the demands of the industry and rapidly changing
technology in this area requires constant high capital expenditure on facilities and on human
resources.
Based primarily on the market size and growth potential, we have chosen recombinant
proteins: monoclonal antibodies for this detailed analysis. Independently or in partnership
with existing pharmaceutical firms, proteins of interest could be extracted and studied from the
natural biota of biologically diverse regions; from forests to the marine environment, from bacteria
and fungi through plants, insects, invertebrates, and vertebrates.
Herbal Medicine and Nutraceuticals
The product area of herbal medicine and nutraceuticals consists of a broad range of consumer
products that use natural compounds. These compounds are either in their natural state or in
food products that supply enhanced levels of vitamins, minerals, nutrients, or other substances
purported to maintain health. The market for these products, $128 B, is the largest of all the
markets investigated in this study. In addition, the market is showing considerable growth. In the
US, sales of these products are increasing by between 5-10% per year. Favorable demographic
trends (i.e., where both the young adult and the groups over the age of 50 are expanding) are
creating demand for performance products by the younger age groups and fitness products by
the aging groups.
The opportunities for adding value includes the entire range of inputs for nutrients in products
ranging from fortified water to power bars. The amount of innovation, however, is limited in
comparison to pharmaceuticals and other areas. This sub-area is not expected to be a huge
employer, but the search for new natural additives will help build up the ethnobotanical
information base of source countries.
This product area is subject to food safety regulation, which is much more straightforward, and
much less stringent than pharmaceutical regulation. In addition, the capital requirements are low
to moderate and public acceptance is high, with no major consumer concerns.
Due to its superior market size and rapid rate of growth, the functional foods sub-area has been
selected for more specific study in this Detailed Analysis. Functional foods dominate the nutrition
industry sales in the US, Europe, Japan, and Canada. Their growth rate, at 7%, is surpassed
only by the rate of sales of 9% in the smaller volume natural and organic food category. Interest
in functional foods targets the young and the old, the sports minded and the health conscious of
all ages.
Cosmetics and Personal Care Products
The cosmetics and personal care products market is approximately $10 B. Demographics helps
to drive rapid growth in this area. For example, the fast-growing aging population in the US is
driving skin protection and anti-aging products to grow by 8% per year. In addition, this sector
benefits from increasing interest in natural products. For example, the world market for botanical
extracts is estimated to be $1.3 B in 2005.
115

As this sector continues to differentiate itself by the incorporation of new botanical ingredients,
there are multiple opportunities for providers to add value and broaden the product line. This
raises opportunities for producers and processers of raw materials, and manufacturing
opportunities at various stages of the value chain. A low to medium level of technology is
required for this sector. Human resources development can occur at the low and medium skills
levels.
The cosmetics and personal care products sector is dominated by large companies, but supplier
opportunities exist for small and medium-size firms. There are medium to high capital
requirements for the major manufacturing and distributing firms, but low to medium requirements
for the botanicals/natural products suppliers. Regulatory restrictions relating to safety, toxicity,
and quality of ingredients are in place in market regions of interest.
The sub-area selected for more detailed analysis is the skin protection and anti-aging sector,
due primarily to its relative market size and its rapid growth, which is expected to expand further
with continuing demographic trends. Trends toward "green" and "natural" markets (expected to
grow to $2.3 B in sales by 2006) also feed into this sector.
Industrial Enzymes
The market for industrial enzymes is $1.7 B, with applications including food processing,
detergents and cleaners, textiles, leather and fur, pulp and paper, and chemical manufacturing.
This market is growing rapidly (10% annually) due to broadened applications, resultant energy
conservation and pollution reduction. The efficiency of employing enzymes is reflected in less
volume and reduced cost of raw materials for production, fewer bi-products, and less regulatory
burden for manufacturing activities.
There are several types of value-added opportunities in terms of technological innovation in the
area of enzymes for food production, including a different number of stages relevant to the value
chain in enzyme production and distribution. In traditional enzyme companies there is assay
development, fermentation and manufacturing. In the research area there is modification of the
structure (and therefore, activity) of known enzymes through genetic engineering (site directed
mutagenesis), discovery of novel enzymes in unexploited organisms, hyper-production of
enzymes through gene duplication, and alternative production of enzymes through transgenic
production in plants.
One of the challenges relating to this product area is the conservative nature of established
companies in traditional industrial sectors. For new biotechnology applications, there is a
medium to high technology investment required, and a strong need for patent protection and
support. Fermentation plants have medium to high capital requirements. Regulatory issues,
especially environmental controls, are less burdensome than those in the chemical manufacturing
sector. The technology life cycle is reasonably stable compared with other biotechnology sectors.
On the basis of many factors, but especially its dominant market size of $833 M, enzymes for
food processing is selected for detailed analysis. Growth in this sub-area, while only 3.5% in
terms of sales, is expansive in terms of market differentiation, with food applications ranging from
animal feed through flavors, bakery products, fruit juices, alcoholic beverages, to dairy products.
The opportunities for innovation into new areas of consumer foods are high.
116

Agricultural Biotechnology
The market for agricultural biotechnology is about $62 B, or about 11% of the total agriculture
market of $661 B. Growth in this market has been only moderate (about 6% in the US) due to a
very gradual increase in public acceptance based on environmental safety concerns and because
of significant cost savings over conventional agriculture. Signs indicate increasing acceptance
around the world, with Europe and Brazil being notable exceptions, meaning good long term
potential is expected. Applications of biotechnology to agriculture are expanding, and the
knowledge base and technology platforms are developing.
The field of agricultural biotechnology provides many opportunities for added value. Agricultural
biotechnology has driven rapid increases in plant quality (beyond what is capapable by traditional
cross-breeding) through genetic engineering and through the development of biopesticides and
biofertilizers. Traits that help in the growth rate or survival of various organisms can be
introduced into crop plants. Benefits include enhanced growth rates, reduced pesticide use,
lower crop losses, and lower costs. Foods from those crop plants can be enhanced as to color,
flavor, shelf life, water content, improved processing characteristics, and in many other ways.
Plant crops can also be engineered to produce therapeutic human proteins, enzymes, and
biomaterials.
The field of agricultural biotechnology is dominated by large agro-chemical and seed companies
who have recently added biotechnology to their arsenals. As products of agricultural
biotechnology are mostly foods, they are subject to regulation for safety. Environmental issues
are particularly sensitive in this field. The life cycles for agricultural biotechnology products are
relatively stable, but competition and “me-too” products are intense. Capital markets have not
been very supportive of agricultural biotechnology. This is expected to change as environmental
issues other public concerns are addressed.
The sub-area chosen for more detailed investigation is transgenic seeds, especially as a
subsector of crop protection. This is primarily based on market size, which is estimated to be
between $1.6 B and $3.5 B in 2001, about 16% of the high-value seeds market. Market growth in
this sector is high, with planting acreage and the number of farmers using transgenic seeds
increasing dramatically, especially in developing countries. It may be expected that crop
protection by conventional agro-chemicals, currently a $28 B market, will be replaced over time
by more convenient and environmentally friendly agricultural biotechnology products. Transgenic
seeds in the crop protection area will be particularly attractive as they replace the need for costs
and labor of acquiring and applying agrochemicals or biopesticides.
Bioinformatics
Bioinformatics is a US$1.1 B industry primarily focussed on genomic and proteomic research
databases and associated software for collecting, organizing, storing, retrieving, analyzing, and
visualizing data. Its applications are largely in the drug discovery area, but also extend to natural
products discovery and any research or diagnostic applications that generate enormous amounts
of complex laboratory or clinical data. The bioinformatics field is growing at 33.5% per year,
driven by advances in the biochip and microarray field, which allows tens of thousands of
analyses to be performed in a single experiment. The field is also driven by the robotics and
microfluidics fields, which automate these experiments, and the computing hardware and
software fields, which make possible the rapid handling of massive amounts of data.
Opportunities for added value include the creation of new databases. Besides genomics and
proteomics, new databases are being constructed for the emerging fields of glycomics (complex
117

sugars and glycosylated proteins), metabolomics (compounds involved in metabolic pathways),
and other areas to be developed. Also, software is being continually enhanced to handle more
complex databases, to combine unlike databases from different laboratories or experiments into a
single coherent database for analysis, and to mine data more efficiently. New factors, such as
population differences, are being introduced into biomedical databases to check for patterns of
genetically-based responses to drugs or susceptibility to infection.
Capital requirements for entering the field are low to moderate if focus is on the software side,
and medium to high to build the capacity to generate experimental biodata for the databases. For
example, there is a growing network of sequencing centers around the world. A high degree of
technology investment is required to run an efficient operation, and the turnover of the technology
is every 2 to 3 years in the most advanced centers.
The sub-area chosen to be examined in the detailed analysis is genomic bioinformatics. At
present, genetic information is the most highly developed in terms of content of databases and
sophistication of software. Genetic databases are expanding at an enormous rate as functional
genomic activities increase. Also, intense activity is focused on sequencing genomes of
importance beyond the human genome. Infectious disease organisms are a prime example.
Genomic profiling is another expanding area, in which one can analyse those genes that are
active at different stages of development, under different conditions of stress, or disease. The
impact of this field on research and commercialization of biotechnology is revolutionary.
Biochips and Microarrays
The estimated size of the global market for Biochips and Microarray is US$900 M. Growth in this
field is a remarkable 40% annually, as the technology of high efficiency, high-throughput microexperimentation
is being incorporated by the entire bioresearch and biomedical research
enterprise.
The opportunities for adding value in this product area are many. There are many opportunities
to make arrays of different biomolecules or chemical entities, either generic arrays or custom
ones. There are opportunities to further miniaturize the microarrays, or to create them on different
materials. Opportunities exist in electronic and robotic innovations in the systems using the
arrays. There are also software opportunities for controlling the systems employing the
microarrays. It is clear that the technology platform involves multi-disciplinary technologies.
This level of technology requires medium to high capital requirements. Strong intellectual
property support is required, as well as a high level of technical skills. The technology life cycle
for the system can change even though the actual microarrays may be standardized.
As the field of biochips and microarrays is relatively young, the sub-area of the field that is
designated for detailed analysis is the DNA chip, as distinguished from the protein chip and other
varieties.
118

Criteria for selection for Detailed Analysis
Product areas Global
Market
size
(US$)
Biopharma-
Ceutical drugs,
vaccines and
diagnostics for
human and
animal health
care
Herbal
medicine and
nutra-
Ceuticals
Cosmetics and
personal care
products
Industrial
enzymes
Agricultural
biotechnology
Bioinformatics:
Genomic
proteomic
databases &
software
Biochips and
Microarrays
$44B
$128B
$10B
$1.7B
Market potential Opportunities for value-added activities Other market requirements and considerations Product subareas
selected
Detailed
Analysis
for
Growing rapidly due to new
technology approaches which
are transforming the
biopharmaceutical industry:
genetic engineering, genomics,
proteomics, bioinformatics,
combinatorial chemistry,
nanotechnology and others.
Well-developed history with
capital markets.
Rapid growth, as illustrated by
US figures (annually 5-10%).
Favorable demographic trends,
and interest in fitness and
performance.
Growing rapidly based on aging
population (skin protection and
anti-aging growing at 8%) and
to increasing interest in natural
products. Botanical extracts
market size estimated 1.3 B in
2005.
High growth potential due to
wide applications with benefits
for energy conservation and
pollution reduction. Current 10%
annual growth is likely to
increase.
$5 B Moderate growth. Growth due to
gradual public acceptance and
notable cost savings. Good long
term potential. Continuing
expansion of applications and
knowledge base.
$1.1B
for bio
infor
matics
Extensive opportunities for processing
biomaterial inputs for the industry at many
levels. Research opportunities also present.
Benefits through development of technology
platforms, human resources, and others.
Moderate.
Low to moderate from employment number
standpoint. Can build up ethnobotanical
information base.
Raw materials processing opportunities.
Manufacturing opportunities at various
stages of value chain. Some degree of
medium tech appropriate.
Low to medium scale of opportunities
subject to equipment requirements.
Opportunities to improve enzyme activity
through genetic engineering.
Industrial platform, such as fermentation,
applicable to other industries.
Environmental benefits through increase of
efficiency and reduction of waste and
pollutants.
Extensive opportunities for value-added
activities, plants as bioreactors,
biomaterials, enhanced crop productivity.
Environmental benefits: pesticide use and
cost and crop loss reductions.
Annual growth rate of 33.5% Software, bioinformatics, population
genetics; add-ons of other biological data
types.
$900M To $4B in 2006.
39.5% annually
Software, materials science, electronics
Technology platform; multi-disciplinary
involvement.
119
Fairly restricted market access due to high capital
requirements, regulatory hurdles. High intellectual
property support required.
High degree of technological infrastructure and skilled
personnel required. Rapidly changing technological life
cycle.
Less regulatory restrictions than pharmaceuticals.
Lower capital requirements. High public acceptance.
Dominance by large companies, but supplier
opportunities for small and medium sized firms. Medium
to high capital requirements
Regulatory restrictions applicable.
Medium to high restriction due to staid practices in
traditional industrial sectors. Medium to high
technology investment required. Strong IP support
needed. Collateral infrastructure important. Somewhat
stable technological life cycle.
Large firm domination. High degree of regulation.
Public acceptance issues with GMO’s. Stable
technology life cycle.
Low capital requirements for software access to public
databases; medium to high capital requirements for
capacity to generate new biodata; growing network of
sequencing centers in place; rapid technological
change in this sector; high degree of technology
investment required.
Medium to high capital requirements. Strong
intellectual property support required. High level of
technical skills in human resource base. Rapidly
changing technology life cycle.
Recombinant
proteins:
monoclonal
antibodies
Functional
Foods
Skincare and
anti-aging
products
Enzymes for
food
processing
Transgenic
seeds
Genomic
bioinformatics
DNA Chips

Discussion of sub-areas and variables
The following sections provide Detailed Analysis for selected sub-product areas:
Recombinant proteins: monoclonal antibodies
Functional foods
Skin protection and anti-aging
Enzymes for food processing
Transgenic seeds
Genomic bioinformatics
DNA Chips
120

Recombinant Proteins
Monoclonal antibodies
121

RECOMBINANT PROTEINS: MONOCLONAL ANTIBODIES
Statement on “business model” of firm selected in the area of recombinant proteins/monoclonal
antibodies
For the detailed analysis portion of this report, we have chosen monoclonal antibodies as a
biopharmaceutical industry segment. Although at present their sales do not reach the levels of
other recombinant proteins, monoclonal antibodies represent an interesting part of the industry that
combines aspects of both the pharmaceutical and biopharmaceutical industries. From the
standpoint of biopharmaceuticals, monoclonal antibodies present all of the challenges of
developing and manufacturing recombinant proteins. Recombinant proteins ranging from peptide
hormones such as insulin and growth hormone to large recombinant proteins such as
glucocerobrosidase are the main products of biotechnology sales. Monoclonal antibodies are
recombinant proteins with defined specificities against certain targets of medical and commercial
importance. From the standpoint of pharmaceuticals, monoclonal antibodies are drugs, albeit with
somewhat specialized characteristics. Many observers describe monoclonal antibodies as
technically advanced pharmaceuticals that have evolved progressively along a pathway from
murine towards fully human antibodies via chimaeric then humanized forms. This evolutionary
development represents a desire to develop antibodies that can be dosed repeatedly without
triggering an immune response in the patient. Thus, the strategy for selection of a monoclonal
antibody depends on the target, the clinical application and the commercial potential. These are
issues characteristic to all drugs and monoclonal antibody companies should be assessed as drug
development companies. Monoclonal antibodies represent a commercial opportunity of
approximately USD 24 billion by 2010 and, if pursued, offer rich opportunities to new entrants.
The key steps in development appear very similar to those for small molecules, mainly, access to
clinically relevant and identifiable drug targets, defined mode of action, design/selection of the
optimal therapeutic entity by an iterative process, access to a suitable manufacturing source for
scale up, and commercialization.
Therefore the business models underlying companies involved in some or all of the development
and commercialization of monoclonal antibodies are similar to those of other biopharmaceutical
and pharmaceutical companies.
As for any drug company, ultimate success is dictated by the ability of the company to realize the
commercial potential of the monoclonal antibody drugs. This must take into account that
commercial risk changes over time and depends on decisions taken by the company as it takes a
drug through trials to the market, and on the changing competitive environment.
In order to help assess the possible business models of companies involved in development of
monoclonal antibodies, we must consider the following inputs: peak sales, cost of development to
various stages and royalty/profitability assumptions.
Peak sales is an average figure taken from different public sources (e.g., http://www.hoovers.com;
http://www.recap.com; http://www.bio.org). Costs are based on a mixture of industry data.
Interestingly, estimates of the costs of monoclonal antibody drug development range widely from
the optimistic (e.g., Genmab USD 30 million) to the more conservative (e.g., Celltech USD 300
million). On average, cost of developing monoclonal antibodies amount to USD 155 million with
122

wide variation according to indication (hence necessary clinical trial size) and drug (amount
required for treatment).
Business models in monoclonal antibody development fall generally into one of two categories,
platform or product, or a hybrid thereof. Platform monoclonal antibody companies rely on
proprietary technologies enabling development of antibodies with certain desired properties (e.g.,
Fab fragments, bacterial production systems, humanized antibodies). Product-based monoclonal
antibody companies focus on developing antibodies against specific target regardless of the
technology involved and seek to capture specific medical and commercial opportunities. Hybrids
usually combine the technology platform approach with a product in an attempt to maximize reward
and minimize product-specific risk.
Figure 22 below highlights the similarities and differences of the three models in regard to risk,
revenue generation, upside potential, revenue stream, and break even point.
Figure 22. Business Models
Source: UBS Warburg
Product companies range from more mature biotechs such as Serono, with substantial trading
operations, to specialty pharmaceutical companies like Shire, a trading company focused on niche
markets, to earlier stage companies like Genmab, building up a pipeline.
A number of companies now have monoclonal drugs selling, or with the near-term potential to sell
in excess of USD 0.5 billion, such as Genentech with Rituxan (non- Hodgkin’s lymphoma), or
Serono with Rebif (multiple sclerosis). Celltech’s CDP870 for rheumatoid arthritis and Genset’s
famoxin (albeit at a very early stage) are two products with large sales potential.
While developing drugs is a risky business, the risks associated with monoclonal antibody product
companies vary enormously according to the stage of development. Product companies with
drugs already on the market and selling successfully have some of the characteristics of big
pharmaceutical companies, i.e., a highly predictable revenue and earnings stream not much
affected by external economic events.
Early stage product companies with drugs as yet unproven in man are regarded as more risky.
Risks may be categorized as either technical (probability of taking the drug through complete
clinical trials and regulatory process and on to the market) and commercial (recognizing and
123

ealizing the true market potential of a drug and the associated commercialization hurdles, e.g.,
marketing, partnering).
Technical risks relate to the stage of development in clinical trials for the monoclonal drug and to
the extent to which a concept and any drug based on that concept is proven in man. For example,
using anti-TNF monoclonal antibodies to modify the natural history of rheumatoid arthritis is well
established. The anti-TNF monoclonals currently on the market, Enbrel (Immunex, AHP) and
Remicade (Johnson & Johnson) have sold in excess of USD 1 billion collectively in 2000 and both
drugs are growing strongly. Thus, anyone developing another TNF binding protein, whether an
antibody (D2E7 from Abbott/CAT, or CDP870 from Celltech) or a receptor (rhTNFbp from Serono)
can be assured that the approach has a high chance of proving efficacious in this indication.
Therefore, the technical risks relate more to side effects than efficacy.
Technical risks can be reduced to a binary decision: is drug approvable or not? In contrast,
commercial risks are much broader and consist of a spectrum of possible outcomes. Can the
market accommodate five such products? The later products, without first-to-market advantage are
likely to have to show real advantages over established products (or be better marketed) to get
more than a relatively small share, albeit of a big market.
Although neglected in early stage ventures, commercial risks are as important as technical risks.
For example, enormous opportunities exist for drugs to treat stroke but the probability of success
are lower the closer to the market with sunk costs in development of up to 60%. In addition, most
biotechnology companies lack marketing experience or a sales-force or the resources to create
one. Lack of commercial experience may lead a biotechnology company to license a monoclonal
cancer drug, for example, to a company with excess cash but lacking any presence in this market.
Platform companies develop and market technologies that aid the drug development process, e.g.,
combinatorial chemistry, high-through-put screening ADME-Tox, (Absorption, Distribution,
Metabolism, Excretion and Toxicology) prediction, and phage display to make human monoclonal
antibodies. The technology may be developed in combination with a partner, or consortium of
partners, who may then get exclusive access for a defined time period. Two models are generally
followed: Either the biotechnology company runs the platform for the pharmaceutical company, or
the biotechnology company installs and supports the technology for the pharmaceutical company.
Financial rewards may include a straight fee-for-service or, historically, a lower upfront fee in return
for milestones and/or royalties on the sales of any drugs coming out of the technology. The straight
fee-for-service model is essentially contract research, and companies offering such a service
should be so regarded. Taking lower up-front fees in exchange for milestones and/or royalties on
sales is more appealing superficially but raises two main issues. First, for technology platform
companies in particular, any royalty is likely to be many years away given the long-term nature of
drug development. Second, pharmaceutical companies do not want to develop low profitability
drugs and may not want to build substantial potential royalty stacks on future drugs. Unless a
technology platform is sufficiently broad to support many deals, this model is very limited, and
companies are valued with this in mind. In addition, management often underestimates the time
required to undertake deals and this time factor alone, limits the number of deals a company can
do in any one year.
Platform technology companies are perceived as a lower risk than product companies. This is
probably true technically since companies pursuing this business model are not exposed to the
high risks associated with the development of specific drugs. Commercial risks can be higher,
124

however. In some cases, the platform company may encounter difficulties selling technology to its
biggest competitor, the in-house efforts of the big pharmaceutical company itself.
Given the issues with platform companies, many companies set up as pure platform technology
companies are moving to position themselves as hybrids. Such companies look to develop
products themselves, using their platforms and cash flows from selling access to the platform to
fund the drug development and to validate the approach. The aim of this model is to capture both
near-term revenues from selling access to the technology platforms and longer-term revenues from
drugs developed in-house.
The major risk in following this model is lack of focus. For this model to work, the technology
revenues should be sufficiently large to fuel the in-house drug development efforts. If multiple
therapeutic opportunities arise, management may fail to focus on the most appropriate therapeutic
areas for a company with a given set of resources and therefore try to do it all with, oftentimes,
companies managing five to eight clinical programs.
Description of typical or standard “value-added chains” and stages associated with the
biopharmaceutical industry
The biopharmaceutical industry has undergone revolutionary changes in the way companies
compete across the value chain. These changes are the result of a number of structural
reconfigurations driven by new specialist companies, new technologies and newly defined markets,
along with increased performance pressures from shareholders in light of declining R&D
productivity levels. These trends have forced technology platforms and technology-based product
companies to seek partners with “deep pockets” among the major pharmaceutical companies.
Similarly, large pharmaceutical companies must account for the “time value of money” in the
returns to their share-holders and lead them into licensing technology, platforms and products from
cash-strapped biopharmaceutical companies. These trends have resulted in a new ‘licensing era’,
where companies must partner and collaborate in order to successfully compete.
125

The classical biopharmaceutical value chain is depicted on Figure 23 below.
Figure 23. The Biotechnology Value Chain
Source: UBS Warburg
We can ascertain a permanent reconfiguration of the pharmaceutical value chain during the last 20
years. Traditionally, integrated pharmaceutical companies have competed across the value chain
as a whole but a number of revolutionary changes have transformed the way in which companies
are able to capture value.
Biotechnology and drug delivery technologies have introduced new industry segments, with
companies focused around specialized technologies. Furthermore, the impact of genomics has
required all R&D-based companies to make significant investments in risky, though potentially
valuable, technology and information platforms. In addition to these technology-based trends,
intensive M&A activity has caused structural changes to the competitive environment, while
globalization has led to heightened competition across all pharmaceutical markets. Adding to
these key drivers of change, the pharmaceutical value chain has also evolved through the impact
of Internet-based technologies, the evolution of utility services such as contract research
organizations, the tightening of regulatory conditions and a shift in the power of insurance
companies, third-party payers and consumers. Underlying all these changes remains the
expectations of capital markets and shareholders for continued premium returns on investment,
previously achieved by pharmaceutical companies under more conducive market and competitive
conditions.
Development and commercialization of monoclonal antibody drugs exemplify these trends. The
application of biotechnology in the pharmaceutical industry started in the mid- 1970s, with the
development of novel scientific techniques, such as genetic engineering and antibody production.
The technique of genetic engineering was developed in 1973 and received its first commercial
pharmaceutical application four years later when Lilly started the development of recombinant
human insulin in conjunction with Genentech. The resulting product, Humulin, became the first
biotechnology product to reach the market when it was launched in 1983.
126

Genentech, the flagship biotechnology company, was the first to accumulate internally generated
revenue, following the launch of Humulin. This was followed in 1985 by the launch of Protropin, a
genetically engineered human growth hormone. The success of Genentech was later followed by
other biotechnology companies, such as Amgen. Amgen’s first product, Epogen, was approved in
1989 for the treatment of anemia in kidney dialysis patients. In 1991, the company’s second
product, Neupogen, was approved as an adjunct therapy for patients undergoing chemotherapy.
By 1994, both drugs had achieved the status of best sellers in their respective markets and have
led to Amgen to becoming the most profitable biotechnology company to date.
Although it fluctuates year-on-year, the proportion of product launches resulting from biotechnology
products has increased over the past 10 years. Following the launch of the first biotechnology
product in 1983, biotechnology products accounted for an average of 13.4% of all products
launched between 1991 and 1995, rising to 18.2% of all products launched between 1996 and
2000. At the end of 2000, a total of 76 biotechnology drugs had been approved for marketing, and
369 biotechnology drugs were in human clinical testing for more than 200 disease targets,
accounting for around a third of all medicines in clinical development. Four leading biotechnology
drugs generated revenues in excess of USD 1 billion in 2000: J&J’s Procrit (USD 2,709 million),
Amgen’s Epogen (USD 1,962 million), Amgen’s Neupogen (USD 1,224 million), and Genentech
and Lilly’s Humulin (USD 1,115 million).
Biotechnology impacts the pharmaceutical value chain in two ways. First, integrated
pharmaceutical companies have established significant investments in these new technologies
through licensing agreements and alliances with biotechnology companies, because the growth of
new biotechnology product launches continues to outpace that of traditional pharmaceutical
products. Second, the leading biotechnology companies have built up critical mass in the
development and marketing functions in order to compete directly with the integrated
pharmaceutical companies across the value chain.
Historically, traditional pharmaceuticals are administered to the body via a basic drug and excipient
combination, generally resulting in rapid and systemic absorption of the drug. The development of
peptide and protein-based drugs has required novel methods of drug delivery. As a consequence,
a drug delivery industry has developed to administer the newer drugs in novel ways. These drug
delivery technologies include implantable osmotic pumps, needleless injections, transoral patches,
liposomal formulations aerosols, and powders for inhalation. These technological advances have
extended the duration of a drug’s action, increased delivery to target sites, reduced delivery to
unwanted sites, maximized drug absorption and generally optimized the administration profile of a
therapeutic agent.
The addition of a novel drug delivery system to either a well established product, to a product with
previously limited potential or to a compound in development, confers a number of significant
advantages that include: salvaging development-stage products and poor market performers,
saving valuable and potentially wasted R&D expenses, differentiating the product from the
competition, extending the product’s patent life if the active ingredient is approaching patent
expiration, and increasing the return on investment and decreasing the time to market relative to
the development of new chemical entities (NCEs).
Most of the 100 or so drug delivery companies have very limited technology platforms and remain
unprofitable. Therefore, a major benefit to becoming an integrated company lies in the improved
likelihood of increased revenues through expansion of contracts with pharmaceutical companies.
When a pharmaceutical company seeks a drug delivery solution, be it to differentiate a product in
127

the face of generic competition or as an integral part of product therapy, the smaller drug delivery
companies are often marginalized by their lack of technological breadth.
Consolidation within the drug delivery industry will continue as drug delivery companies buy
complementary technology platforms. For example, companies such as Élan and Alza have a
history of acquisition as a means of expanding technology platforms. Prior to its current financial
difficulties, in November 2000, Élan completed the acquisition of Dura Pharmaceuticals, which
increased Élan’s drug delivery technology to include inhaled delivery using the SPIROS dry
powder system. As drug delivery companies gain critical mass, they will be in a stronger position to
leverage broader technological platforms, demand higher royalties and licensing fees from
pharmaceutical companies and generate economies of scale.
In addition to offering a more complete drug delivery service to pharmaceutical companies,
developing into an integrated operation, as discussed previously, is a route to becoming an
independent pharmaceutical company. Although not offering advantages from the perspective of
being a successful drug delivery company, this strategy offers major benefits from a profitability
perspective. This is, therefore, the expansion strategy pursued by a number of drug delivery
companies and is furthered by M&A activity. For example, Élan’s acquisition of Dura
Pharmaceuticals not only increased the company’s drug delivery technology platforms, but also
gave immediate access to a specialized sales and marketing force and approximately 17 marketed
products. In 2001, Élan posted total revenues of USD 1,862.5 million. Before being acquired by
Johnson & Johnson in 2001, Alza posted 2000 revenues of USD 988.5 million.
Like biotechnology, the advancement of drug delivery technology impacts the pharmaceutical
value chain in two ways. First, pharmaceutical companies, as they look for new ways to improve
product profiles and extend product lifecycles, will continue to establish significant access to these
new technologies through licensing agreements and alliances with drug delivery companies.
Second, the leading drug delivery companies, as they have evolved through the development of
key products, have built up critical mass in the development and marketing functions in order to
compete directly with the integrated pharmaceutical companies across the value chain.
Genomics is the most high profile of the many enabling drug discovery technologies recently
developed. Genomics is based on the assumption that identifying genes involved in specific
diseases through the comparison of the genomes of individuals with and without disease will
revolutionize both medicine and the pharmaceutical industry. While no major pharmaceutical
company is now without genomics capabilities, whether in-house or accessed through licensing
agreements, the return on investment of genomics is as yet uncertain. In particular, genomics has
provided many new drug targets but how many and how these targets will result in clinically and
commercially viable drugs is less clear.
The output of the leading first and second-generation genomics companies as of 2001 includes
over 2,500 new targets. This estimate is a minimum, as companies do not usually reveal the full
extent of their R&D pipelines. The figure represents only the targets that have been the subject of
press releases, and there are likely to be many more for which details are confidential. Even
eliminating the 2,100 targets contributed by Incyte, the remaining 433 or more new targets have
doubled the number of targets available to the pharmaceutical industry. With a minimum of 47
products in preclinical development and at least 13 already in clinical trials, the productivity of the
genomics industry seems to be strong.
The genomics revolution impacts the pharmaceutical value chain in three key ways. First, the upside
potential of genomics has led to an intensified wave of investment by the integrated
128

pharmaceutical companies, resulting in increased licensing agreements and alliances with
genomics-based companies. Second, the level of investment required to fully integrate genomics
knowledge and technologies extends competitive advantages to the top-tier global pharmaceutical
companies as a result of their access to investment capital. Third, and in contrast to the previous
point, uncertainty over the eventual impact of genomics is creating something of a level playing
field for future competition within the pharmaceutical industry. The eventual costs and benefits
could go some way towards redistributing the balance of power between the integrated
pharmaceuticals and the specialized biotechnology companies.
Between 1997 and 2000, M&A activity has altered the landscape of the pharmaceutical market
leading to the formation of a new generation of mega pharmaceutical players. The creation of
companies such as Pfizer and GlaxoSmithKline have increased the pressure on other top tier
companies to keep up. At the same time, blockbuster drug patent expiration and increasing global
cost containment have led to an increasingly difficult environment for the generation of earnings
growth which will likely result in continued industry consolidation.
Due to the associated high development and marketing costs, the successful launch of blockbuster
drugs has become the near exclusive domain of major pharmaceutical companies. Large
integrated companies, such as Pfizer, GlaxoSmithKline, Eli Lilly and Merck, have the required
infrastructure to support a blockbuster strategy as part of their ongoing efforts to maintain
shareholder earnings growth. In order to compete, smaller and more specialized integrated
pharmaceutical companies are shifting their focus to smaller disease areas with high unmet needs.
The lower overheads associated with focused therapeutic strategies mean smaller integrated
pharmaceutical companies do not rely on blockbuster sales to generate shareholder returns. The
advent of orphan drug legislation has further helped companies to guarantee high returns on their
investments in smaller patient populations. Examples of companies who have successfully
followed a more focused therapeutic strategy include Schering and Genzyme, who through their
Multiple Sclerosis drug Betaferon and Gaucher’s disease drug Cerezyme generated single product
sales of USD 547 million and USD 537 million respectively in 2000.
The trend towards growth through M&A activity is not unique to integrated pharmaceutical
companies. Companies in other industry segments, including biotechnology and drug delivery, as
well as service providers, such as contract research, sales and manufacturing organizations, have
also consolidated to drive growth. Recent deals within the various specialist pharmaceutical
industry segments have allowed leading companies to emerge as keen competitors to the
integrated pharmaceutical companies across the value chain. Two leading biotechnology
companies, Amgen and Immunex, were involved in a USD 16 billion M&A deal. Aventis SA is the
outcome of five major deals and the consolidation of nine different companies between 1990 and
2000 and is the prototypical example of recent industry consolidation. Other examples of
consolidation include the merger of genomics companies such as Gemini Genomics and
Sequenom in 2001, and the acquisition of Medeva’s vaccine business by the drug delivery
company PowderJect Pharmaceuticals, in 2000.
The wave of unprecedented consolidation in the pharmaceutical industry impacts the value chain
in two ways. First, the emergence of ever-bigger integrated pharmaceutical organizations has
caused a split into distinct tiers of competition, with leading companies competing through the
launch of blockbuster products and the remaining companies building more specialized therapeutic
franchises. Second, M&A activity in the biotechnology, drug delivery, contract research and
generics industry segments has allowed leading companies to build critical mass and compete
more effectively.
129

The emergence of a new paradigm, where companies compete through the discovery,
development, launch and marketing of innovative products, requires companies to maximize the
returns from innovation across all markets. As regulatory hurdles for approval across markets
diminishes, companies must ensure that their portfolios are fully leveraged across all global
markets in order to effectively compete against one another. A centralized approvals procedure for
EU member countries has led to an increased ease of access for companies across EU markets.
The biggest recent shift in globalization has followed the opening up of the Japanese market to
Western competition.
Despite being the second largest pharmaceutical market, with total pharmaceutical sales of USD
50 billion in 2000, Japan has traditionally been a low priority for Western companies when
launching new products. One example of this is GlaxoSmithKline’s Paxil (paroxetine HCl), which
was launched in the US in 1992 and in Japan in November 2000 as the only once-a-day therapy
for treatment of both depression and panic disorder. In 2000, Paxil had global sales of USD 1,550
million, with US sales of USD 1,057 million compared with an estimated USD 95 million in Japan.
The delay in launch is due partly to poor market conditions in Japan for CNS therapies and partly a
result of clinical trial requirements for specific assessments in Japanese populations.
The International Conference of Harmonization (ICH) has reduced the requirements to complete
trials using Japanese ethnic groups by introducing bridging studies or the ‘drug organization’
consultation system in October 2000. Bridging studies allowed AstraZeneca’s Arimidex
(anastrozole), indicated for the treatment of postmenopausal breast cancer and the first drug to
benefit from bridging studies, to be approved by obviating the need for additional phase III trials.
Arimidex used bridging studies to pass from phase II trials in April 1997 to approval in December
2000.
The ongoing globalization of the pharmaceutical industry impacts the value chain in two ways.
First, companies looking to compete across global markets have accessed new markets through a
combination of M&A activity, licensing agreements and alliances, and organic growth. Second, all
global markets have become increasingly competitive with domestic and regional companies
developing their presence in international markets.
The value model of the pharmaceutical industry has undergone an evolutionary shift with the
traditional integrated pharmaceutical company replaced by more specialized, and more
competitive, companies. New specialized technology companies have introduced biotechnology
and drug delivery technology to the traditional pharmaceutical value chain. Developing access to
new genomics technologies has impacted all R&D pharmaceutical companies, while M&A and
globalization have intensified the competition prevailing within and across all functions of the value
chain.
An industry-wide R&D productivity decline has led to a widening gap between shareholder
expectations and productivity levels in the pharmaceutical industry. The reconfigured value chain
provides a response to the expectations gap through intensified specialization and functional
competition. Biotechnology, drug delivery and genomics technologies all provide specialist
capabilities through which industry-wide productivity gains can be driven. M&A activity provides
distinct tiers of competition along with critical mass through which economies of scale and scope
can be generated. Globalization ensures the returns from investment are maximized through global
marketing.
130

Criteria for development of strategic alliances and joint ventures among the biopharmaceutical and
pharmaceutical companies
Strategic alliances and joint ventures are one of the most important value creation activities for
both biopharmaceutical and pharmaceutical companies. The nature of the changes impacting the
industry, as discussed in the previous section, creates the environment in which these alliances
and ventures become part of the value chain in developing and commercializing drugs. The
development and commercialization of monoclonal antibodies is no exception. Indeed, some of
the most profitable deals between biotechnology companies and pharmaceutical companies have
involved monoclonal antibodies. Today, creating an effective deal-making organization is essential
to fully exploit the opportunities provided by licensing agreements and alliances. Strategic
alliances and joint ventures in the pharmaceutical and biotechnology industries continue to be
primarily led by in- and out-licensing compounds and technologies.
As technologies become increasingly valuable, (bio)pharmaceutical companies are effecting
organizational changes in order to ensure they fully leverage the benefits derived through strategic
alliances and joint ventures. Companies are employing more deliberate alliances and joint venture
strategies, involving all relevant departments in the deal-making process. Alliance and joint venture
management is evolving to ensure internal and external relationships lead to the successful
execution of agreements.
Critical success factors for creating effective strategic alliances and joint ventures include
coordinating a deliberate strategy, promoting desirability as a partner, managing internal and
external relationships, creating alliance management structures and procedures, and developing
relationship management skills. Creating an effective deal-making organization is essential in
order to fully exploit available opportunities.
The successful execution of collaborative alliances requires companies to develop appropriate
structures, procedures and management skills. Companies must manage both internal and
external relationships in order to fully realize a licensing agreement’s strategic value. Key elements
of an effective partnership include senior management commitment, agreeing partnership
objectives, priorities and responsibilities, establishing effective communication channels, making
collaborative decisions, managing and resolving conflict, and reviewing deal progress and results.
The management of internal and external alliance relationships requires the consideration of senior
management across all key functions. So that collaborative alliances are managed and executed
effectively a number of critical success factors must be leveraged. These include coordinating a
deliberate licensing strategy, promoting desirability as licensing partner, managing internal and
external relationships, creating alliance management structures and procedures and developing
relationship management skills.
Responsive, world-class licensing organizations are typically led by a group of five to ten highpowered
executives drawn from venture capital, investment, consulting, legal and competitor
backgrounds. These executives receive performance-related pay at levels similar to their R&D
peers. Similarly, the R&D head is also often compensated on licensing performance. Corporate
level budgets are often determined and allocated to licensing alongside those for R&D investment
and acquisition to ensure quick budget approval on a deal-by-deal basis.
The coordination and communication between licensing, R&D, marketing, legal and finance is
essential in order to ensure early consensus, frequent feedback and rapid execution. Creating inhouse
support for external collaborations is a critical factor for successful licensing. Licensing
131

proposals are reviewed by in-house interdisciplinary committees, which include R&D and
marketing representatives. Deal terms, milestones and termination points should also be reviewed
and agreed by all relevant internal functions. Through the inclusion of wider organizational
disciplines in the deal-making process greater participation and buy-in is created for deal
execution.
Creating effective R&D collaborations requires strong incentives and organizational structures, the
involvement of R&D directors in the planning and execution of deals, and the charging of R&D
personnel with the responsibility for developing licensing leads and proposals. The key is to have
R&D and licensing working closer together, with R&D involved in the evaluation of opportunities as
well as in initiation and execution of licensing deals. As an example, J&J only chose to complete its
co-development agreement with Shire for galantamine, an Alzheimer’s drug, when J&J scientists
concluded the compound could be produced synthetically, and thus inexpensively.
In promoting desirability as a partner, a potential in-licenser must provide convincing arguments for
addressing the key concerns of out-licensers. The most important questions for out-licensing
companies are: how much value will a partner bring to the agreement, what will be my share of the
value created, how effectively will our companies work together, and how trustworthy is a partner in
delivering on its promises?
Key characteristics of a desirable partner include market track record, flexibility in deal structure,
quick and effective deal turnaround and the effective integration of licensed compound into
therapeutic franchise. BMS’s strong oncology market position has helped it to build 95% of its
oncology franchise through licensing. Pfizer’s flexibility in allowing Warner-Lambert to take full topline
benefit from Lipitor helped it win its initial co-promotion agreement. The completion of the
agreement for OSI-744 in six months, against an industry average of 17 months, helped
Genentech fight off competition for the compound from 37 other companies.
Partner selection is based on a combination of metrics such as financial capacity and marketplace
history, and less tangible perceptions including the intensity of each potential partner’s desire to
take the compound to market. A partner’s pitch to a compound holder can involve the efforts of an
entire therapeutic area team in order to add credibility and commitment. Pfizer reportedly spent
USD 1 million on its presentations to Pharmacia for Celebrex. Potential partners must generate a
strong track record of successful alliances in order to enhance their reputation with partners.
The successful execution of collaborative strategic alliances and joint ventures requires companies
to develop appropriate structures, procedures and management skills. Companies must manage
both internal and external relationships in order to fully realize an agreement’s strategic value. Key
elements of an effective partnership include senior management commitment, common objectives,
priorities and responsibilities, establishing effective communication channels, making collaborative
decisions, managing and resolving conflict, and reviewing deal progress and results.
Lilly, Pfizer and Aventis have initiated alliance management programs. Through performance
tracking, relationship audits and conflict resolution these programs can help to address proactively
the issues arising from many alliances.
The execution of strategic alliances and joint ventures involves the management of two major
relationships. The first involves the collaborative relationship between partnering companies to
provide effective leadership, coordination and communication. The second involves the internal
relationship between corporate/business development and all relevant functional departments.
Alliances suffer when confusion or disconnection exists between groups within or between
132

partnering companies. Internal groups must establish agreement on alliance objectives and on
each group’s role in achieving them. Relevant functions must commit an appropriate share of their
resources to the partnership and internal efforts must be coordinated and integrated both internally
and with a partner’s efforts.
Unlike a merger or acquisition, in which the parties become a single new entity with one set of
systems and one culture, a strategic alliance must join two independent entities with different
backgrounds, cultures and work practices to form a unit that functions effectively. These
differences in processes, cultures and interests present partnering companies with a number of
difficult challenges, which must be resolved in order to benefit effectively from licensing
agreements.
Companies can help promote effective and successful alliances by ensuring the procedures and
interventions applied to partnership management take the following key elements into account:
commitment of senior management; agreement on partnership objectives, priorities and
responsibilities; establishment of effective communication channels; making collaborative
decisions; managing and resolving conflict; and reviewing progress and results.
Senior management commitment to alliances is one of the most critical elements for alliance
success. Appropriate personnel and budget should be assigned to the alliance at the outset. The
partnership’s objectives, plans and priorities must be aligned and regularly updated. Also, clarifying
responsibilities and expectations at the start of an alliance helps to avoid future misunderstandings,
allows people to focus on successfully completing their specific responsibilities and helps to
prevent surprises and delays.
Frequent and collaborative communication between all work groups is extremely important to
alliance management. These communication channels should stretch both within organizations as
well as between partner companies. Joint work systems should also be aligned in order that
technology does not lead to delay or miscommunication.
Collaborative decision-making is critical for effective operation in partnerships. Alliance teams must
anticipate the issues that will arise and the decisions that must be made, and move quickly to find
and implement synergistic solutions. Successful alliance management involves the application of a
‘soft touch’ to decision making. Partners should look to influence rather than order, intervene rather
than control, be flexible rather than rigid, and empower rather than restrain.
How corporate partners manage conflict constructively must be planned proactively. The
appropriate channels and procedures through which partners are able to air grievances should be
agreed upon at the outset of the alliance. When conflict arises, both parties should maintain
respect for its partner and look to achieve quick and effective resolution.
The habit of regularly assessing an alliance’s performance and implementing improvements
enables both parties to routinely deliver results above expectations and ahead of schedule.
Ongoing review ensures that partnership objectives remain in alignment and that agreed objectives
and partnership aims can be adjusted and extended to account for any unforeseen changes.
So that collaborative alliances are managed and executed effectively, partners must consider and
leverage a number of critical success factors. These success factors include coordinating of an
alliance or joint venture strategy within and between organizations, developing the characteristics
and qualities of a desirable partner, managing relationships effectively, creating structures and
133

procedures for executing alliances successfully, and developing relationship skills with which to
promote effective external collaboration and partnering.
The number of strategic alliances and joint ventures at the beginning of the 21 st century exemplifies
that these are a key value-added component of operating a successful venture. Significant
changes to the pharmaceutical alliance landscape are in evidence. These changes involve the
number and value of agreements, the split between relationship and transaction based alliances
and partnering companies involved.
During the period between 1 January 2000 and 30 June 2002, the industry reported publicly 2,164
strategic alliances. This growth in strategic alliances has largely been driven by relationship
alliances while the number of transaction alliances has remained broadly constant. Of the 2,164
strategic alliances, 318 (14.7%) publicly announced the potential financial terms agreed. Based on
this sample the maximum stated value of strategic alliances is USD 78.5 million. The overriding
trend has been an increase in average deal value over the period. These 2,164 publicly
announced strategic alliances involved 1,684 different companies and operating subsidiaries. More
than half of these companies were categorized as biotechnology- focused (874), followed by
integrated pharmaceutical companies (206) and academic and non-government organizations
(186).
These strategic alliances and joint ventures can roughly be divided equally between those
involving both technology and therapeutic areas, those involving therapeutic areas only and those
involving technology only. Of these, the vast majority occurred in the discovery stage of the
product development lifecycle. A breakdown by stage shows that 65.8% of alliances and ventures
occurred at the discovery and preclinical stages, 24.1% of alliances and ventures occurred in the
clinical development stages and a further 10.2% of alliances and ventures occurred at the
registration, approval and marketing stages.
Roughly half of the agreements involved a licensing agreement with an ongoing relationship
between partners. About a quarter of the agreements involved transaction licensing, threesixteenths
of the agreements involved co-development and the last one sixteenth of the
agreements involved co-commercialization. In summary, 64.5% of these agreements involved
some level of collaboration and co-development.
By level of collaboration co-commercialization agreements have the greatest average maximum
alliance deal value with USD 172.5 million, followed by co-development agreements with an
average value of USD 141.7 million and acquisition agreements with an average value of USD
110.9 million.
Of the 622 strategic alliances publicly announced between 1 July 1, 2001 and 30 June 30 2002
that specified therapy areas, 183 agreements involved oncology followed by infectious & viral
diseases with 111 agreements, central nervous system with 87 agreements and diagnostics with
86 agreements. The average maximum value of all alliances was USD 87.0 million. By therapy
area, oncology agreements have the greatest average maximum alliance deal value with USD
170.9 million, followed by gastrointestinal agreements with an average value of USD 99.3 million
and genito-urinary agreements with an average value of USD 99.1 million. The highest value deal
occurred in September 2001 between Bristol-Myers Squibb and ImClone Systems for IMC-C225
(Erbitux) for cancer and amounted to USD 2,000.0 million. The key companies involved in
oncology alliances were AstraZeneca and Millennium with 6 agreements each. Key deal-making by
company type was biotech/biotech with 70 and pharma/biotech with 39 agreements. Relationship
licensing accounted for 70 alliances and transaction licensing accounted for 49 oncology alliances.
134

By development stage, discovery stage alliances accounted for 76 (41.5%) oncology agreements
in the period. By technology, genomics accounted for 30 and gene/cell therapy 22 oncology
alliances.
Of the 616 strategic alliances publicly announced between 1 July 2001 and 30 June 2002
specifying technology area, 198 agreements involved genomics. This was followed by standard
technology platforms with 132 agreements and other technologies with 131 agreements. The
average deal value for genomics alliances was USD 58.6 million. The highest value deal occurred
in July 2001 between deCODE and Roche for DNA-based diagnostics for major diseases
amounting to USD 300.0 million. The key companies involved in genomics alliances were Incyte
Genomics with 9 agreements and GlaxoSmithKline and Orchid BioSciences with 8 agreements
each. Key deal-making by company type was biotech/biotech with 98 and pharma/biotech with 57
agreements. The average maximum deal value of all alliances specifying technology area was
USD 55.3 million. By technology, bioinformatics agreements have the greatest average maximum
alliance deal value with USD 174.0 million. These agreements are followed by gene/cell therapy
with an average value of USD 79.1 million, standard technology platforms with an average value of
USD 63.5 million and genomics with an average value of USD 58.6 million. Fifty two bioinformatics
alliances with an average deal value of USD 174.0 million occurred during this period. The highest
value deal occurred in December 2001 between ArQule and Pfizer for lead generation, library
design and informatics platform amounting to USD 363.0 million. The key companies involved in
bioinformatics alliances were LION Bioscience with 6 agreements and AstraZeneca with 4
agreements. Key deal-making by company type was biotech/biotech with 29 and pharma/biotech
with 11 agreements.
The 923 strategic alliances publicly announced between 1 July 2001 and 30 June 2002 involved
999 different companies and subsidiaries. The company involved with the most alliances across
the period was GlaxoSmithKline with 31 different agreements. AstraZeneca was involved in 21
different alliances followed by Aventis and Roche with 19 and Novartis and Pfizer with 18. Amgen
and Chiron were the most active biotechnology participants with 13 and 11 alliances respectively.
Of the 999 different companies and subsidiaries involved in alliances biotechnology companies
accounted for 562 different partners. The alliance sample included 129 different integrated
pharmaceutical companies, 100 academic/non-government organizations, 57 drug delivery
companies, 46 equipment and devices companies, 42 diagnostics companies, 10 generic
companies and 4 consumer health/OTC companies. Of these strategic alliances 304 agreements
involved biotechnology companies followed by pharma/biotech alliances with 217 agreements,
drug delivery alliances with 114 agreements and pharma/pharma alliances with 63 agreements.
The average maximum value of all alliances was USD 78.5 million. By partnership type
pharma/biotech agreements have the greatest average maximum alliance deal value with USD
141.2 million. These agreements are followed by pharma/pharma agreements with an average
value of USD 82.4 million and equipment & devices agreements with an average value of USD
51.0 million.
In summary, relationship licensing is the most widely employed alliance type accounting for 43.8%
of all alliances. Co-commercialization agreements are the highest value alliance type with average
financial terms 119.7% greater than that of the average alliance deal. Co-development agreements
are experiencing the greatest current growth rates. Oncology was the most popular subject area
for therapy area deal activity accounting for 29.4% of all alliances. Oncology agreements are also
the highest value alliance subject area with average financial terms 96.4% greater than that of the
average therapy area alliance deal. Cardiovascular agreements are experiencing the greatest
current growth rates. Genomics was the most popular subject area for technology deal activity
accounting for 32.1% of all alliances. Bioinformatics agreements are the highest value alliance
135

subject area with average financial terms 214.6% greater than that of the average technology
alliance deal. Drug delivery agreements are experiencing the greatest current growth rates.
Agreements between 2 or more biotechnology companies was the most popular alliance
partnership accounting for 31.7% of all alliances. Agreements between a pharmaceutical and
biotechnology company are the highest value alliance partnership with average financial terms
79.9% greater than that of the average alliance deal. Agreements involving equipment & devices
companies are experiencing the greatest current growth rates.
Why do companies engage in strategic alliances and joint ventures? The use of strategic alliances
and joint ventures by integrated pharmaceutical companies is driven by three key corporate
objectives: plugging the gaps in pipeline resulting from declining R&D productivity, acquiring
technologies and expertise through risk and cost sharing agreements, and reaching critical mass in
sales and marketing within and across markets.
Examples of licensing agreements driven by a desire to plug the R&D productivity gap include:
BMS’s USD 2 billion agreement with ImClone in 2001 for the cancer treatment Erbitux, Eli Lilly’s
USD 75 million agreement with ISIS in 2001 for the non-small cell lung cancer treatment ISIS-3521
and Schering AG’s USD 60 million agreement with LeukoSite and Ilex Oncology in 1999 for the
chronic lymphocytic leukemia treatment Campath.
Examples of licensing agreements driven by a desire to access new technologies and expertise
include: Aventis’s USD 450 million agreement with Millennium in 2000 for the discovery and
development of small molecules for inflammation, Novartis’s USD 815 million agreement with
Vertex in 2000 to discover and develop kinase targeted drug candidates, and Bayer’s USD 1,340
million agreement with CuraGen in 2000 to discover and codevelop small molecules for obesity
and diabetes.
Examples of licensing agreements driven by a desire to build critical mass include Pfizer’s copromotion
agreement with Searle (now Pharmacia) for Celebrex, Pfizer’s co-promotion agreement
with Warner-Lambert (now acquired by Pfizer) for Lipitor, and Takeda’s ongoing joint venture with
Abbott and TAP for the development and marketing of products in the US.
Biotechnology and drug delivery companies engage in strategic alliances and joint ventures to
achieve three key corporate objectives: generating financial funding to support precommercialization
development and growth, acquiring experience in development and marketing,
and achieving critical mass within and across R&D and sales and marketing.
Examples of licensing agreements driven by a desire to generate financial returns include:
Exelixis’s USD 34 million agreement with Bristol-Myers Squibb in 2001 for the discovery and
validation of tumor suppressor gene targets for cancer; Triangle Pharmaceuticals USD 335 million
agreement with Abbott in 2000 for the promotion of six antiviral compounds, and Human Genome
Science’s landmark USD 125 million agreement with SmithKline in 1993 for gene sequencing
technologies.
Examples of licensing agreements driven by a desire to access development and marketing
experience include: Millennium’s USD 250 million agreement with Abbott in 2001 for the codevelopment
and co-commercialization of metabolic treatments, OSI’s USD 95 million agreement
with Genentech/Roche in 2000 for the codevelopment and co-commercialization of cancer
treatment OSI-774, and CV Therapeutics USD 15 million agreement with Innovex in 1999 for the
commercialization of Ranolazine. Examples of licensing agreements driven by a desire to build
critical mass include: MedImmune’s USD 65 million agreement with Genaera for IL-9 inhibitor
136

esearch for the treatment of asthma, Abgenix’s potential USD 250 million agreement with
CuraGen in 2000 for Xenomouse technology targets, and Vertex’s USD 95 million agreement with
Serono in 2000 for caspase inhibitors research.
Market access issues
Market access for the development of monoclonal antibodies is restricted to the extent that
commercial activities in this area have high capital requirements for research and development. In
addition, there are complex regulatory hurdles to consider. Developing monoclonal antibodies for
therapeutic applications faces unique regulatory challenges characteristic to the production of
recombinant proteins. In the US, the Food and Drug Administration (FDA; htpp://www.fda.gov), and
in the EU, the European Medicines Evaluation Agency (EMEA; http://www.emea.eu.int), are
charged with overseeing the approval of new medicines. In addition, a high degree of
technological infrastructure and skilled personnel is required. The set up costs for a company
seeking to develop and commercialize monoclonal antibodies or other protein drugs parallel
closely the drug development cycle. This coupled with a rapidly changing technological life cycle
and the necessity of high intellectual property support makes this area a challenge. These
considerations are discussed in the following sections.
Regulatory issues associated with the selected product sub-area
The FDA is comprised of eight divisions and has a variety of responsibilities ranging from ensuring
food safety to reviewing new drug therapies and medical devices. In order to accomplish these
tasks, the FDA employs some 9,988 full-time staff members. The Figure below outlines the FDA’s
organizational chart. Of the eight divisions, both the Center for Biologic Evaluation and Research
(CBER) and the Center for Drug Evaluation and Research (CDER) focus on the review of medical
therapeutics.
Figure. 24. FDA Organizational Chart
Source: FDA
Monoclonal antibodies fall under the purview of the Center for Biologics Evaluation and Research
(CBER). Prior to the appointment of the current commissioner, Dr. McClellan, acting commissioner
Lester Crawford announced that the review of most biologic therapeutics would move from CBER
to CDER. This announcement, made in early September 2002, was done to ensure consistency in
the manner of review across both biologics and small molecule therapies.
The shift from CBER to CDER will necessitate the reallocation of resources and will likely be
disruptive, which is evidenced by the recent increase in turnover at CBER. The departure of the
head of CBER, Kathryn Zoon, in December as well as that of Jay Siegel, the director of CBER’s
Office of Therapeutics Research and Review, are two prominent examples. In addition, the FDA
announced in early January 2003 that it will transfer USD 32.8 million from the fiscal 2003 budget
137

of CBER to CDER. In the meantime, Dr. McClellan has appointed Jesse Goodman as the new
director of CBER. CBER will continue to oversee the approval process for vaccines, tissue-based
therapies, gene therapy, blood products, and xenotransplantation. Products that will transition over
to CDER include therapeutic proteins, monoclonal antibodies, and cell growth factors.
In general the approval of monoclonal antibody therapeutic drugs are subject to the same trends
as for other drugs.
Of note, since the passage of the Prescription Drug User Fee Act (PDUFA) in 1992, sponsors have
submitted fees along with NDAs and BLAs, which are used to add personnel to the FDA as well as
cover additional costs associated with the review of drug applications. Both the revenues received
under PDUFA and the expenses that these fees cover have increased greatly over the past
decade. More specifically, revenues have grown to over USD 139 million, which represents a
CAGR of 22% since 1993.
These filing fees have largely covered any direct and indirect costs associated with the review
process for drug applications. Not surprisingly, the compensation of review personnel has
accounted for the most prominent component of such costs and has grown at a CAGR of 66%
since 1993 to USD 107 million.
Since 1993, costs for CDER have exceeded those of CBER, which is likely because of the higher
volume of applications reviewed. The costs incurred by CDER will continue to outpace those of
CBER because of the shift of biologics review underway. The total cost of reviewing drug
applications, with the majority being from both CBER and CDER, is increasingly covered by
revenues generated by PDUFA.
In the European Union, pharmaceutical regulation was an early priority. The Community came into
being in 1957 and the first pharmaceutical directive appeared in 1965.
That first directive, identified as 65/65/EEC, remains the cornerstone of the legislation governing
the licensing of medicinal products for sale in the European Union. This directive has been
amended and updated, as have other early directives, to take account of advances in
pharmaceutical technology, which have introduced types of products, and much else undreamt of
by the first legislators.
The title of 65/65/EEC: “On the approximation of provisions laid down by law, regulation or
administrative action relating to medicinal products”, gives a good idea of what EU directives seek
to achieve. The directives lay down a set of principles, as firm guidelines for the individual Member
States (MS) in formulating their own laws. They usually set a timetable for completion of the
harmonized legislative process. Therefore, within a few years of the publication of 65/65/EEC,
each MS had in place its own set of laws regulating medicinal products.
The EU also passes laws that are immediately binding on all MS, which are called Regulations.
This usually occurs when the topic is considered to merit more urgency and tighter conformity. The
total body of EU pharmaceutical legislation, including both directives and regulations, is published
as Volume I of a nine-volume set entitled: “The rules governing medicinal products in the European
Union” (http://pharmacos.eudra.org/F2/eudralex/index.htm).
The body of laws in this field embraces every aspect of the discovery, production, supply and
marketing of pharmaceutical products. Most of the measures have to do with ensuring that
products meet stringent minimum standards of quality, safety and efficacy in order to be eligible for
138

sale in the EU. These are the only criteria permitted when medicinal products are assessed; it is
not, for example, legitimate for a MS to insist that a product be manufactured in its territory, as a
condition of granting a license under the EU rules.
The EU regulators, advised by scientists from across the Union, have determined, in considerable
detail, what measures should be taken to demonstrate the quality, safety and efficacy of a
medicinal product. The scope, design and execution of animal and human studies, in particular,
have been codified so that there is little ground for uncertainty as to what evidence the regulators
will want to see. The body of supporting evidence makes up a huge document known as the
application dossier. The essential elements of the dossier are described in The Application Dossier
chapter, which also includes notes on a new form of the dossier, now in the process of being
introduced, called the Common Technical Document. This will be acceptable for marketing
applications for medicinal products in the USA and Japan as well as in Europe.
There are two main processes by which an applicant company can seek to obtain a marketing
authorization for a medicinal product in the EU. They are the centralized and decentralized (or
mutual recognition) procedures. The centralized procedure is a pan European process carried out
by an expert group of scientists representing all the relevant disciplines and drawn from the whole
of the EU. This group, the Committee for Pharmaceutical Medicinal Products (CPMP), decides
whether the product does or does not merit a marketing authorization, and their recommendation,
once ratified by the Commission, is binding on all countries in the Union. This procedure is
obligatory for biotechnology products and optional for other novel products. Monoclonal antibodies
fall under this process.
The mutual recognition process does not involve the EMEA (unless arbitration is needed). The
applicant submits his/her product dossier to the regulatory authority of one Member State and
nominates a number of others – which may be any number from one to 14 – in which he or she
would also like to market the product. The MS to which the dossier has been submitted goes
through an evaluation process resulting in a recommendation to approve, or otherwise, the product
application. The other nominated MS are then required to concur with this decision, unless they
have serious safety concerns, in which case the application may, eventually, reach the EMEA for
arbitration.
Marketing authorizations are valid for five years and the company must apply for a renewal,
following a set procedure.
Types of technology platforms used in production and commercialization of the selected product
sub-area
The value of the global pharmaceutical market was over $380 billion in 2001 and continues to grow
at over 10% per annually. Thus pharmaceutical and biotechnology companies are under everincreasing
pressures to produce a steady stream of high quality, innovative, well-differentiated lead
compounds to supersede older drugs and offer efficacious treatments that eclipse current
pharmacotherapies.
Research and development of novel ethical drugs is crucial to the long-term welfare of
multinational pharmaceutical companies, and their continued success hinges on the rolling out of
new products that are expected to recoup heavy R&D investment often exceeding $500 million per
candidate molecule. Traditionally, less than 1% of 5,000 discovery compounds in R&D at any one
time will make it to clinical trials and then only one candidate makes it to market, on average 15
years after discovery. Therefore, the rapid identification and selection of drug targets and
139

accelerated lead development is critical in the race to become first-to-market during the countdown
of a patent’s lifespan. By reducing the drug discovery and development timeline, companies
launching a novel product will not only gain significant first-to-market advantages, but also
prolonged periods of market exclusivity.
In a drive to improve productivity and to sustain market share, drug firms have, over the past
decade, been obliged to invest billions of dollars in innovative technologies that are able to
accelerate the drug discovery and development process. These technologies constitute drug
discovery and development platforms. Applications of these platforms range from target
identification and validation to three-dimensional structural chemistry modeling, virtual screening
and clinical trials.
While it involves production of glycosylated immunoglobulins, or fragments thereof, with defined
specificity against an antigen, the development of monoclonal antibodies may not appear to require
use of these platforms. Identification of the antigen target and its role in disease, however,
necessitates sophisticated tools that employ these very platforms. Thus the utilization of
innovative technologies is necessary to accelerate drug discovery and development.
Technological platforms are best deployed in breaking the bottlenecks arising in discovery and
development. Bottlenecks in the target identification and validation phases have restricted aspects
of the discovery process to the development of monoclonal antibodies. With the introduction of
sophisticated drug discovery technologies over the past few years the bottlenecks have shifted
toward bioactivity, assay development and medicinal chemistry optimization. Genomics,
proteomics, and pharmacogenomic R&D platforms are leading to identification of a plethora of
novel drug targets. These R&D platforms are enabled by technologies such as combinatorial
chemistry screening, rational drug design, structural modeling, bioinformatics, and
cheminformatics.
Development of monoclonal antibodies is undergoing a major transition to a more integrated
process combining biology, chemistry, with information science. Drivers of this shift include the
Human Genome Project, innovation in analytical technologies (e.g. novel assays, in silico
analysis), increased use of automation, new high technology software applications (e.g.
bioinformatics, cheminformatics, molecular modeling), and high volume, high speed, combinatorial
chemistry screening technologies (e.g. ultra-high throughput screening systems).
Advancements in Information Technology (IT) are critical to accelerating drug discovery and
development by improving productivity and efficiency in the drug discovery process. Bioinformatics
and cheminformatics will become increasingly important knowledge management tools to speed
drug discovery over the next decade. Bioinformatics currently offers significant opportunity for
increasing productivity and efficiency d is perceived to have a relatively high impact on increasing
flow-through due to its data and project management capabilities.
Demand for ultra-HTS technologies is expected to increase over the next five years following
publication of the complete map of the human genome, and genetic mapping of other organisms
that offer potential therapeutic targets. By 2005, up to 1,000,000 or more compounds may be
screened per day. In the highly competitive environment, drug discovery companies and R&D
divisions of multinationals will be required to upgrade their HTS systems and technologies to more
efficient and cost-effective solutions.
New technology and information platforms are now enabling companies to rapidly identify higher
numbers of novel compounds based on proprietary and enhanced compound library platforms,
140

targets identified from genome data sequences and validated by comparative human and animal
screens, and from new sophisticated technologies. For example, there are a growing number of
information sources to facilitate drug discovery,
Role and significance of intellectual property considerations for the selected product sub-area
Intellectual property protection is the key factor for economic growth and advancement in the
biotechnology sector. Patents add value to laboratory discoveries and in doing so provide
incentives for private sector investment into biotechnology development.
Intellectual property rights have existed, in one or another form, for centuries. Traditionally, they
were granted not as a right but as a privilege, to promote industry and secure its benefits for the
citizenry by rewarding creativity, originality and inventiveness. In 1989, the OECD concluded that,
"society derives satisfactory compensation for the rights it temporarily confers on certain individuals
since this exclusivity generates benefits, especially in the long run, that adequately offset any
economic disadvantages or risks which 'exclusive rights' might possibly entail." Among the
arguments generally advanced in favor of intellectual property rights are those that say that they
encourage and safeguard intellectual and artistic creation. It is also argued that they disseminate
new ideas and technologies quickly and widely; promote investment; provide consumers with the
results of creation and investment; and provide increased opportunities for the distribution of these
effects across countries in a manner proportionate to national levels of economic and industrial
development.
The Biodiversity Convention defines "biotechnology" in the largest, most all-encompassing manner
possible, to mean "any technological application that uses biological systems, living organisms, or
derivatives thereof, to make or modify products or processes for specific use." In general, the term
is used to refer to advanced biotechnologies, in particular the use of recombinant DNA
technologies to produce organisms, microorganisms, cells and cell lines, substances, and
compositions.
A traditional underlying concept of an intellectual property right is that a person should be able to
control, as well as reap the benefit of, the use of knowledge. Different types of intellectual property
rights confer different levels of control: for example, certain copyrighted works can be used on
payment of a fee, without the need to actually contact the copyright owner and obtain a license.
Intellectual property rights are distinguished from physical property rights. In the context of genetic
resources and biotechnology, ownership of the physical resource such a plant or animal is
governed by property laws, while ownership of the genetic information contained in the plant or
animal is governed by intellectual property laws. Seven categories of intellectual property rights
that are recognized are: patents, plant breeders' rights, trade secrets, industrial designs, copyright,
trademarks and appellations of origin.
A patent is a right granted by the government to inventors to exclude others from imitating,
manufacturing, using or selling a product or process for commercial use during a certain period
(usually 17 - 20 years). To obtain patent protection, the subject matter must be new (novelty), nonobvious
to a person skilled in the art (non-obviousness, also known as inventive step in some
jurisdictions), and industrially applicable and useful (utility). Finally, there must be complete and
sufficient disclosure of the invention to the public, once the patent is granted.
The scope of a patent is determined by the patent claim. Patent rights are territorial, limited to the
countries where the patent has been awarded. Most nations, including developing nations, have
141

legislation for the grant and protection of patent rights. Patent legislation typically provides for
limited unauthorized use of the patented subject matter, including notably a research or study
exemption. This exemption allows others to study the protected subject matter without either
reproducing or multiplying it for commercial purposes.
Until recently, the major international agreement that related to patents was the Paris Convention
for the Protection of Industrial Property. This Convention, originally signed in 1883, established the
right to equal protection of industrial property rights under the laws of member countries for
nationals and residents of member countries. Over 100 countries are members of this Convention.
The major international agreement that impacts patent protection is the GATT/WTO Agreement,
the TRIPs chapter (Trade-Related Aspects of Intellectual Property). The TRIPs Agreement
establishes certain minimum standards for intellectual property protection and enforcement in
signatory states. It requires national treatment in that each member state should protect nationals
of other parties by granting them the rights contained in the Agreement. Finally, it extends "most
favored nation" treatment to intellectual property rights, namely by requiring that any rights
conferred by a member state on their own nationals, or nationals of any other member state, must
be granted to nationals of all other member states.
Historically, "the non-patentability of biological matter seemed a topic beyond discussion, or, in any
case of limited importance.” This changed with the grant in 1873 of a patent to Louis Pasteur on
certain yeast strains that were "free from organic germs." The laws on patentability of
biotechnological inventions have developed at a rapid rate only in the last twenty odd years, since
the 1980 grant of a patent in the United States to Chakrabarty, the inventor of a geneticallyengineered
bacteria to clean oil spills.
While considerable differences of opinion and law exist over patentability of certain
biotechnological inventions (e.g., life forms such as the "Harvard Onco-Mouse" or Agracetus'
transgenic cotton), principles such as the fact that an invention consists of, is based on, or employs
living matter, is not a ground to exclude protection.
The TRIPs agreement, recognizing the controversy surrounding these issues, set minimal
standards pending further negotiations. Specifically, it allows member states to exclude from
patentability: (1) diagnostic, therapeutic and surgical methods for the treatment of humans or
animals, and (2) plants and animals other than microorganisms, and essentially biological
processes for the production of plants or animals other than non-biological and microbiological
processes.
Some of the aspects of traditional patent law that are relevant to the issues of biotechnology and
also to the implementation of the relevant provisions of the Biodiversity Convention, maintain that
products of nature are not patentable. Thus, some proposals to create a new "genetic resource
right" (GRR), akin to intellectual property rights in respect of rare and valuable species of plants, to
encourage their conservation, would mark a break with this traditional approach, with potentially
significant ramifications for the whole biotechnology community.
The novelty requirement has presented a number of difficulties to practitioners in the biotechnology
field, as well as to groups seeking to conceptualize patent-type rights for local and indigenous
knowledge. For biotechnology practitioners, issues have arisen relating to purified or synthetically
produced biological substances, such as vitamins and hormones: was the patent applicant the
"first" to reduce the invention to practice, or nature?
142

For local and indigenous groups, the novelty requirement has been viewed as an insurmountable
barrier to obtaining patent protection, since the knowledge to be protected has been in existence in
the community for years, and often generations.
The utility requirement is often difficult to satisfy: identification, isolation and characterization of
genes can significantly precede knowledge of its utility. Similarly this requirement presents
conceptual difficulties in seeking to apply traditional patent rights to the process of identifying and
conserving rare species, whose utility is suspected but not yet known.
The disclosure requirement presented problems in the past, in that traditionally disclosure had to
define the way the invention was produced or built. The original means of production of a
genetically-altered substance is however not relevant to the public who wishes to reproduce the
substance; often a repetition of the inventor's process in fact will not reproduce the substance.
However since such substances are self-reproducing, what is crucial is to obtain access to a
specimen. This has been resolved through the international practice of deposit of biological
materials.
Trade secret protection can be claimed with respect to virtually any information that is kept secret
and that gives the proprietor a competitive advantage. The United States Restatement (Second) of
Torts and the Uniform Trade Secrets Act definitions state that companies may protect the
sequencing of data bases, chemical formulae, hybridization conditions, cell lines, microbes used in
fermentation, new processes, the apparatus used in the processes, and test results from clinical
drug tests. The only novelty required is that the information not be generally known in the industry,
so that it would provide a competitive advantage. Trade secret protection can thus be claimed for
inventions that would not satisfy the patentability test.
The crucial requirement is that of secrecy: reasonable precautions must be taken to protect the
information. Once a trade secret is disclosed, the protection is lost, unless it can be shown that the
secret was improperly obtained. Thus, this protection runs counter to one underlying purpose of
patent laws, which is to grant liberal protection for a finite term, in exchange for full disclosure to
the public.
Trade secret protection is provided in some jurisdictions as part of contract law (e.g., Canada); in
others, under laws that protect secrets as legal property (e.g., the United States); and in others, as
an aspect of ethical business practices (e.g., Germany). In the case of monoclonal antibodies
proprietary nature of this technology is a mixture of intellectual property and technical know-how,
developed over a number of years.
Table 56 found in in Appendix D of this report shows some of the most enabling pieces of
intellectual property for monoclonal antibodies in the US (http://www.uspto.gov). All this intellectual
property has similar coverage in other jurisdictions.
Sample approximate costs for setting up firms to commercialize the selected product subarea
The set up costs for a company seeking to develop and commercialize monoclonal antibodies or
other protein drugs parallel closely the drug development cycle.
Figure 25 below show the typical costs of Research and development for drugs such as
monoclonal antibodies. In the case of monoclonal antibodies, the basic research phase may last
143

2.5 years and consume between USD 1 million and USD 10 million depending on the specific
application. The basic research phase may involve identifying, characterizing, purifying and
validating appropriate antigen targets for antibody development. The discovery phase may last 3
years and consume between USD 3 million and USD 15 million. The phase may involve the
creation of hybridomas or use of other platform for the creation of the antibody, selection of the
appropriate antibody, characterization of physical and biological properties, preliminary testing in
cellular assays, and defining initial manufacturing parameters. The preclinical phase may last for
one year and cost about USD 2-6 million for a single product. For the most part, this phase tests
the antibody in in vivo and ex vivo models of the targeted indication. This phase intends to provide
regulatory evidence of the drug’s absorption, distribution, metabolism, excretion and toxicology.
Phase I may last 1.5 years depending on the indication. This phase test the safety properties of
the drug in a cohort of healthy volunteers. Direct and indirect costs may amount to USD 3-5
million. Phase II includes a series of clinical studies in a larger cohort of patients with disease to
determine a variety of ADMET properties and determine preliminary evidence of efficacy. This
phase may last 2 years and cost in excess of USD 20 million depending on the indication. Phase
III tests the drug against placebo and against the standard-of-care in large cohorts of patients in
randomized, double blinded trials. This phase may last 2.5 years and cost in excess of USD 50
million depending on the indication. At the conclusion of Phase III studies, a BLA or NDA for
registration is submitted to the appropriate regulatory authorities. Depending on the regulatory
status of the drug (e.g., orphan, accelerated approval), this phase may take 1.5 years and cost
USD 3-5 million.
Figure 25. Costs of R&D
Source: UBS Warburg
Another way of assessing the start up costs of a venture seeking to develop and commercialize
monoclonal antibodies involves the milestone-triggered private equity investment. Usually,
biotechnology ventures are seeded by a variety of mechanisms such as “angel” investors
(individuals with a high net worth), “friends and family,” governmental grants (SBIRs). The level of
investment is in the order of USD 0.3-5 million. Once it is able to demonstrate scientific proof-ofprinciple
for the technology and product, the nascent venture may seek Series A financing. Series
A financing involves the formation of a syndicate of private equity investors willing to develop the
technology. The formation of a syndicate minimized each member’s individual exposure to the
risks associated with the venture. Series A financing usually amount to USD 5-30 million and is
capitalized and valued to allow the company to achieve the next milestone (usually proof-of-
144

concept in an animal model or generation of minimal preclinical data). Thereafter, the venture may
seek successive rounds of financing through Series, B, C, D, etc. The amounts of investment
depend on the specific indication being addressed, and the quality of the company and its
management. Once it reaches a commercial stage, the company may seek financing in the public
markets by an Initial Public Offering of stock of through commercial investors by leveraging debt.
Regardless, the manufacture of biopharmaceuticals is an extremely complex process, and
monoclonal antibodies are a proxy for the industry. The key issue in assessing the costs of
starting a venture based on developing and commercializing monoclonal antibodies is
manufacturing. The state-of-the-art methodology for production of monoclonal antibodies,
mammalian cell culture, is constrained massively in capacity globally. Long lead times, up to four
years to build and validate a manufacturing plant, and the physical constraints on the size of a
plant worth building plus the growing number of monoclonal antibody drugs coming through the
clinic exacerbate the issue.
Two methodologies for producing Monoclonal antibody drugs offer distinct time advantages for
validation of targets. These are phage display and selective lymphocyte activation method (SLAM).
Both generate antibodies, or fragments thereof, in days rather than weeks (as required by other
methodologies). Phage display offers a means of testing monoclonal antibody affinity for its target
but not functionality while SLAM permits testing both affinity and functionality.
The economic costs of licensing access to phage display are somewhat higher than those to SLAM
but the owner of SLAM, Abgenix (via the acquisition of Immgenix), has restricted access to itself
and Celltech.
Monoclonal antibodies are not just ‘blockers’ or pharmacological antagonists. Instead they have
the potential to be agonists (triggering a measurable biological response on binding to a receptor),
antagonists (blocking a measurable biological response on binding to a receptor) and vectors for
delivery of drugs to a target population, and they can also be used in a wide variety of indications.
As such, different properties are desirable for different targets. For example, the desirable
properties for a cancer drug target include: wide distribution, sufficiently high level of expression,
binds to tumor, absent from normal tissues, activates complement on Monoclonal antibody binding,
and has limited antigenic modulation. The first two of these properties are desirable in all
monoclonal antibody drug targets. For example, high expression of a widely distributed target on
certain cells but an absence on non-target tissues is clearly desirable in all targets. The other
properties are more specific to cancer drug targets.
A key question for any drug target amenable to monoclonal antibody intervention is cell lysis is
desirable. Cell lysis (via complement activation) is dictated by the heavy chain isotype. Gamma1
heavy chain triggers cell lysis whereas gamma4 does not. Fragments lacking a heavy chain, eg,
Fab, do not trigger cell lysis. If the target is soluble it is not possible to trigger cell lysis and this
issue does not arise. Clearly, a soluble drug target is not suitable in oncology where killing
cancerous cells is the desired endpoint. The ideal oncology target is membrane bound and
enables cell lysis. The desirability of triggering cell lysis needs to be assessed in developing a
monoclonal antibody. If cell lysis is undesirable the appropriate monoclonal antibody needs to be
generated, eg, anti-TNF monoclonal antibody drugs have their effects by binding soluble TNF.
Whether the binding of cell-bound TNF triggering the lysis of these cells is desirable or not is
unknown. Different companies have taken different views on this issue. Enbrel (Immunex),
Remicade (Centocor) and D2E7 (CAT/Abbott) all trigger cell lysis (all contain gamma1 heavy
chains), whereas CDP870 (Celltech/Pharmacia; Fab fragment), Humicade (Celltech; full
145

Monoclonal antibody but gamma4 heavy chain) and rhTBP-1 (Serono; like Enbrel a TNF-Receptor
but unlike Enbrel, it is not fused to a monoclonal antibody Fc) do not.
This represents further that monoclonal antibody companies are fundamentally drug companies
and should be assessed on their ability to produce drugs.
High demand for bio-manufacturing in the near-term is likely to be supported by a significant
pipeline of protein drugs in development, with monoclonal antibodies representing the majority of
products. R&D Focus estimates that >500 Monoclonal antibodies are currently in development,
with approximately 300 in the pre-clinical stage.
Lonza estimates that the mammalian cell culture contract manufacturing market is growing at 20%
annually and is forecast to be ~400% capacity constrained by 2006. The microbial cell culture
market is anticipated to grow at 15% annually with an estimated 200% capacity shortfall by 2006.
Capacity is forecast to treble by 2006, growing from ~500,000 liters to ~1.5 million liters. An
alternative source (In Vivo, July/August 2002) forecasts capacity in 2006 to be ~1.55 million liters,
with a 20%- 25% capacity shortfall anticipated.
This capacity shortfall could potentially be addressed by improving technologies and,
subsequently, improving yields. Lonza estimated that the average yield per liter is up to 500 mg
from 200 mg just 5 years ago, and has achieved yields of ~ 2 g per liter in the manufacture of an
antibody. Improving yields, however, are not a significant issue for Phase III, filed and marketed
drugs. Regulatory constraints make it difficult to alter the manufacturing processes of established
products as the risk of altering the make-up of the products, and consequently their biological
properties, is significant.
While they are the most mature manufacturing process for biopharmaceuticals in general, microbial
systems can only produce antibody fragments such as F(ab)s and smaller proteins (e.g. insulin)
and lack the capacity to make complex proteins such as monoclonal antibodies. Relatively, large
proteins have a certain pattern of sugars attached to the surface and this constrains the use of
microbial systems in their production. Bacterial systems (e.g. Escherichia coli) cannot synthesize
complex glycoproteins in a functional form. Yeast systems (e.g. Pichia pastoris) can, but do not
glycosylate the protein appropriately.
Regardless of the system used to synthesize them, proteins such as monoclonal antibodies must
subsequently be isolated. Downstream processing and associated costs are the same for most
antibodies due to their similar structures. The regulatory process is delineated for most biological
proteins. Indeed, the US FDA and the EMEA have specific requirements for monoclonal antibodies
that simplify the process. The FDA recently introduced a “specified biologics” concept to replace
and extend its previous principles for the approval of monoclonal antibodies.
The costs of protein drug production remain variable and are influenced by a number of factors that
include the following: yield, system of production, scale of production, and mammalian-based cell
culture systems.
The cost of manufacturing monoclonal antibodies in mammalian cell culture and the implications
for drug pricing may limit the use of such drugs to the severe end of disease. This is for the
following reasons: high start-up costs, commercial scale downstream processing costs (around
50% of total manufacturing costs), long lead-time (2-4 years), capacity limitations, high production
costs (USD 500-1,000 per gram), and limited third-party payer reimbursement.
146

A number of different cell types can be used in the production of monoclonal antibodies and other
protein drugs. Of note, the cell line has to be stable, i.e. retain the genetic information for the
protein and produce the drug at a consistent yield. The system used is dictated by the amount of
protein required. Chinese Hamster Ovary (CHO) cells are typically used.
The desired yield is dictated by the stage of drug development. For small-scale production, e.g., for
phase I/II clinical trials, the relative cost per gram is much higher than for larger scale, regardless of
system used. Larger-scale production is invariably carried out in fermentation vessels. Proteins
produced in mammalian cell culture cost substantially more than traditional small molecule drugs,
regardless of scale. This is a factor of the complex nature of the production process. However,
there are economies of scale as shown in Figure 26 below.
Figure 26. Mammalian Cell-Based Systems for Production of Antibodies
Source: Lonza Group
To date, proteins have been produced routinely in scales of up to 5,000 liters. For use of antibody
drugs in chronic indications, 10,000, 20,000 and even 40,000 liter fermenters are being developed.
Growing mammalian cells on such a scale is very demanding, however. Mammalian cells will only
grow well in sufficiently oxygenated medium. Oxygenation of the medium generates substantial
turbulence and, typically, relatively fragile mammalian cells do not survive such rough treatment
easily. In addition, the larger the vessel, the greater the pressure at the bottom of the vessel.
Mammalian cells are not always tough enough to withstand the pressure at the bottom of the
fermentation vessel. Lonza has developed perfusion reactors that allow the continuous addition of
culture medium to the reactor. The cells are retained in the reactor whilst the culture fluid is
continuously removed. The company estimates that a single 1,500 liter perfusion reactor yields a
throughput similar to a 20,00 liter batch reactor.
Mammalian cell culture in this scale require large amounts of fetal calf serum (FCS). Currently,
bovine spongiform encephalopathy-free FCS originates in New Zealand but this supply source is
likely limited if demand rises substantially when proteins become a sufficiently big class of drugs.
Alternative means of growing mammalian cells in defined media without FCS have been developed
by companies such as Lonza for use in its NS0 (mouse) cell-line-based expression system.
As shown on Figure 27 below, typically, it takes from 3 to 5 years to set up a commercial scale
protein production facility on a green-field site. This times-scale can be shortened somewhat if
utilizing brown-field sites where some facilities are already in place.
147

Figure 27. Time-Scale for Installation of Monoclonal Antibody Manufacturing Plant
Source: Lonza Group
The costs of setting up such a facility can be substantial, particularly for large-scale commercial
manufacture. Estimates vary from USD 200 million to USD 500 million. Running costs on a
commercial scale remain dominated by personnel costs. Services costs increase as a percentage
of the overall running costs as scale increases, demonstrating the increasing demand for utilities,
etc, as scale increases.
Figure 28. Set-Up Costs for Antibody Manufacturing Plant by Phase of Development
Source: Lonza Group
148

Currently much concern exists over the capacity to manufacture existing and new
biopharmaceuticals produced in mammalian cell culture systems. For example, Amgen (Immunex)
needed to build a new plant on line to manufacture the rheumatoid arthritis drug Enbrel (a receptor
immunoglobulin fusion protein). Indeed, the company had to limit supply of Enbrel until it built its
new capacity on stream..
The only reliable independent quantitative information on the demand for manufacturing capacity
comes from the planned expansion of capacity by contract manufacturers. These organizations are
likely to have a good feel for demand and increases in manufacturing contracts can be taken as a
reasonable indication of the need for more manufacturing capacity.
Figure 29 below indicates that in-house capacity will more than double by 2006, although it is
unclear how much will be made available to the open market place.
Figure 29. Mammalian Cell Culture Manufacturing Capacity
Source: Lonza Group
The demand for new capacity originates from the development and launch of new protein drugs for
both acute and chronic indications and from increasing demand for existing drugs. The resultant
gap in capacity and the high cost of mammalian cell culture have created a need for alternative
systems for protein manufacturing.
Figure 30 below shows the characteristics of different production systems for recombinant
therapeutic proteins.
149

Figure 30. Production Systems for Therapeutic Proteins
Source: Lonza Group
Transgenic systems are not yet used in mainstream production but do have the potential to
dominate biopharmaceutical manufacture in the future. Genzyme Transgenics uses goats to
produce a number of therapeutic proteins, including monoclonal antibodies such as Humira
(Abbott/CAT). The monoclonal antibody is secreted in milk and yields are reportedly extremely
high, in the order of 10 g/liter. Downstream processing costs are low as Genzyme has developed a
proprietary one-step purification of this type of drug. Potentially, production costs could be
approximately USD 5-10/gram.
Transgenic mammals seem to be an attractive alternative method of manufacture. The major risks
to transgenic protein manufacturing are regulatory. Regulatory agencies are concerned with risks
of infection with transmissible spongiform encephalopathies. For example, regulators are so
concerned about such risks that blood from countries where BSE has been an issue cannot be
exported. In such a regulatory environment, concerns over drugs produced in transgenic mammals
are likely to be substantial and this could substantially delay the commercial use of such a
procedure. Therefore, the regulatory hurdles for the first monoclonal antibodies produced in
transgenic animals to reach the market are likely to be onerous. In addition, any monoclonal
antibody produced by such a system would most likely be regarded as a new drug by the FDA and
would have to complete the entire clinical trial process again. Most significantly, transgenic protein
production has a long lead-time as a consequence of the length of time that it takes to rear a herd
of lactating goats (or other animal).
A UK company, TransXenogen has a somewhat different transgenic protein production system,
based on the use of egg whites. This technology has certain advantages in that chickens mature
and produce eggs more quickly than transgenic goats and flock sizes are larger. A potential
limitation to this technology may be the complexity and cost of downstream processing.
Celltech has a proprietary system for manufacturing F(ab) fragments in microbial systems and
subsequently linking a molecule of polyethylene glycol (PEG) molecule to the F(ab) in order to
increase its half-life. This technology allows manufacture of these fragments using a microbial
system on a large scale at a fraction of the cost of full monoclonal antibodies in mammalian cell
culture. The major limitation of microbial protein manufacture is the inability to produce whole
150

monoclonal antibodies. This limits the potential use of this technology to those areas where whole
monoclonal antibodies may not be necessary. Another limitation relates to cost. The economies of
scale that Celltech has discussed in presenting data on its novel manufacturing technology only
become commercially relevant when substantial amounts of monoclonal antibodies are needed.
Hence, its real benefit lies in the manufacture of Monoclonal antibodies for chronic therapy in larger
markets.
Plants have not, to date, proved to be successful as monoclonal antibodies manufacturing entities
due, in large part, to downstream processing issues. In theory eggs offer a good compromise.
There are unlikely to be transmissible spongiformencephalopathy-related issues with the regulators
and full monoclonal antibodies can be produced. The technology remains largely unproven,
particularly at full commercial manufacturing scale, however.
In summary, the demand for access to protein drug manufacturing capacity is likely to remain high,
particularly as more products come to market for the treatment of chronic disorders. This demand
is reflected in forecasted changes in capacity despite the high levels of time and investment
required.
Identification of examples of principal producers and distributors for the selected product
sub-area in addition to the firms profiled
Five companies highlight different characteristics on organizations involved in the development,
manufacture and commercialization of monoclonal antibodies.
Cambridge Antibody Technology (CAT, http://www.cambridgeantibody.com)
CAT’s business model is based on phage display technology for the production of fully human
monoclonal antibodies. The company generates its revenues via a combination of product
development deals, research collaborations and technology licenses. CAT is currently involved in
deals with 16 different pharmaceutical and biotechnology companies. These deals afford cash
flow to fund CTA’s R&D programs and potential commercial opportunities. These opportunities are
the product of CAT’s proprietary pipeline of human monoclonal antibodies. At present, CAT has
six monoclonals in development.
Access to CAT’s phage display technologies is available to partners in three different forms each
tailored to individual needs: technology license (non-exclusive, allows technology access, research
collaboration (technology development), and product development (develop monoclonal antibodies
against known targets).
CAT’s development pipeline, which currently totals six products, covers a wide range of disease
areas including auto-immune diseases, inflammatory disorders and allergic disorders. The lead
compound, D2E7, is currently in Phase III trials for the treatment of rheumatoid arthritis (RA). The
product, licensed to Abbott, neutralizes Tumour Necrosis Factor Alpha, which is primarily
responsible for the inflammation and subsequent joint damage associated with RA. If launched in
2003, D2E7 will be the first fully human monoclonal antibody to reach the market. CAT also has
two products in Phase II trials (CAT-152 and J695), two products in Phase I trials (CAT-192 and
CAT-213) and one product in pre-clinical development (Anti-BlyS).
CAT has access to a substantial number of targets through a combination of licensing and product
development deals. CAT has partnered the largest number of deals with Elan, but the collaboration
is in the field of neurological disorders, a particularly complex area of science associated with high
technical and commercial risk.
151

CAT has a strong intellectual property position in phage display with exclusive access to three key
patents: Griffiths, McCafferty and Winter II. Whilst various parties are challenging CAT in a number
of territories, CAT is free to practice regardless of the ultimate outcome of these challenges. Any
outcome, whether positive or negative, is likely to generate many appeals.
Current industry data suggests that 5% of all monoclonal antibodies reaching the market by 2010
will be fully human and generated via phage display. A best case scenario for CAT, bearing in
mind its strong intellectual property estate, is that the company will be the recipient of a low singledigit
royalty on all phage display generated monoclonal antibodies.
Celltech (http://www.celltechgroup.com)
With marketed products and NCE development capability, Celltech is more than an antibody
business. Celltech is the only company among the European players with a monoclonal antibodies
drug on the market, Mylotarg (sold by AHP for acute myeloid leukemia). Celltech enjoys small
royalties on the sales of seven currently marketed drugs from the Boss patent. Monoclonal
antibodies technologies are an important part of Celltech’s business, however. The company has
access to some potentially important technologies particularly proprietary microbial F(ab) fragment
manufacturing and SLAM technology in-licensed from Abgenix.
With Mylotarg on the market and a decent pipeline, Celltech appears well placed. Wcelltech has a
functional genomics business (Darwin, acquired as part of the Chiroscience business) but its
capability to generate valid drug targets remains unclear. An osteoporosis target, BEER, is the
most advanced. Beyond that, Celltech acquired the intellectual property to interleukin-1 as a target
in 2000. The company has stated a desire to use its microbial manufacturing technology as a
currency for technology/target acquisition.
The Boss patent, generates a 2% royalty on sales of some seven genetically engineered
monoclonal antibodies drugs, and already brings in excess of £ 20million annually and could
generate revenue of £ 30 million by 2004. The Adair patent has no current licenses, although
Celltech is in dispute with Medimmune over whether Synagis infringes this patent. The rest of the
patent estate relates to Celltech’s proprietary microbial manufacturing technology. Key drugs
produced using this technology include CDP870 (rheumatoid arthritis, Crohn’s disease) and
CDP860 (restenosis)
Crucell (http://www.crucell.com)
Crucell is a biotechnology company that currently operates a hybrid business model, by developing
innovative technology platforms that can generate multiple and varied biopharmaceuticals across a
number of therapeutic areas, including cancer, cardiovascular disease and vaccines for infectious
diseases.
Crucell’s antibody technology platform is MAbstract phage display, and comes from the U-BiSys
franchise of the larger group. Crucell uses its phage antibody display libraries in conjunction with
flow cytometry to select for phages binding to intact cells. An advantage of this procedure is that
antibodies can be obtained against cells that have not been modified by in vitro cell culture. This
procedure allows the isolation of antibodies against very rare cells. Non-selected cells in such
combinations act as subtractor cells that remove phage with unwanted specificities. In addition,
Crucell uses subtraction approaches to select antibodies that bind to a particular conformation or
glycosylation status of a molecule, eg, associated with activation or malignant transformation of a
cell.
152

Crucell has identified eight human antibodies for use in cancer and chronic inflammation. The
focus, like most antibody companies, is on cancer, inflammatory disease and cardiovascular
disease.
Crucell is also working on methodologies that would allow the use of monoclonal antibodies in
vaccination strategies. Antibody fragments are engineered with lipid tails, which act as an anchor
for the antibody fragment in cell membranes, so that they may be used for the vaccination of
cancer patients to eradicate small tumors. These fragments are currently being evaluated in animal
models. Crucell’s Monoclonal antibodies tract technology allows for in-house target identification,
but access to external is key to Crucell’s future business.
Crucell has filed patent applications filed for making antibody libraries and for selection
technologies. Pending patents further include methods for selecting antibodies with improved
affinities and antibodies and target molecules discovered by phage display. Crucell has been
granted non-exclusive licenses to intellectual property rights controlled by Dyax Corporation and
Enzon Inc. In July 2000, Crucell commenced litigation against the Medical Research Council and
Cambridge Antibody Technology, which has an exclusive license to the Winter II patent. This
patent includes 31 claims relating to methods of creating expression libraries and one product
claim relating to expression libraries.
Genmab (http://www.genmab.com)
Genmab has been granted a license to use Medarex’s patented HuMab-Mouse technology
allowing it to create as many antibodies as required over unlimited periods of time. Using this
transgenic mouse technology, Genmab can rapidly create high-affinity fully human antibodies. This
technology avoids the need for the humanization or complicated genetic engineering needed by
certain competitive technologies.
Genmab has two business models within a broader mandate of antibody product development.
One of these models applies to activities with novel targets found primarily in the genomics. The
other applies to development projects on validated targets. Genmab’s products in development
include:
HuMax CD4: Human antibody currently in development for two indications, psoriasis and T-cell
lymphoma. A Phase IIb clinical trial is underway using HuMax-CD4 to treat patients with moderate
to severe psoriasis. In the previous Phase IIa study completed in 2002 a number of psoriasis
patients in the trial experienced long-lasting positive effects from the treatment. Genmab recently
announced it will investigate the use of HuMax-CD4 for use to treat T-cell lymphomas. Genmab
has been given approval from the FDA to start two phase II studies in this indication. Safety data
on over 400 patients up to now shows HuMax-CD4 to be safe and well tolerated.
HuMax-IL15: In development in collaboration with Amgen to treat inflammatory, autoimmune
diseases. In Genmab’s Phase I/II clinical trial involving RA patients over 60% of patients achieved
the industry recognized ACR20 score, which indicates a 20 percent reduction in swelling of the
diseased joints. Twenty-five percent of patients achieved an ACR70, showing a 70 percent
reduction in the effected areas. In this study HuMax-IL15 was shown to be safe and well-tolerated.
HuMax-IL15 is currently in Phase II clinical trials. An in vivo study using a mouse disease model
has demonstrated HuMax-IL15’s potential to also treat psoriasis. HuMax-IL15 is a human antibody
against Interleukin-15, a cytokine molecule involved in the inflammatory cascade at a very early
stage.
153

HuMax-Inflam: Human antibody in development to treat an autoimmune disease. HuMax-Inflam is
being developed in collaboration with Medarex and a Clinical Trial Application has been filed to
begin a Phase I/II trial.
HuMax-CD20: Antibodies in Genmab's HuMax-CD20 program target the CD20 antigen on B-cells.
Initially Genmab will focus on using the antibody for the treatment of non Hodgkin's lymphoma, a
cancer involving B-cells. Other potential indications include Crohn's disease, Wegener's
Granulomatosis, other B-cell lymphomas, including mantle cell lymphoma and autoimmune
diseases such as RA. HuMax-CD20 is in pre-clinical development.
HuMax-EGFr: Human antibody that targets the Epidermal Growth Factor Receptor, a molecule
found in abundance on the surface of many cancer cells. In vivo mouse studies have shown that
HuMax-EGFr is capable of inhibiting tumor growth as well as eradicating certain established
tumors.
HuMax-Cancer: Human antibody currently in pre-clinical development that targets Heparanase I to
interfere with the production of new blood cells into a tumor. HuMax-Cancer has the potential to
treat a broad variety of cancers. HuMax-Cancer is being developed in collaboration with Medarex
and Oxford GlycoSciences.
HuMax-Lymphoma: In development through a second collaboration with Amgen to treat
lymphoma, multiple myeloma and other forms of cancer. HuMax-Lymphoma is a human antibody
currently in pre-clinical development.
HuMax-TAC: An antibody currently in pre-clinical development for use in the treatment of organ
transplant rejection. Other possible indications include graft versus host disease, T-cell leukemia,
Hodgkin’s disease and autoimmune disease.
The company anticipates a number of deals based on the availability of a large number of targets
discovered as a result of work carried out on the genome. In these deals, Genmab expects to
collaborate with a company supplying a target or targets. In return, Genmab will develop an
antibody product against the target using the HuMonoclonal antibodies or Tc Mouse technology.
Through its license to the Medarex’s transgenic mouse technology, Genmab’s patent position is
extremely strong. Medarex secured a European patent on the HuMonoclonal antibodies-Mouse
technology in 1997 which covers technology for making fully human antibodies from transgenic
mice and includes claims covering the methods used to create the transgenic mice, as well as the
cells that produce the human antibodies. The patent also claims methods of using the mice, as well
as processes for the production of the antibodies.
The European patent joins a broad US patent estate covering the transgenic mouse technology.
The US patents cover the technology for making human antibodies using transgenic mice as well
as the transgenic mice themselves and methods of using these mice.
Importantly, Genmab is currently under no litigation battles over its intellectual property position. In
March 1997, GenPharm (now owned by Medarex) entered into a cross-license agreement
concerning its HuMonoclonal antibodies mouse with Xenotech, LP, a group consisting of Abgenix,
Cell Genesys and Japan Tobacco. GenPharm owned the Lonberg patents, which cover the
HuMonoclonal antibodies transgenic mouse.
154

MorphoSys (http://www.morphosys.de)
MorphoSys focuses on combinatorial biology, and the use and application of fully human
antibodies in both research and therapeutic applications. Most of the company’s business is based
on a vast library of human antibodies, known as the Human Combinatorial Antibody Library
(HuCAL). HuCAL, and other MorphoSys technologies such as HuCAL-Fab and HuCAL-EST, are
designed to solve discovery and development problems across the genomics value chain.
MorphoSys is building its business by entering licensing agreements and collaborations with
pharmaceutical companies and other biotechnology companies. The business strategy aims to
make MorphoSys technologies industry standard.
HuCAL is available through two types of commercial agreement: therapeutic antibodies (designed
for users requiring therapeutically active fully human antibodies) and target research (for users who
require research antibodies for target validation or antibodies against expressed sequence tags).
MorphoSys uses fees generated from license agreements to fund its R&D programs. Morphosys’
long-term goal is to secure milestone payments and royalties on products generated from a
proprietary pipeline. MorphoSys is involved in 11 licensing and research collaborations with global
pharmaceutical and biotechnology companies. Most of these deals are therapeutic antibody
agreements that bring up-front cash payments and targets, potential development milestones and
royalties on future product sales. The deals offer tangible benefits in terms of cash flow to fund
R&D but also bring the intangible benefits of technology validation and delivery on the business
model by MorphoSys management. The current business model, based on the technology platform
approach, is technically lower risk, but offers lower rewards, than developing drugs further into the
clinic.
The key to its current business model is MorphoSys does not have freedom to operate under an
umbrella of patent protection. The company has a clear patent position as far as its proprietary
HuCAL technology but it does not have a clear position as far as using phage display libraries and
may be infringing on the relevant patents in the space controlled by CAT. CAT controls the Winter
II patent on antibody expression libraries, essential to the development of monoclonal antibodies.
CAT has filed a lawsuit against MorphoSys claiming infringement. In the US, MorphoSys is
challenging CAT’s Griffiths patent. In Europe, both MorphoSys and CAT have appealed following
a ruling with regard to CAT’s Winter II patent in October 1999. Regardless of the outcome, appeals
are likely.
MorphoSys is an antibody platform company, with drug development very much in its infancy. The
business model could be better focused on developing monoclonal antibodies drugs into the clinic
before out-licensing and/or entering into joint ventures. Morphosys lacks the funds to do so, unless
it could gain substantial upfront payments from product development deals. For the time being
Morphosys is stuck to pursuing its current strategy with the attendant patent risks.
Other important companies involved in developing and commercializing monoclonal antibodies for
platform applications or for therapeutic applications include Abgenix, Medarex and Protein Design
Laboratories.
155

Relevance of natural products, biodiversity and bioprospecting
The field of recombinant proteins begins with important proteins. Bioprospecting can reveal novel
proteins with desirable activities, whose genes can be combined with other coding elements and
inserted into the genomes of laboratory organisms so that the proteins can be overproduced, or
modified for greater or lesser activity, or made to target specific cells, or to enter or cross between
different compartments of the body where their action may be therapeutic.
Interestingly, monocolonal antibodies are also of relevance in the other direction; that is, assisting
in biodiversity studies themselves. Dr James Harwood and Dr. W.O.C. Symondson, are members
of the Biodiversity and Ecological Processes Research group at the University of Cardiff, Wales.
Both scientists are working on the study of predator-prey interactions within agroecosystems.
Using monoclonal antibodies to enable quantification of predation by spiders particularly in relation
to the availability of pest and non-pest prey in the field.
Dr. Harwood has been involved in the development and characterization of polyclonal and
monoclonal antibodies against slugs and the use of such antibodies in novel detection systems,
which are to be used in determining slug biomass in soil samples. His current research
investigates the effects of biodiversity on the dynamics of predation by carabid beetles in lowinput
arable systems using molecular methods. Slugs cause millions of dollars worth of damage in
arable and horticultural crops. While pesticide applications are convenient to use and often
efficient and cost-effective in the short term, it is now appreciated that due to the problems
associated with their use (such as pest resistance and environmental pollution) they are not a longterm
option.
156

Functional Foods
157

FUNCTIONAL FOODS
Statement on “business model” of firm selected as representative of the product sub-area of
functional foods
The term “functional foods" has become a quickly accepted term to describe foods that, by virtue of
the addition of physiologically active components, provide benefits beyond basic nutrition, and may
prevent disease or promote health. This is the case in the US but in the EU the term has yet to
gain full acceptance. Thus consequently defining the scope of functional foods has become
difficult. Therefore, all definitions of the term “functional foods” overlap with nutraceuticals.
The benefits provided by functional foods can range from long-term health maintenance, such as
the prevention of osteoporosis through calcium fortification, to short-term energy boosts, through
the use of ginseng, guarana, or protein concentrates in sports drinks and energy bars. Similarly,
certain ingredients focus on “intestinal health,” e.g., the maintenance of the microflora found in the
intestine. Probiotic bacteria, often found in yogurt and other dairy foods, improve digestion, boost
the immune system, and even help prevent heart disease. Other ingredients have been focused on
for their role in the prevention of cancer or heart disease. Antioxidants, such as beta-carotene and
vitamins E and C, and various varieties of fiber have been marketed for their ability to prevent
potentially cancer and heart disease.
Strictly speaking almost all foods are functional since they provide the body with one or more of six
essential nutrients. Together with fiber and water these nutrients (carbohydrates, fat, protein, as
well as vitamins, minerals and other trace elements) enable the body to generate energy, heat and
movement. Similarly, they play a vital role in the growth, repair and maintenance of the body, as
well as in reproduction. The development of functional foods since the early 1990s has therefore
come from the growing recognition among food scientists that the addition of more significant
amounts of these individual nutrients to foods and beverages may deliver specific and crucially
demonstrable health benefits. To date, comprehensive scientific research in this area has been
limited to just a small number of the many hundreds of ingredients concerned. Therefore, there is
as yet insufficient hard data to support the existence of a positive relationship between levels of
nutrients and increased resistance to illness or disease.
Different societal pressures have created an increasing demand for functional foods. These
pressures include an increasing awareness of the health consequences of diet, a “post-industrial”
sentiment that values “natural“ over “manufactured”, and diet fads seeking to control weight.
Functional foods manufacturers have adopted distinct business models to promote their products.
These can be grouped into one of three groups. Functional foods manufacturers can be split into
those with diversified interests, those that are category-focused and those that have a particularly
strong research and development focus. The inclusion into one of those groups shapes the impact
that a company will have upon the functional food market.
Companies with diversified interests include Dupont, Philip Morris, Unilever, Nestlé, Procter &
Gamble and others. The impact of this group on functional foods is difficult to define as
developments in functional foods have not come from this group. These companies represent a
hugely important driving force on the food and drinks industry, however, and by implication of the
impact of functional foods on these sectors. The companies in this group have a higher ratio of
sales to R&D expenditure and are extremely adept at brand launches and leveraging the full
effectiveness of global reach and an extensive distribution platform.
158

The key strengths of diversified interest companies are at the product life cycle when an innovative
product is subject to challenge by competitors. Because functional food ingredients are not
necessarily patented, the emphasis in this stage of the product life cycle shifts from leading
through innovation to the establishment of a name brand and effective marketing and distribution.
For example, the introduction of Procter & Gamble’s fortified juice drink brand, Sunny Delight, in
the UK used innovative marketing to suggest to parents that the brand was already a children’s
favorite, even at product launch. This marketing strategy was linked directly to listing the brand in
all the major grocery chains where Procter & Gamble had paid for key shelf space. The product
came in large format bottles whereas competitors used smaller one liter or single serve formats.
While fortified juice drinks were not novel, the introduction of Sunny Delight helped redefine the
market through an innovative, high expenditure advertising and marketing campaign, extensive
coverage and new format sizes. As such, the brand provides a clear model for the diversified
interest companies to introduce functional food brands.
Functional food companies with diversified interests have a strong fit with the most competitive
stage of the product life cycle. These manufacturers constitute a critical gateway for ingredients
and pharmaceuticals companies because of their core competencies in the launch, marketing and
distribution of fast-moving consumer goods (FMCG) products and their ability to leverage
maximum global and cross-category profit opportunities. Unlike category-focused companies,
companies with diversified interests are able to exploit cross-category applications for functional
foods. The diversified interests companies are able to exploit wider country coverage and possibly
enter the market in developing markets with new functional foods products due to the lack of
competitors.
Diversified interests companies are a major influences on the development of not only the current
top five markets but also in developing countries.
Companies with a strong focus include Danone, Quaker, Kellogg, RJR Nabisco and others. These
companies all share sales under USD 20 billion; low share of sales taken by research and
relatively low budget on R&D. Because of the category focus, however, these companies operate
as category leaders and are therefore under competitive pressure to move into newer, high margin
products in order to maintain dominance. As a result, these companies have been at the forefront
of functional foods development. For example, Kellogg has focused on fortification of breakfast
cereals and Quaker has led oats-based research and owns the successful sports drink brand
Gatorade. The fact that these companies are not categorized as strongly R&D focused is therefore
a relative issue, and relates primarily to their strengths, rather than their weaknesses.
The category-focused companies have established nutritional divisions to develop new functional
food products. Developments have and will continue to focus on lower functionality food products.
This does not prevent these companies from remaining competitive in functional foods since, as
category leaders, these manufacturers are able to leverage brand loyalty to introduce small, yet
highly profitable products. For example; w, in 1997 Quaker attempted to broaden the market
beyond existing Gatorade customers with a sub-line called Gatorade Frost, consisting of neoncolored,
light and crisp fruit-flavored blends. First year new sales amounted to USD 150 million.
The change was a classic expansion move that did not involve addition of new functional food
components to the product. Kellogg has achieved similar success with Nutri-Grain, while Danone
has also made considerable gains with probiotic brands such as Actimel.
Category leaders are also able to spread development costs over several markets and therefore
are able to maximize profit from seemingly small scientific advances.
159

Category leaders own “trusted” brands and are thus restrained partially from introducing cutting
edge functional foods (all ingredients that are not considered to be relevant to the category ) that
conflict with their brand values for fear of alienating their core consumers. This tendency is not a
limiting factor, however.
Category leaders hold a strong position that makes them a “gateway” for new advances in two
ways. First, domination of the category or segment allows considerable scope for redefinition of a
functional food, e.g., introduction of “fortification” as a benchmark by Kellogg, or on a lesser scale,
Ocean Spray. Second, new entrant companies find that the best profit opportunities lie in
collaboration with the leading company, especially if a product is licensed to them, e.g., the 1990
agreement between Quaker marketing Rhone Poulenc’s Oatrim ingredient brand. The lack of
biotechnology or pharmaceutical core competencies therefore does not present insurmountable
problems, as biotechnology and pharmaceutical companies tend to lack the marketing core
competencies to succeed in introducing radically new products into an alien category.
Companies with a strong R&D focus include Monsanto, Roche, Novartis, SmithKline Beecham,
Warner-Lambert and others. All of the these companies have consumer healthcare or nutrition
divisions, enabling them to leverage synergies between pharmaceuticals, functional foods and
nutraceuticals. Pharmaceutical companies are already present to some extent in a number of
different markets, and in some cases are the category leader. For example, SmithKline Beecham’s
Lucozade brand is the sports and energy drinks segment leader in the UK and Ireland, Novartis
owns the successful global sports drink brand Isotar, Roche also owns a soft drinks brand, Start-
Up, Taisho in Japan owns the energy drink brand Lipovitan, and Warner-Lambert owns a number
of medicated confectionery brands.
Because of the synergy between medicines and nutrition, pharmaceutical companies diversify the
drug R&D risk by producing consumer goods. Two of the key categories are sugar confectionery
and soft drinks. These categories require limited processing expertise and are therefore wellsuited
to companies whose core competencies are not in consumer goods manufacturing. Just as
category-focused manufacturers have introduced numerous fortified gums, soft drinks and biscuits,
so R&D focused companies are applying knowledge of ingredients to create actual end products.
For example, SmithKline Beecham and Herzpunkt Pharma develop and promote sugar
confectionery as a means of drug delivery. These companies have built on their experience in
dietary supplements to develop functional sugar confectionery. Sugar confectionery offers such
companies a new form of delivery for their products with a greater and wider appeal than tablets or
liquids. Mineral enriched sugar-free chewing gum is viewed as promoting healthy teeth and gums
promoted as a product enhancing health.
The best example of the integration of ingredients and pharmaceuticals science in an end product
is the Nutrasweet Kelco (part of Monsanto) brand DHA Gold. Chickens are fed an enriched
microalgal feed ingredient that presumably passes onto the eggs, which, when laid, may contain
high levels of omega-3 fatty acids. This type of claim has implications for many natural products,
especially largely generic ones such as eggs, milk, cheese, meat etc.
Description of typical or standard “value-added chains” and stages associated with functional foods
Functional foods and nutraceuticals are the latest development of a trend that originated with
weight loss and vitamin products. Functional foods and nutraceuticals target a broad range of both
general and specific functional demands. Because the participants in the functional food market
160

constitute a heterogeneous group, the value chain for functional foods is best described the nature
of the individual products and the target markets. Having evolved into a product segment in its
own right, the functional food market continues to expand into new areas of food, drinks, and
pharmaceuticals. A combination of increasing consumer acceptance of the functional food concept
and enhanced technological capabilities of manufacturers allow products to fulfill new roles or
explore new delivery options.
Functional foods are part of a trend representing a change in consumption that began in the 1970s.
Functional foods and nutraceuticals are the latest stage of development in the health food market.
The Figure below illustrates the historical value chain and reflects a progression through types of
health products. Initially, consumers interest focused on health foods and diet products as a
means of weight loss and “healthier” living. Products during this initial period included both “food
minus” products (low calorie food and drinks) and meal replacements (artificial products aimed at
decreasing appetite). In the 1980s, consumers focused on so- called “new age” nutrients. These
nutrients include extracts of plants and herbs considered to provide a “natural” solution to many
ailments and chronic diseases instead of “artificial” vitamins and “additives.” These products varied
from the scientifically-unproven alternatives, such as ginseng capsules and kelp by-products, to
those with some scientific grounding such as fish oils (omega-3 oils and garlic capsules).
Figure 30. Value Chain in Functional Foods and Nutraceuticals
Source: DataMonitor
The evolution from dieting products to nutrient-based products may be conceptualized as a move
from considering a general health problem (being overweight) to targeting a range of health
problems with specific herbs and extracts. With increasing consumer understanding of health and
diet during the 1990s, consumers began to use these products not only to address issues of
appearance but also to stave off disease (a number of substances, such as saturated fats,
increase the risk of contracting a chronic disease, such as cancer or cardiovascular problems,
when taken in excess). “Low and light” products target specific areas such as cardiovascular
problems (high saturated fats) and obesity and diabetes (high sugar content of many processed
foodstuffs). At present, technological developments allow functional foods and nutraceutical
manufacturers to target specific and general health demands. For example, products with
increased dietary fiber or “healthy” bacteria may be specifically designed for the prevention of
colon cancer and to maintain the condition of the digestive tract; other products with the
recommended daily allowance of vitamins and minerals target more generic health concerns.
Despite a renewed commercial interest, functional and fortified food and drink products are not a
new phenomenon. These products have existed in a variety of forms for past 100 years. Several
products, notably Coca-Cola, were originally promoted as having a discernible effect on the
161

consumer’s mental/physical state whether imbibed for medical or recreational purposes. Many
such drinks were eventually incorporated into the mainstream beverages market and became
mainstays of the carbonates category. Other products, most notably SmithKline Beecham’s
Lucozade, continued to exist as independent entities, but the category remained poorly defined
and unrecognized in the eyes of the majority of consumers. The first real advances towards the
foundation of a clearly defined and differentiated category occurred during the 1960s. In 1962, the
Japanese company Aisho Pharmaceuticals, introduced its Lipovitan energy/tonic drink brand,
which proved so successful that the company’s earnings from this brand alone soon outstripped
the combined income of Honda and Toyota. The category did not diversify greatly in either product
or geographic terms until 1967 when ‘Gatorade’, a drink containing electrolytes and carbohydrates
to help meet athletes’ metabolic and energy needs, was introduced in the US. Under the control of
Quaker Oats, Gatorade became the standard for sports drinks. Other multinationals, most notably
The Coca-Cola Company and Sandoz, also introduced sport drinks.
Interestingly, energy drinks have had a checkered history that can be attributed to consumer and
government misgivings about the effects these products could have on the body and mind. These
misgiving originated with the use of ingredients that can cause deleterious effects such as Ephedra
or other artificial stimulants associated with illegal drugs. In the 1960s, research conducted
focusing on a nutritional technology that came to be known as nootropics showed that precursors
of acetylcholine (choline bitartrate), salts of choline and DMAE produced had a profound cognitive
and mind-altering effect. As a consequence, they were soon criminalized.
After two decades, nootropics technology is just beginning to be used in the manufacture of
consumer goods. Under the umbrella term of smart drinks (beverages that heighte cerebral
activity) US marketers Durk Pearson and Sandy Shaw released a range of beverages containing
small amounts of L-phenylalanine, choline and added caffeine. The market spread and further
brands, such as Nutrient Café, were launched in the early 1990s. These products proved to be
extremely successful, particularly in cities such as San Francisco, Los Angeles and New York.
Branded smart drinks spread across the Atlantic, however, and gained a significant presence in
Sweden and the Netherlands.
In the early 1990s, governmental concern about illegal “designer drugs,” such as Ecstasy, created
a negative image for nootropic beverages in the eye of both of the general public and the US
government. Consumption of nootropic drinks in nightclubs, where use Ecstasy occurred, helped
create this negative image. Once the FDA began to investigate the effects of such substances on
the brain, several of the leading manufacturers in the US market withdrew fearing that their
business would collapse if the government outlawed their products. Those that remained in
operation reduced the strength of their products and moved away from the use of amino acids
towards an increased usage of choline, caffeine or ephedra. Using evidence coming from
Japanese research in 1980 showing that Taurine could be beneficial to cardiovascular functioning,
Dietrich Mateschitz, an Austrian entrepreneur, developed the Red Bull brand which he introduced
in his native country in 1987. red Bull achieved remarkable success in its domestic market, but the
brand’s development on a continental basis was restricted by consumer and governmental
concerns that it could endanger health. Many such fears were dispelled when further research
confirmed the Japanese findings, and Red Bull consequently gained access to lucrative markets
such as Germany. However, other countries, such as Sweden, maintained their prohibition,
allowing the sale of energy drinks only when forced to on entering the EU. During the late 1990s
these concerns began to subside and today the global market appears fully open. Some of the
leading players in the carbonates category are now planning energy drink product launches and
Red Bull is expanding its worldwide distribution. The segment therefore now has the potential to
emulate the sports drinks segment and expand without restriction.
162

The example of nootropic beverages exemplify the characteristics, and the challenges, of the value
chain for functional foods and nutraceuticals. Figure 31 below highlight the drivers in the value
chain encouraging companies to expand into functional foods.
Figure 31. Dimensions of Functional Foods and Nutraceuticals
Source: DataMonitor
Competitive pull factors to meet consumer demands have driven an increase in innovation and
sales of functional foods as part of a much wider trend towards targeted and also convenient
products. Consumers have become more sophisticated and demand more functionality from their
products, i.e. that they are more tailored to their purposes e.g. indulgence, weight loss, health
reasons. These consumer demands focus directly upon the competitiveness of any given company
and are used to secure market share, especially in the face of innovation by competitors and
market entry by new products.
For all types of companies, stagnating markets have been the primary push force towards
functional foods. Companies are being faced with low levels of value growth in areas such as
canned food, bakery and cereals, sugar confectionery and snacks, as well as many of the dairy
categories such as milk and cheese. This in turn has led to moves by ingredients and packaging
companies to drive the market. One of these outcomes is increasing levels of segmentation to
push individual parts of the market. Accordingly, premium, sports, natural, chilled, indulgent, low
and light, ethnic and other segmentations have been pushed by the food and drinks industry to
exploit vital corresponding consumer segments. Functional foods are therefore another form of
segmentation exploited by the food and drinks industry both to add value to products, and to
generate additional, rather than cannibalistic value sales by making a wide range of ordinary items
(milk, bread, cheese, soft drinks) high value.
163

Similarly, the rising cost of drug development has caused pharmaceutical companies to both
explore new areas of profit opportunity and also to look for new applications for their products to
offset the costs of research and development. This is particularly the case where the patent on the
product has expired. The cost of drug development increased rapidly at precisely the time when
the terms “functional foods” and “nutraceuticals” were coined in 1985. At this time, pharmaceutical
companies began developing and introducing functional foods and nutraceutical brands. The
rising cost of drug development has therefore had two major effects. First, pharmaceutical
companies have been forced to inspect more closely the ratio of R&D costs to profit in
conventional pharmaceuticals. Second, pharmaceutical companies have attempted to leverage
their R&D assets into unconventional markets to offset rising costs. Thus, pharmaceutical core
competencies have been applied to consumer brands to increase return on research and reduce
the time taken to recoup costs.
With functional foods and nutraceuticals bridging the gap between the respective markets of
pharmaceutical companies and food and drink manufacturers, pharmaceutical company
involvement has been as much a defensive as an offensive measure. Typically, brands such as
Wrigley’s Airwaves and many energy drinks have impinged on areas that were once firmly in the
preserve of over-the-counter (OTC) medicine. Pharmaceutical companies have had to develop
functional foods and nutraceutical brands of their own to counteract this impingement.
Functional foods tend to be more expensive than traditional food brands. Costs is a key obstacle
for functional foods because consumers benchmark the price of fortified and functional foods
against their non-functional rivals. Because of the inherent expense of adding active ingredients,
manufacturers to avoid the price problem in two ways. First, they use food formats where
benchmarking against non-functional products is more difficult. Second, they use active
ingredients with proven effectiveness that address important health concerns that are not
addressed by other products. The question consumers face is how willing are they to pay a
premium for the product's functionality. Because so many products now offer fortification with
vitamins, products must be highly differentiated through demonstrable effectiveness to demand a
premium.
Functional foods and nutraceuticals are spreading into many non-traditional areas as the pace of
innovation, acceptance by consumers and manufacturer support expand the bounds of the market.
The inclusion of various functional food benefits in the relevant product categories, and in particular
the degree of acceptance that sees functional food benefits integrated as standard (as they are for
breakfast cereals) drive these changes. As consequence, the functional food and nutraceuticals
markets are expanding into areas that may be described as standard plus, lifestyle and medical.
Standard plus markets encompass premium areas where consumers are willing to incur additional
expense for a perceived benefit attributable to the functional food. Functional foods pose a threat
to sales of standard products as manufacturers develop more sophisticated products and include a
wider variety of the benefits derived from fresh produce into more convenient or user friendly
formats. Fresh fruit and vegetables, and other elements of a healthy, balanced diet, are becoming
less integral to the core diet of consumers, and this is likely to be accelerated by increased uptake
of functional foods.
Lifestyle markets encompass areas with a perceived enhancement on quality of life. Functional
foods are often positioned as products used to boost energy levels or provide a desired mood (or
mental state) in addition to supporting a healthy diet, and performing alleviatory and preventative
medical functions. As new ingredients are included into these products the functional foods market
164

moves beyond replenishing sports drinks, and “boosting” energy drinks to products which offer
even greater stimulant effects.
Medical markets encompass areas where functional foods are use as therapeutic adjuncts to
medical interventions. Supplements such as Ensure as used in debilitated patients requiring
nutritional supplementation. Other functional foods target diseases as diabetes. The benefits
these functional foods offer, directly between the therapeutic and the nutritional, compete directly
with fortified food and drink products. Examples of this include the use of perilla, ginseng and
multivitamins in soft drinks, which are designed to provide the same benefits as dietary
supplements. In the case of the brand Start Up, Roche (a pharmaceutical manufacturer) has
introduced a functional food soft drink to compete with traditional vitamin manufacturers. OTC
medicine faces the most immediate threat from functional foods. Amurol’s caffeine chewing gum
Odol’n Ice are clear examples. AsRoche and other pharmaceuticals companies are looking
seriously at the effects of functional foods upon core sales. Many companies are leading
expansion of Merck, Rhone Poulenc, SmithKline Beecham, Warner-Lambert and Novartis are
expanding their functional foods business. For example, Merck’s Consumer Healthcare division
introduced a cereal bar variant of its OTC laxative brand, Califig in December 1998, and Rhone
Poulenc has entered into numerous joint ventures to develop and market functional foods.
Prescription medicines also face a threat from functional foods and nutraceuticals, although this
threat is less overt than that to OTC medicines.
Criteria for development of strategic alliances and joint ventures among the producers of
functional foods
Joint ventures are set to drive functional foods sales and many examples of alliances, joint
ventures and acquisition of companies with synergies for the production of functional foods exist.
This section examines company strategies in order to provide insight into how nutraceutical
companies integrate all aspects of a nutraceutical launch. in order to highlight the strategic
importance of alliances, joint ventures and acquisitions to create synergistic activity between
companies and highlight the degree of consolidation in each of the major functional foods
categories.
The Quaker – Novartis joint venture is an example of a synergistic alliance. In the search for a
successful functional food model, the industry has long speculated about the potential synergies of
combining the food processing and branding skills of a major food manufacturer with the
healthcare expertise of the pharmaceutical sector. With the announced formation of a US joint
venture to develop and distribute functional food products in February 2000, Novartis’ Consumer
Health business unit and the Quaker Oats Company have taken the first step towards putting this
idea to the test. While Quaker pioneered the issue of making health claims in food with its oats
products and has extensive experience in the energy drink category (Gatorade), the 1999 launch
of the Aviva line of products claiming heart, digestion and bone benefits has given Novartis
invaluable experience in the marketplace. Novartis has championed alliances and joint ventures
with an estimated 2,000 other joint ventures and strategic alliances, many related to functional
foods products.
Another example involves Galagen’s joint venture with Rhodia Inc (a recently-formed company
from Rhone Poulenc’s chemicals, fibers, polymers and food ingredients businesses). The
companies will jointly develop nutraceutical products containing the former’s Proventra and the
latter’s NCFM brands.
165

Further examples of synergistic alliances include the brand Milli Brasilli, a joint venture of Alpamare
and Milchewerke Meinfranken in Germany; the company Sterol Technologies, the product of
Kauskas Oy and Raisio, which produces raw sterol for Raisio’s nutraceutical brand Benecol; the
McNeil Specialty Products’ joint venture with Raisio to market Benecol worldwide whereby raisio
receive a lump sum payment for the assignment of the rights to McNeil and will take royalties from
the sale of Benecol products; Roche’s numerous joint ventures in China with local manufacturers
to produce vitamins; the joint venture between Cargill and Forbes Medi-Tech to produce and
commercialize functional foods ingredients; Cargill’s joint venture with Monsanto to develop
bioengineered seeds with more nutraceutical properties due to higher oil content, higher vitamin
and mineral contents and also development of new processing techniques; the Stolle Research
joint venture with Dupont and ConAgra to develop a low cholesterol egg. The company also has a
joint venture with the New Zealand Dairy Board to manufacture a milk product from specially
vaccinated cows that could prevent tooth decay and diarrhea.
Examples of acquisition and creation of nutraceutical companies and divisions include Royal
Numico’s acquisition of GNC and Rexall Sundown. Numico’s (Nutricia, Milupa and Cow & Gate
brands) core activities are the development, production and marketing of specialized clinical
nutrition, infant nutrition and, since the acquisition of General Nutrition Company (GNC) and Rexall
Sundown Inc., that of dietary supplements. Numico is number two in the market for infant nutrition
and one of the leaders in the market for enteral nutrition. Since the accessions of GNC and Rexall
Sundown Inc. the company also has a dominant share of the dietary supplements market in the
US.
The company is pursuing a strategy of reduction of its dependence on the infant nutrition market, a
maturing market plagued by declining birth rates in core countries. Although some efforts are being
made to extend the current baby food portfolio to cater for toddlers, the company focus is now
firmly on its nutritional supplements business.
In August 1999 Numico became the global leader in the US nutritional supplements market with
the USD 2.5 billion acquisition of Pittsburgh-based GNC. GNC has annual sales of USD 1.4 billion
and a US market share of 13% of the nutritional supplements market. GNC is one of the best
known brands in America’s supplements business. GNC operates 4,200 stores in fifty American
states and 351 in 25 other countries and plans to open a further 1,500 stores in the US within Rite
Aid drugstores over the next three years. This is a strong distribution platform for Numico’s
business.
The acquisition of Rexall Sundown Inc. for USD 1.8 billion (annual sales of USD 595m in 1999)
later in the same year confirms Numico’s ambitions in the nutritional supplements field. Based in
Florida, Rexall Sundown Inc. built its business by developing and marketing dietary and nutritional
supplements in supermarkets and other mass-market outlets throughout the US, including a range
of vitamins and its most recent blockbuster product, Osteo Bi-Flex, which promotes the growth of
cartilage. Only weeks prior to the sale, Rexall Sundown had acquired MET-Rx Nutrition Inc. for
USD 108 million in January and Worldwide Sport Nutritional Supplements Inc. in March for USD 72
million.
Other examples of acquitions include DuPont purchase of Protein Technologies International (PTI),
the soy products division of Ralston Purina for USD 1.5 billion. PTI has approximately 3,000 food
company customers globally and commands a significant share of the world's soy protein market.
Warner-Lambert created its Adams USA unit to develop and market alternative nutraceutical and
166

herbal pharmaceuticals. SmithKline Beecham acquired the German-based company Abtei, a
manufacturer of nonprescription drugs and supplements, in January 1996.
Market access issues
Functional foods have less regulatory restrictions than pharmaceuticals. Similarly, this area has
lower capital requirements and a comparatively high public acceptance. In terms of types of
technology requirements, there are no specific technology platforms used in the development of
functional foods. Because they derive from natural ingredients, the development and
manufacturing of functional foods is characteristic of the segment in which the functional food is
commercialized. For example, functional yogurts employ technologies characteristic to the dairy
industry in the manufacture of any other yogurt. The following sections discuss these and other
considerations relating to market access issues.
Regulatory issues associated with functional foods
Regulatory conditions differ widely between the EU, US and Japan. In the EU many aspects of
functional foods and nutraceutical regulation are still determined by individual member states. As a
result, regulatory approval across the EU can be very uncertain. The US system is more
developed, although it is still hampered by ambiguity over whether functional foods are food or
dietary supplements. ‘Food for Specific Health Use’ (FOSHU), the Japanese regulatory system is
somewhat more advanced. The Japanese regulation is primarily designed to permit established
and accepted ingredients to be used in food, rather than to encourage the development of new
ones.
Current EU regulation has few provisions for nutraceuticals. EU regulations are more concerned
with protecting consumers from unsafe products than encouraging those that promote health.
PARNUTS ‘PARticular NUTritional’ provides the framework for current dietetic regulation.
Functional foods that wish to be accepted under the PARNUTS scheme must: "produce evidence
to inspecting authorities that supports the statements claiming those special properties of the food
that guarantee it to fulfill the purpose which, on the basis of the claim, the purchases will expect to
fulfill." In addition to PARNUTS other general Labelling restrictions (Food Labelling Regulations)
exist affecting products associated with slimming, protein, vitamins, minerals, polyunsaturated fatty
acids, cholesterol and energy. Low and light products however, do not appear to be subject to any
additional regulation if they avoid making nutritional claims.
Medical claims (both explicit and implied) are subject to additional regulation and these products
must hold a medical license. Medical claims include any suggestion that the product may prevent,
cure or treat a medical condition. Those products that make particularly strong claims may be
subject to further local regulation within each member state.
In May 1997 the EU introduced new regulation governing ‘novel foods’ adding further complexity
for those wishing to introduce food with active ingredients. Novel foods include food types or
ingredients that have not yet been used for human consumption. Most of the current emphasis is
on evaluating the safety of Genetically Modified (GM) ingredients rather than promoting functional
foods.
Novel Foods Regulation (NFR) requires that new functional products must be submitted to each
member state in which the product will be launched. Each state then has three months in which to
decide whether to accept, reject to brand or defer the decision. If a state chooses to defer, product
167

details are passed on to the European Commission that then comes to a final decision. This
process ensures that different states within the EU can treat the same products differently and
makes it difficult for manufacturers to predict the extent to which innovative products will be
accepted. These issues regarding lack of homogeneity are however, likely to be addressed by
future regulation.
In its most severe aspects, EU regulations discourage descriptive or comparative health claims;
even if one product is proven to be twice as effective as another, both will be forced to use similar
claims. Any direct comparison of health related qualities with competing products is prohibited.
Thus consumers have difficulty in identifying superior products and may make an informed choice
without the incentive for manufacturers to produce the most effective functional foods.
Two systems of regulation currently affect functional foods in the US: NLEA (Nutrition Labelling
and Education Act) and DSHEA (Dietary Supplements Health and Education Act). Functional
foods can be filed as being either a food through NLEA or as a dietary supplement through
DSHEA.
Since the NLEA was introduced, many manufacturers have been forced to put nutritional Labelling
on their products leading to a decrease in the number and strength of individual claims as
“significant scientific agreement” is now required to support such claims.. This in turn has had a
significant effect on purchasing patterns. There are four standard ingredients for which the health
effects are clearly established and appropriate health claims can be made. These include dietary
fiber (reducing the risk of colon cancer and heart disease), fats (contribution to heart disease),
sodium (link to high blood pressure and hypertension) and calcium (reducing the risk of
osteoporosis).
Under the NLEA, most health claims are not “wellness claims” but “disease claims” (designed to
treat or prevent particular conditions). Establishing firm scientific evidence for a link between
particular active ingredients and general well being in difficult and takes time and expense.
Showing that an active ingredient is effective against an isolated condition or disease is much
easier, however. The increased ease of making “disease claims” rather than “wellness claims”
encourages manufacturers of functional foods to make more disease claims. For products that are
designed to relax, invigorate, energize, improve etc., the FDA apply a general requirement for
truthfulness in Labelling.
Intense lobbying over the NLEA prompted the initiation of DSHEA to treat dietary supplements
separately to food. Of particular concern was that under NLEA, products could not easily
differentiate on the basis of technical superiority. DSHEA has two priorities: to improve the health
status of US citizens, and to reduce expenditure on healthcare. While DSHEA expanded the list of
ingredients that could be called dietary supplements, the act does not explicitly cover functional
foods. Manufacturers of functional foods must decide whether to submit their product as a
supplement or as a food. Those products filed as supplements will receive very different treatment
to those filed as a food. Specifically, the FDA must prove that the product is unsafe if a product
filed as a supplement is rejected and the manufacturer must prove a link between an ingredient
and the physiological condition if the product filed as food is accepted.
Regulatory advantages may exist in filing the product within a category that does not appear to be
immediately appropriate. In 1998, McNeil Consumer Healthcare launched Benecol in the US as a
dietary supplement. McNeil clearly thought that Benecol met all the requirements to be judged as a
dietary supplement. Unilever also filed for its own competing product as a dietary supplement. In
168

the end the FDA decided that both products were foods, forcing them to compete under food
regulations.
One of the most important issues of the FDA claim approval process is its “transparency.”
Transparent means that research papers, submitted by the petitioner, are disclosed to the public.
Therefore, once an ingredient has been approved, other companies may use the same claims by
including the ingredient in their products. Where active ingredients are difficult to patent, this
transparency discourages future investment in the functional food market.
Japanese functional foods regulation is based on the FOSHU system (Food for Specific Health
Use). Under FOSHU, products are licensed so that they may make limited health claims. To be
considered as ‘for specific health use’, products must demonstrate that a specific health effect is
due to the product’s composition, that the effect has been scientifically evaluated, that allergens
have been removed and that the product is non-toxic and does not pose a health or hygiene risk.
Before a full FOSHU license is granted from the Ministry of Health, the following requirements must
be met: the product must contribute to the improvement of dietary habits and enhance health. The
health benefits of the food or ingredient should have a clear medical basis; foods and ingredients
must have definable level of appropriate consumption, based on medical knowledge. Foods and
ingredients should be safe as judged from experience. Relevant information should be defined in
terms of physiochemical properties; nutritional composition of the product should not differ greatly
from ordinary foods; the product must be consumed regularly rather than occasionally; and the
product must be in the form of ordinary food rather than pill or capsule.
FOSHU approval differs from pharmaceutical approval in that FOSHU applies to ordinary food with
a “specific health benefit.” FOSHU approval is a three-stage process and is not easily obtained. To
date, about 85 products have been given FOSHU approval since 1993. An accelerated path to
FOSHU approval exists through peer review by the Japan Health Food Association (JHFA).
Currently JHFA review is not open to foreign firms, although this could potentially be bypassed
through partnership with a local company.
Regulatory issues will play a large part in how the functional food market evolves. This is
particularly true in Europe where the current system strongly discourages product comparisons
based on effectiveness.
Role and significance of intellectual property considerations for functional foods
Functional foods are based on natural ingredients. Thus, a developer cannot inherent intellectual
property protection for a product of nature. A developer may claim intellectual property for a use of
a natural product, combination of natural products into a formula or can copyright a brand identified
with one or more natural products. While a well-drafted patent for a functional food coupled to an
effective enforcement strategy may afford certain protection, consumer satisfaction is the ultimate
arbiter of the success of the invention, e.g. actual weigh loss will define sales, market share and
life cycle for a functional food claiming to promote weight loss.
A patent making claims about properties, uses of compositions in functional foods may be filed and
prosecuted but its market value may be negligible, extending no farther than stating “Patented” on
a label. Similarly, the costs of enforcing a patent may negate the commercial opportunity. For
example, Arkopharma patented green tea for obesity (WO0041708; filed January 2000) but green
tea is sold everyday for this and other indications so that infringement and piracy are rampant yet
prosecution would be ludicrous. Another form of patent, the “cocktail patent” where a numerous
169

ingredients and extracts are combined, are popular but the allowed claims are usually very narrow.
A recently issued two-page patent exemplifies the case. US Patent 6383482 claims a weight-loss
formula containing green tea extract, hydroxycitric acid, 5-hydroxytryptophan, glucomannan,
chromium picolinate and Lactobacillus. A patent of this brevity lacks enabling data demonstrating
the composition's efficacy so that the claims may be circumvented by changing a simple ingredient
in the formula. Similarly US Patent 5914326 claims a pyruvate source, chromium picolinate, Lcarnitine
and a source of hydroxycitric acid as a composition for weight loss. The patent may be
circumvented easily by using a different chromium ligand, such as chromium nicotinate or citrate.
Functional foods, beverage and supplements ingredients market is entering a phase of maturity
typical of the most sophisticated, multifarious and competitive consumer markets. In such markets,
a particular truth has long been apparent: Branding is king. Functional foods rely on having speed
to market, and gaining and maintaining market share. This puts a premium on branding,
trademarks, distribution channels and control of shelf space.
Sample approximate costs for setting up firms to commercialize functional foods
Estimating the approximate costs for setting up a firm commercializing functional foods is a difficult
undertaking. Firms range from the small family owned enterprise (William Jackson Bakey in the
UK) to large multibillion dollar pharmaceutical conglomerates (Novartis). In principle and
considering the situation of countries in the Andean region, the start up costs of a venture
commercializing indigenous products in a functional foods format should not be high. Concept
development and proof-of-principle may be accomplished with as little as USD 100,000. Supply
and manufacture, depending on scale, can be accomplished with as little as USD 500,000.
Channel of distribution and commercialization in internal and external markets are similar to those
for other foods and are best accessed by joint ventures or alliances with multinational distributors.
Identification of examples of principal producers and distributors for functional foods in
addition to the firms profiled
This section profiles a diverse range of functional food products, companies and their marketing
strategies. We have chosen sixteen products from different categories in order to highlight a
diverse range of approaches. In addition, the products selected also address a range of different
lifestyle and health issues.
Göteborgs Kex Bixit Energy, Sweden
Göteborgs Kex, established in 1888 is now part of the Norwegian Orkla group and accounts for
about USD 61million of the Orkla group’s USD 4 billion annual turnover. Göteborgs Kex are
manufacturers of biscuits, preserved pastry goods and cakes.
Göteborgs Kex launched Bixit Energy in May 1999 and withdrew it at the end of the year. Bixit
Energy was a chocolate and raisin oat biscuit that contained dextrose for energy, and was
accordingly positioned as a functional food. The 225g packet retailed at the recommended price of
SKr15.70 (USD 1.90). The product failed in Sweden, but is still successful in Norway. The
company blames its Swedish failure on a “lack of focus” in that it launched a number of different
products at the same time (Cartoonies, Tropicos, Tibbit and Brago were launched within a month
of Bixit Energy). Because of the “lack of focus”, the company did not work together with retailers to
ensure that the product was stocked or provide sufficient promotional materials to support the
launch.
170

Göteborgs Kex still believes that there is a significant market for this type of product, but the most
important lesson has been to learn that functional foods need a well-planned and carefully
publicized launch. This positive outlook is reinforced by the recent moves from Nestlé and Kraft
when they acquired Power Bar (estimated at USD 380 million) and Balance Bar (USD 268 million)
respectively.
Danone Actimel, Europe
Danone was founded in 1966, through the merger of two French manufacturers of glass products,
which later diversified into food through a series of mergers in the 1970s. The Danone Group now
sees an annual turnover of approximately USD 13.7 billion (43.2% from their dairy division).
Danone describes Actimel as "a dairy-based dietary supplement beverage" that acts as a probiotic
by including a dose of the beneficial bacteria Lactobacillus casei. The main difference between
Actimel and its competitors LC1 Go and Yakult is that Actimel is a drinkable yogurt and is
packaged in larger bottles. The brand is presented as a set of four 100 ml plastic bottles in a
cardboard sleeve and has a recommended selling price of £1.49 (USD 2.44).
Danone has also launched a series of fruit yogurts, extending the Actimel range of products
fortified with Lactobacillus casei cultures. The rhubarb, strawberry, apple and plum yogurts are
presented in 150g plastic pots with a recommended retail price of DM 0.89 (USD 0.53).
Actimel had its UK launch in May 1999, and has reached a broad audience through heavy
promotion. In particular, the UK launch was supported by £ 4 million worth of national TV
advertising and “buy one get one free” offers. Actimel is placed next to LC1 products in the yogurt
section of many supermarkets, rather than with LC1 Go and Yakult. This means that LC1 will be
Actimel's most obvious competitor. This rivalry should provide very intense competition as both
products aim to be fashionable (as opposed to Yakult's comparatively scientific approach to
marketing).
Actimel is successful in most EU countries, particularly in France where the product has captured
most of the probiotic market. Given Danone's financial backing and experience, Actimel had a
distinct advantage over other probiotics. The greatest difficulties will arise as Actimel comes into
more direct competition with LC1 and Yakult.
Novartis Isostar Actifood and Aviva
With approximately CHF 25.0 billion (USD 21.5 billion) in annual sales, Novartis is one of the
world’s leading healthcare companies. Novartis is now leveraging its pharmaceutical and nutritional
expertise in the functional food market. Novartis Consumer Health launched the Aviva Life Foods
range of functional foods in the British, Swiss and Austrian market. It also formed an alliance with
Quaker USA to enter the US market. Novartis produces Isostar Actifood, a product that is
designed for intensive sports competition. It is supplied in an aluminum foil pack and is a gel with
fruit pieces. It is not intended for rehydration, and athletes are expected to drink water separately.
A gel is used to make the product feel more substantial, like eating an energy bar. The product is
consumed to allow continued performance.
Isostar Actifood is part of a range of drinks and food that cater to the energy needs of a range of
athletes. Some are for general use while others are for serious, specialist use. Actifood is designed
to fill the gap between these. Isostar Actifood is not selling well. The main reason is that athletes
prefer other textures, they do not like to have “heavy” textures such as fruit when taking part in
sport. In addition many athletes claim to dislike the flavor. The Actifood concept, particularly the
use of a gel and such striking packaging is very innovative. It is something of a surprise that this
171

product has not been well accepted, but the lesson should be clear - the highest priority for
functional products is that they be enjoyable.
The Novartis functional food product is Aviva. Aviva functional foods are split, according to health
benefit, into bone benefits, heart benefits, and digestive benefits. Novartis claims that these health
benefits have been verified in rigorous clinical trials. Although there is some variation among them,
products contain muesli, a hot chocolate drink, an orange drink, cereal bars and biscuits. The
“bone benefits” products contain Novacalcium (a combination of milk calcium plus vitamin D3,
magnesium and zinc to aid the absorption of calcium). The “heart benefits” products contain
NovaCol (a blend of natural soya and oat extracts with antioxidant vitamins C and E). The
“digestive benefits” products contain NovaDigest (a combination of soluble fibers, Benefiber and
FructoOligoSaccharides that pass unaffected through the digestive system until reaching the colon,
where they stimulate growth of beneficial bacteria at the expense of pathogen).
The Aviva products are designed to be taken as a daily dose, with most of the products sold in
packs of six units. These six packs tend to cost about USD 3.00 (lemon crunch biscuits USD 3.31,
cereal bars USD 3.37, hot chocolate USD 2.89), a considerable premium over regular products.
The annual cost of subscribing to any one of the health benefits products is approximately USD180
for one or USD 540 for all three. Aviva products are targeted at consumers over 35 years of age.
Novartis Consumer Health has chosen this age group because they are the most susceptible to
heart, bone and digestive health issues. The criterion Novartis Consumer Health used to chose the
three key health issues was consumer concern, rather prevalence and severity of common medical
conditions. In a series of studies, consumers were asked to rate their concern for various important
health issues. Novartis used this information to identify a group of important health concerns. From
this group they chose the three that would be most practical to implement in food products.
As may be expected of a pharmaceutical company, Novartis is marketing these products not only
to “opinion leaders” such as doctors and other healthcare professionals but also to consumers
directly. Novartis claims to have had a relatively trouble-free entry into the functional foods market.
Experience in pharmaceuticals has given Novartis Consumer Health greater insight into
government safety concerns. Before launching the Aviva range, Novartis Consumer Health held
160 independent studies worldwide to establish the effectiveness of Aviva ingredients. These
studies were conducted in a scientifically rigorous manner in order to satisfy the concerns of
government advisors. Novartis therefore sees sufficient investment in clinical trials to be one of the
key lessons for nutraceutical manufacturers.
Puleva Mamá, Spain
Puleva, founded in 1954, is one of Spain's most important manufacturers of dairy goods. More
recently Puleva have moved into offering innovative functional foods, such as milk that is fortified
with calcium and omega 3 lipids.
In October 1999, Spanish dairy processor Puleva launched Puleva Mamá, a fortified milk
specifically designed for pregnant women and nursing mothers. The semi-skimmed milk contains
added calcium, copper, folic acid, iodine, iron, magnesium, potassium, zinc and vitamins A, B1, B2,
B6, B12, C, D and E, all said to provide women with essential nutrients that they may lose during
breast feeding. A 500 ml carton retails at Ptas 135 (USD 0.86). At 135 Ptas, the product is more
expensive than natural cow’s milk but has a very similar price to baby milk. This is intentional in
that Puleva believe that the consumer is likely to benchmark the cost of their product against baby
milk. Puleva see this as a new category, distinct from other fortified milk products. Accordingly,
Puleva have developed a very original approach to its marketing. Rather than advertising directly
to consumers, they are targeting general medical practitioners, gynecologists and midwives by
172

sending prescriptive information, arranging visits to give a presentation, sending product samples,
and approaching professional bodies, such as the “Sociedad Espaňola de Ginecologia y
Obstetricia.”
This marketing strategy is the traditional domain of the pharmaceutical companies. For a food
company to use this approach is very innovative, and quite appropriate for some functional foods.
Red Bull, Europe
Research carried out in Japan in 1980 indicated that taurine could be beneficial to cardiovascular
functioning. This encouraged an Austrian entrepreneur called Dietrich Mateschitz to develop a new
energy drink format using taurine as its active ingredient. Red Bull was the resultant product and
was launched in Austria in 1987. The brand achieved considerable success in its domestic market
but development on a continental basis was restricted by consumer and governmental concerns
that it could endanger health. Many such fears were dispelled when further research confirmed the
Japanese findings, and Red Bull consequently gained access to lucrative markets such as
Germany. Other countries, such as Sweden, maintained their prohibition, allowing the sale of
energy drinks only when forced to on entering the EU.
While Red Bull’s distribution remains prohibited in certain countries, the global market is now
almost fully open and is virtually unimpeded. This has enabled Red Bull to expand its distribution,
most notably into the virgin territory of North America. Red Bull is a non-alcoholic drink that
contains a number of active ingredients, designed to "stimulate body and mind,” such as taurine,
glucuronolactone, caffeine, vitamins and carbohydrates.
Red Bull’s global strategy does not change between countries and targets the young market. Red
Bull has a potentially strong positioning in the global soft drinks market for two key reasons: crosscategory
appeal and appeal to a variety of distinct consumer groups without compromising its
generic positioning.
Red Bull is arguably the dominant brand in the European energy drinks segment as it has been
marketed and positioned in such a manner that its consumption is not limited to specific occasions.
In many convenience channels, it competes directly with carbonates. It is also often used as a
mixer for cocktails and other alcoholic drinks and, in this sense, competes with products such as
tonic waters.
The generic positioning of the Red Bull brand as described above has provided a solid base for
sales. The brand has been targeted successfully as much at consumption occasions and
environments as at consumers themselves.
Potential weaknesses of Red Bull are in developing suitable distribution networks in new markets
and in overcoming consumer misgivings in these markets about the health effects of the product,
and of taurine in particular.
The fact that Red Bull has been such a success in its current markets suggests that the company
is adept at overcoming such difficulties. It therefore has strong opportunities for overseas
expansion, particularly in North America where its penetration of the overall soft drinks market is
currently extremely low.
The threats posed to Red Bull and its future success are relatively few. Imitation brands have the
potential to eat into Red Bull’s margins, particularly if they are given a lower price positioning.
However, the product is already facing such competition in many of its markets and has managed
173

to maintain its dominance of energy drinks sales as a result of its strong branding, supported by
high-profile advertising campaigns. The novelty appeal of many energy drinks will inevitably
diminish over the course of time. This is likely to have a more significant impact on sales of weaker,
secondary brands than on Red Bull. Red Bull is therefore likely to consolidate its position and to
continue to dominate sales of energy drinks in many of the markets in which it operates.
Unilever Signal, France
Unilever owns Signal, the company that originally launched striped toothpaste in the French market
in 1961. The stripes were key to the success and the company now has about 25% of the French
toothpaste market. More recently, Signal has introduced a range of dental care chewing gums to
the French market. Signal has launched “Fraîcheur et Soin” in France, a series of functional
chewing gums, as an extension of the Signal toothpaste brand. Each chewing gum is sugar-free
and so offers the established benefits associated with chewing, that is to gain appropriate oral pH
in prevents the build-up of plaque. Signal launched three varieties, one for children that fights tooth
decay, one that is bicarbonate-based and whitens teeth, and one that is citrus flavored.
Signal sees the target audience as consumers typically aged between 20 and 40 years. The
product is presented in a flip-top carton box containing twenty pellets and the pack design is
described as “fruity” showing colorful photos of mint leaves and fruit. The product retails for FFr
8.50 (USD1.38), compared to Wrigley’s ‘Freedent’ at FFr 5.00 (USD 0.81). The Signal chewing
gum was launched in September 1999 and has now gained a 3.5% share of the French chewing
gum market. The products are promoted by through TV advertisements, billboards and also
through free sampling.
The product is placed on dental shelves rather than confectionery shelves within supermarkets.
This is proving to be a large barrier to future growth, as larger chewing gum manufacturers
currently dominate the confectionery market. One of the key lessons has been that entering a new
category may not be as difficult as originally perceived. When entering the market, Signal claims
that it had been slightly intimidated by the existing competition and gained an inflated perception of
the strength of competition. Signal's original expectation was to change the consumer's mind about
the purpose of chewing gum and the company now estimates that this has been successful. In ten
years time, the company hopes to have fully developed the brand.
Now that Signal has established the chewing gum product in the dental care sector, the company
aims to move into the confectionery market. The company has established retailer perception that
the chewing gum is a dental care product. Convincing retailers to stock Signal chewing gum on
confectionery shelves has become the biggest problem and the most significant barrier to future
growth.
Yakult, Europe
The Yakult range of dairy products was first developed in Japan in 1935. A fermented milk drink,
Yakult contains a live lactic acid bacterium which is naturally present in the intestinal flora of
humans and which is thought to play a role in resistance against pathogenic germs.
For many years, the brand was available only in Japan. Taiwan became its first overseas market in
1964, followed by a range of Asia-Pacific countries, Mexico, the US and Australia. The first
European office was established in the Netherlands in 1992, followed in 1994 by the establishment
of a factory in the Dutch town of Almere. This enabled the company to deliver Yakult fresh to
consumers in Germany, Belgium, France and the UK. Yakult has now developed a strong
presence in many of the world’s leading soft drinks markets and it is estimated that 23 million
people consume the brand on a daily basis. Yakult is a sweet tasting, fermented milk that was first
174

developed in 1935. The product contains the Bifidobacteria, Lactobacillus casei Shirota, isolated by
Professor Shirota of Kyoto University in 1930. Each small, pink bottle is designed to provide a daily
dose of this “beneficial bacteria.”
Yakult is an ideal product, and positioned as such, for the functional “food-as-medicine” market.
The company has attempted to corner a specific area of the health food market by targeting early
morning or post breakfast as its core consumption occasion. In its domestic Japanese market,
Yakult has achieved this goal with considerable success. This can largely be attributed to its highly
sophisticated distribution network that employs 59,000 women in a door-to-door sales team. This
team also peddles the drinks through office buildings. Consumers can therefore purchase Yakult at
the key consumption moment no matter where they are. This has enabled the company to
maximize its sales in Japan, where daily throughput amounts to over 12 million servings.
In other markets, particularly those in the West, high labor costs have meant that it is not possible
to recreate this highly successful distribution process. This has forced the company to reassess its
approach to Yakult’s positioning because it is no longer possible to place the brand close to the
consumer at the key consumption moment. With the scope for providing impulse purchase
occasions markedly diminished, the focus has been shifted towards a planned purchase
positioning, with the retail multiples acting as a key distribution channel. The company has made
strenuous efforts to ensure that in spite of the fact that it is largely reliant in the West on planned
purchases, its domination of the early morning or post breakfast consumption occasion is retained.
It has made significant investments in advertising and has also begun to sell Yakult in 7 unit multipacks.
These strategies have gone some way to counteract any distribution difficulties the brand
has faced in some of its western markets.
As described previously, Yakult has an extremely strong positioning in all its markets. In Japan and
Asia-Pacific, it is a well-integrated part of consumer culture. In Western Europe, it has become
synonymous with the functional foods and nutraceuticals and, as a result of a sustained advertising
campaign, has gained a high level of consumer recognition. Yakult Honsha invests considerable
time and money in their educational programs, which include presentations and free leaflets aimed
to promote understanding of gut health (rather than directly promoting the product).
Raisio Benecol, US and Europe
McNeil is a sales and marketing company set-up by Johnson & Johnson in 1998. Raisio Group
originally discovered the plant stanol ester, which is the key functional ingredient used in Benecol,
and now license the product to Johnson & Johnson. Raisio still produces the Benecol products for
Finnish market. Benecol is a range of products that contain a plant stanol ester that reduces LDL
cholesterol levels. The products require high consumer compliance of two to three doses per day,
although this can be achieved using any of the Benecol product range:
Raisio first launched Benecol and Benecol Light margarines in the UK in April 1999. The spread
also contains vitamins A and D, increasing its wider appeal to the health-conscious. Presented in a
250g plastic tub, the product has a recommended retail price of £2.49 (USD 4.08). Also in April
1999, Raisio introduced its Benecol brand of cheese spreads to the UK. The Plain and the Garlic &
Herb variants are presented in 200 g round plastic tubs, retailing at the premium price of £2.49
(USD 4.08). In September 1999, McNeil Consumer Nutrition extended the cholesterol-lowering
Benecol brand to include fruit yogurts. Available in apricot, cherry and strawberry flavors, they also
include bifidobacteria. The yogurts are presented in 150 g plastic pots and have a recommended
selling price of £0.99 (USD 1.62). A new range of cereal-based snack bars, produced by McNeil
Consumer Healthcare under the Benecol brand name, were launched in the US in October 1999.
175

Each 34g bar contains just 3g of fat, is fortified with vitamin E, and is made with 1.5g of cholesterol
reducing plant stanol esters. Each pack of four bars costs USD 5.46.
Benecol products are backed by clinical trials and therefore have scientific evidence to support
their health claims. This support is essential to the success of Benecol since the products are very
expensive (seven times as much as some other brands). McNeil Consumer Healthcare expectrs
that people with hypercholesterolemia will be motivated to take action and will be willing to pay the
price premium. Hypercholesterolemia is an independent risk factor for cardiovascular disease and
can be considered the third greatest health problem after smoking and general obesity. A 1%
reduction in cholesterol has been shown to give a 1% reduction of risk of coronary heart disease.
Benecol has been supported with an extensive advertising campaign starring a well-known
television personality. In the US, Johnson and Johnson cancelled the TV portion of its USD100
million Benecol promotional campaign after consumers were affected by “sticker shock.”
Consumers looking for the product in supermarkets after seeing the product in TV advertising were
surprised by the USD5 price tag and did not go ahead with the purchase.
McNeil has tried to market directly to “information seekers” using a helpline, free literature, its
website and through contacting doctors and other healthcare professionals.
McNeil worked very closely with regulators to both the letter and spirit of the law. The company
was apparently very focused in its implementation of the claims, and the company believes that it
has been responsible in not trying to make overly ambitious health claims. Benecol is backed by
extensive clinical trials, including 20 published studies. The largest of these took a year and the
studies always involved more than 30 people. These studies have been published in a number of
journals, particularly the New England Journal of Medicine in, Circulation and the American Journal
of Clinical Nutrition.
Profit warnings, sparked by poor sales in the US, forced Raisio's share price to slump during 1999.
Benecol’s performance has been more encouraging in Europe. Benecol is apparently out-selling
“Flora Light” in the UK and “Take Control” in the US.
Evian Talians, France
Water from the source Evian-les-Bains has long been appreciated as high quality drinking water.
SA des Eaux Minérales d'Evian now sells more than a billion liters of the water annually in 120
countries over 5 continents. As people become more concerned about health issues, particularly
osteoporosis, Evian is taking this opportunity to sell water from a calcium rich source in Italy.
Launched in France by Evian in October 1999, Talians is a new mineral water described as
“exceptionally rich in calcium.” The functional water provides 50% of the recommended daily
allowance of calcium per liter and is presented in a one-liter plastic bottle with a hologram on the
label. The natural spring that is used as the source for this water has such high calcium content
that no additional fortification is required. Talians has 596mg of calcium per liter compared to 10 -
100mg per liter for most other mineral waters.
A one liter bottle of Talians retails at around FF 2.70 (USD 0.48) and is also available in a six-pack.
This is somewhat more expensive than Evian, which costs FFr 2.60 (USD 0.46) for 1.5 liters. The
product is promoted through a TV campaign aimed at men who are aged over 50 years and
women over 40 years. In-store advertising is also used to market the product. The product was
developed in response to greater interest in health products. In particular, problems in France and
the rest of the EU with lack of calcium are becoming more important for all age groups. Currently
10% of the population has problems related to calcium deficiency. To address this issue Evian
176

looked for a spring that was rich in calcium, finding one with 598mg of calcium per liter. It is not
easy to estimate whether there are other sources that are equally rich in calcium. The product is at
an early stage, but has not encountered any significant difficulties yet. They have achieved good
positioning because consumers and retailers had expected their product. In particular, the product
has seen early success with all major supermarkets and hypermarkets carrying the product.
William Jackson Bakery’s Nutribread
The William Jackson Bakery, family owned since being established in 1851, is a leading regional
bakery based in Yorkshire, northern England.
Nutribread is a family of products containing active ingredients. One of the key products is a
Nutribread product for women, which aims to help combat the effects of the menopause.
Nutribread uses the following ingredients to help protect against complaints related to menopause:
calcium and vitamin D, evening primrose oil, omega 3 essential fatty acids, low Sodium sea salt
(SOLO: contains 60% less sodium and more magnesium and potassium than common salt), and
soya flour and linseed.
Nutribread was launched in January 2000 with a press launch attended by national magazines and
newspapers. Since then, the marketing drive has continued to focus on press support with
organized competitions and vouchers in newspapers and magazines. These competitions and
vouchers require that consumers read a short product description. Nutribread has been launched
nationally and is stocked in UK retailers J. Sainsbury and Iceland.
While still negotiating with other retailers, the bakery claims that initial uptake has been
encouraging after the initial launch. With Nutribread, the William Jackson Bakery targets a
relatively wealthy socio-economic consumer group concerned about specific health issues. The
only clear barrier to future success for Nutribread is likely to be the taboo associated with public
purchase of a product that is directly associated with menopause. The success of manufacturers in
desensitizing, and bringing into the public domain, the traditionally taboo issues of menstruation
(i.e. with sanitary towels) and impotence (i.e. with Viagra) illustrates that this is not an
insurmountable problem.
Numico Stimulance, Netherlands
Numico is a major pharmaceutical company specializing in infant and medical nutrition. More
recently, Numico has made a move into the functional foods market through a chain of acquisitions
(initially Nutricia bought Cow and Gate, then Milupa bought Nutricia and finally, Numico bought
Milupa).
Stimulance launched by Nutricia in September 1999, is a functional fruit drink available in orange
and grapefruit varieties. The drink contains MF6, a “multiple fiber” developed by the company for
pharmaceutical use but adapted in the light of research revealing a high prevalence of constipation
in the Netherlands. The product is said to aid intestinal regularity. Constipation is a real problem for
hospital patients who lie in bed all day. So Numico developed expertise as a supplier of fiber
products to hospitals. People who take additional fiber to ease constipation will find that after time
they become habituated to the type of fiber that they take. To help avoid habituation, Numico
produce MF6, a product that combines six different types of fiber. MF6 was originally developed for
medical application, but now gives Nutricia a significant technical advantage over the competition
when competing in the food industry.
Stimulance is presented in a 600ml glass-bottle with a recommended retail price of NGL 3.99 (USD
2.11) and is designed to look like a mainstream food product. The 600 ml bottle contains enough of
177

the product for four servings. The target audience is mainly older people (over 40) and women of
any age since these are the groups that are most likely to be affected by constipation. Nutricia
markets Stimulance not only to retailers, but also to doctors and the product is sold in both
supermarkets (approximately 66% of sales) and pharmacies (34%). Nutricia knew that there was a
significant market for this product but uncertain on how to approach it. One of the biggest market
problems resided in choosing the product category used as a vehicle for Nutricia’s technology.
The company opted to use a fruit drink since fruit is known to be nutritious and is often seen as a
good aid to constipation.
Stimulance has had difficulty breaking into the hospital market. Hospitals have two different
budgets, one for drugs and one for food. The cost of treatment using Stimulance is equivalent to
using laxatives and fruit and dieticians prefer the Stimulance product. The product received an
enthusiastic reception from dieticians within the hospitals, who were keen to use Stimulance but
food and drug departments often disagree over whose budget is liable for the cost.
Nestlé BioCalcio, Spain
Nestlé was founded in the mid 1860s by Swiss pharmacist, Henri Nestlé as he searched for a
breast milk substitute. Nestlé now has a very diverse range of interests with annual sales of more
than USD 47 billion in seventy countries. Nestlé has more than a hundred years of experience in
the Spanish market with Spanish sales accounting for about USD 1.6 billion of the company's
turnover. Nestlé has introduced its Biocalcio range of yogurts to Spain, with the addition of a
fatfree variant called Biocalcio Desnatado. The new sub-range is available in natural, pineapple
and cereal variants. Nestlé are unique in Spain in that they add calcium to their probiotic yogurts.
The BioCalcio product costs 59 ptas (USD 0.38) per pot, compared to 38 ptas (USD 0.24) per pot
of standard yogurt.
Biocalcio been able to command this premium because of government osteoporosis health
campaigns on calcium have made people highly aware of the benefits of calcium enriched
products and because Danone launched a probiotic yogurt ten years ago prior so that people
understand the concept and are accustomed to the price (the Danone product is priced similarly to
BioCalcio but does not contain calcium).
Nestlé has not experienced any problems with the functional claim in Spain because of the
widespread concern about osteoporosis. Nestle believes that one of the most important lessons it
has learnt is to design products for a general audience rather than becoming too specialized.
Another of Nestlé’s product, LC1, is a direct competitor to Yakult and Actimel. LC1 Quark is a
series of “fromage frais desserts” presented in twin-packs of 125 g pots. The desserts are
available in natural, vanilla, peach, strawberry and blueberry varieties. LC1 Quark was launched in
Germany in May 1999 although Nestlé later launched a cherry and vanilla version that includes a
layer of cherry pieces.
A number of dairy based products exist within the LC1 brand and each includes a dose of
beneficial Lactobacillus casei 1 (LC1) bacteria. LC1 Go is a fruit-flavored probiotic drink that is said
to benefit the intestines. Launched in Germany in October 1998, the product is presented in a
cardboard sixpack of 80ml plastic bottles, retailing at DM 2.29 (USD 1.27). LC1 Diät are low-fat
probiotic fruit yogurts launched in Germany in June 1999 and comprise four low-fat varieties. Made
with fructose and an artificial sweetener, the 1.4%-fat yogurts are said to contain the same amount
of LC1 bacteria as other LC1 products. The strawberry, cherry, vanilla & pineapple and vanilla &
peach & maracuya yogurts are presented in 150 g pots and targeted at diabetics and the healthconscious.
178

LC1 has been marketed as a product promoting good health with no real claims made on the
packaging. Although different to the claims made on its packaging, one of Nestlé's websites claims
that its bacteria is "stronger than bulgaricus (found in yogurt) and more powerful than casei shirota
(in Yakult)". This aggressive and slightly ambiguous statement would have regulatory difficulties
if placed on packaging. The LC1 product has also achieved very desirable positioning within
supermarkets with the LC1 Go drink is placed next to Yakult in the milk section, while LC1 yogurts
are placed next to Actimel with other yogurts. This ability to compete in two different sectors will
prove to be a great advantage for Nestlé. LC1 has become very successful in Germany, and the
high level of retailer acceptance is also a good indicator of early success. It is, however, too early
to estimate the significance of these early gains, particularly since Yakult has not yet been
launched nationwide in Germany.
Relevance of natural products, biodiversity and bioprospecting
Bioprospecting can identify plants and other organisms that are sources of nutrients that are more
abundant, or more easily absorbed, or better digested, or have other properties superior to sources
already known. These can become important ingredients in functional foods.
179

Skin Protection and Anti-Aging
180

SKIN PROTECTION AND ANTI-AGING
Anti-aging
In the past ten years, natural ingredients have driven new product development in the cosmetics
and toiletries market. A new segment of bioactive products, the cosmeceuticals market, is among
the fastest growing sectors of the personal care industry. Although not recognized by the US Food
& Drug Administration (FDA) the term cosmeceutical is commonly used to bridge the gap between
those cosmetic products which cleanse and beautify and pharmaceuticals which heal or cure.
According to the FDA, when it comes to skin care there are only two categories: cosmetics and
drugs. Cosmetics are intended for "cleansing, beautifying, promoting attractiveness, or altering the
appearance." Drugs are designed "to treat or prevent disease or affect the structure or function of
the human body." Hybrids, cosmetics that make drug claims, are known in the industry as
"cosmeceuticals." "It's a hundred-billion-dollar business that the FDA doesn't even recognize.”
(Los Angeles Magazine)
This emerging market has generated significant research and development driven by consumer
interest in health and well being while intensifying competition among companies to produce
unique active ingredients which demonstrate higher performance and effectiveness. Consumers
are demanding products which have treatment functions and are willing to pay for value-added
products. A new generation of personal care products is relying on high-tech engineering and
antioxidants to create and preserve healthy skin. Around the globe, aging consumers, especially
baby boomers, have demonstrated a growing interest in natural, effective alternatives to chemical
rejuvenators, and recognize the benefits of natural products including vitamins and other nutrients.
These products may be sold over-the-counter (OTC) and offer additional benefits to the traditional
cosmetics purchased in drugstores, department stores and spas. “…Considered the most
promising market sector from both a technological and financial viewpoint, skin care
cosmeceuticals comprise over half the total cosmeceuticals market…skin care, continues to grow
at about double the pace of the cosmetics and toiletries market in the US." Industry sources place
the annual growth rate for skin care cosmeceuticals at 7 to 10 percent. Consumption in terms of
skin care product sales grew from $980 million in 1995 to $1.5 billion in 1999, reflecting the need of
an aging populace for more effective appearance enhancing and age-defying skin cosmetics.
Sales of anti-aging cosmeceutical skin care products reached $390 million in 2002.
(Source: Reuters)
181

182
Freedonia Group
Products in the skin care market address anti-aging, anti-wrinkle, skin lightening, and cellulite
reduction and include sun care products such as sunscreens, sun blocks and sunless tanning.
According to a recently released study from The Leading Edge Report Group on the Market for
Cosmeceuticals, the industry is experiencing rapid growth which will continue through 2005. The
report predicts… “that between 2000 and 2005, the market will see a compound annual growth
rate of 12 percent, from $2.9 billion to $5.1 billion.” Foremost among the OTC-pharmaceuticalcontaining
cosmetic products are a large number of “anti-aging formulas” which are being
purchased by maturing baby boomers. According to this report, the size of the baby-boom
generation is driving sales but the growth in the market is not just due to vanity but to recognition
among consumers about environmental issues.
According to the most recent market report released by the Freedonia Group (Jan, 2003), the US
demand for plant-derived chemicals is projected to advance seven percent per annum through
2006 and will be propelled by robust growth in demand for bulk botanical extracts used in herbal
supplements, and by the continuing discovery of new pharmaceutical chemicals derived from
plants. They predict that bulk botanical extracts will register gains of 9% per year driven by new
product introductions in the nutraceuticals market and increased evidence of the health benefits for
many new compounds. While publicity about potentially harmful side effects of some botanical

extracts may moderate overall growth opportunities by discouraging purchases of products
containing controversial extracts, they expect a resurgence of interest in plants as a source of new
therapeutic agents for an aging and health-conscious population. Pharmaceutical demand for
plant-derived chemicals is forecast to reach nearly $500 million in 2006.
In contrast, established plant-derived chemicals, such as essential oils and natural gums will
record more restrained growth, fewer than 6% per year through 2006. Gains will be moderated by
maturity in key markets, such as food, and cosmetics and toiletries. In addition, synthetic
alternatives will pose strong competition due to their lower price and more reliable supply. (Source:
Freedonia)
New product development in the skincare sector will continue to be the most innovative market as
companies seek to develop specialty skincare products for eyes, bust and legs. Also,
manufacturers will continue to develop anti-aging products which do not use synthetic ingredients.
Another factor in growth of the industry will be product development and marketing aimed at the
25-35 age group who have money to spend on skincare regimes in order to avoid problems later in
life.
Compounds and ingredients in Anti-aging Products
Among the compounds used in skin care/anti-aging products are:
Retinoids: These are derived from vitamin A, often known by their brand names--Retin-A and
Renova--and require a prescription. They were first used as acne drugs but they are believed to
repair sun damage and reduce fine lines. Prescription vitamin A, or tretinoin, (Retin A or Renova)
has a long-standing reputation for being an anti-aging treatment. However, this product has
caused redness, mild irritation, and peeling. Weaker, over-the-counter formulas, retinols, have
fewer side effects.
Antioxidants: These are topical creams that contain antioxidants such as Vitamin C or Coenzyme
Q 10. They are said to rebuild collagen and inhibit free radicals from interfering with the body repair
process. Topical Vitamin C is suggested to stimulate collagen production, filling out lines and
wrinkles and firming the skin. There are numerous formulas available in skin care products. One
product, Ester-C® Topical has a shelf life of at least two years and retains superior stability in
oil/water emulsions typical of cosmetic formulations. It is also non-acidic and free of chemical
derivatives, like ascorbyl palmitate or ascorbyl phosphates, and effectively penetrates deep down
into the skin's layers to help produce collagen and other support structures.
Exfoliants: This includes glycolic, alpha hydroxy and salicylic acids which help remove aging and
dead skin to allow for newer skin. The hydroxy acid family (which includes alpha-, beta-, and
polyhydroxy acids) remove the top layers of the epidermis helping to even out the skin’s surface.
Over the last five years, the use of alpha and beta hydroxy acids (AHAs and BHAs) has been
important in improving the ability of facial skincare products to make skin more radiant and youthful
looking. AHAs work by stripping the dead top layer of skin, exposing newer skin below, making the
complexion appear more radiant and lessening the appearance of wrinkles.
Lightening Agents: This includes hydroquinone or kojic acid which block pigment cells from
producing age spots and is indicated for the gradual lightening of hyperpigmented skin conditions
such as acne spots, freckles, age spots, and other unwanted areas of melanin. Over-the-counter
hydroquinone products include those by M.D. Formulations, Philosophy, and Peter Thomas Roth.
183

Advanced Sunblocks: Include compounds which protect against both UVA (Ultraviolet-A) UVA and
Ultraviolet-B (UVB) rays. UVA penetrates the skin more deeply, and is considered the cause of
wrinkling, leathering, and other aspects of photoaging. UVB rays are considered the main cause of
basal and squamous cell carcinomas as well as a significant cause of melanoma.
Sunscreens chemically absorb UV rays while sunblocks physically deflect them. Sunscreens have
blocked UVB effectively, but until recently provided less UVA protection. New ingredients such as
octylcrylene and the benzophenones have improved sunscreen's defenses against shorter UVA
rays, and the chemical avobenzone (Parsol 789) works against all UVA wavelengths. New
sunblocks have improved and include micronized titanium dioxide which offers substantial
protection against both UVA and UVB. Paraaminobenzoic acid (PABA) which has been used as an
effective sunscreen has been known to cause irritation for certain people. Therefore there has
been interest to develop PABA-free products for people who with sensitive skin.
Plant derivatives: Kinetin (N6-furfuryladenine) is a proven anti-aging plant derivative marketed
under names such as Kinerase. In 1997, the University of California, Irvine conducted an
independent study of Kinetin, an antioxidant naturally found in the human body and plants as an
anti-aging treatment. It was judged safe and effective in partially reversing the clinical signs of
photodamaged facial skin. The product reduced the appearance of fine lines and wrinkles, blotchy
hyperpigmentation, telangiectasia, and tactile skin roughness.
The scientific evidence was based on an in vitro model of cellular aging which demonstrated the
effectiveness of Kinetin to almost completely or partially prevent a variety of aging related changes
in the appearance and function of human skin cells. Kinetin, which is a synthetic plant growth
hormone, has proved effective in maintaining normal cell function and appearance. It retards the
aging of plants and delays the age-related changes in human cells. Kinetin reduces the
appearance of fine lines and wrinkles, fades sun damage spots, and improves the skin's texture
and moisture retention capabilities. Senetek, PLC a California based company, patents an
alternative to Retin-A, the use of Kinetin skin care products. They have licensed the proprietary
plant growth hormone to companies such as The Body Shop, Revlon, Osmotics and others and
they are negotiating with other potential licensees. Kinerase, a product of ICN Pharmaceuticals is a
trademark name (Source: Leading Edge Report Group)
184

As described in the General Analysis report, within the skin care market, the facial care sector
dominates the category representing a 70 percent of the global skin care market in 2000. The
nourishing/anti-aging and facial cleanser subsectors, worth US $4.5 billion and US $4.4 billion in
2000, experienced more substantial +6 percent market share growth. This is evidence of the
widespread desire to combat signs of aging and the stepped up activity of new product
introductions.
185

Skin Care By Region % Analysis 1996-2000
% value 1996 2000
Asia – Pacific 35.3 34.9
Western Europe 32.1 27.7
Northern America 17.3 22.6
Latin America 7.5 7.0
Africa/Middle East 4.3 4.6
Eastern Europe 2.4 2.3
Australasia 1.2 0.9
Source: Euromonitor
Skin Care Selected Markets
United States
“U.S. Department Stores Top 5 Brands Prestige Skin Care
January – September 2001
1. Clinique
2. Estee Lauder
3. Lancome
4. Clarins
5. Origins
Source: NPD Beauty Trends
Facial Skin Care by Sub Sector
US $Billion % CAGR 1996-
2000
Facial Moisturizers 10.4 1.6
Nourishers/Anti-Agers 4.5 6.1
Facial Cleansers 4.4 6.0
Toners 1.7 -1.8
Face Masks 0.8 1.0
Source: Euromonitor. (Source : “Skin care: The market report: Soap & Cosmetics, 78(1): 34(4),
January 2002. ISSN: 1523-9225)
186

Premium Sun Care: Major Manufacturers' Shares by Region 2000
% value sales of premium sun care
WORLD WE NA A-P LA EE Af&ME Aus
L'Oréal SA 11.7 17.0 18.6 0.9 7.4 – – 1.9
Shiseido Co Ltd 9.5 3.2 – 43.8 – – – –
Estée Lauder Cos Inc 8.2 1.0 38.1 1.5 – – 1.0 45.6
Clarins SA 5.7 6.0 – 12.1 – – 3.5 14.3
Kanebo Ltd 3.6 – – 18.6 – – – –
Kao Corporation 1 2.8 – – 14.3 – – – –
Johnson & Johnson 2 2.2 4.2 – – – – 1.9 –
Coty 1.6 3.2 – – – – 0.9 –
Kosé Corporation 1.4 – – 7.1 – – – –
Antonio Puig SA 1.3 1.7 – – 8.7 – – –
Source: Euromonitor
Key: WE = Western Europe; NA = North America; A-P = Asia-Pacific; LA = Latin America; EE =
Eastern Europe; Af&ME = Africa & the Middle East; Aus = Australasia
United Kingdom
Top 10 Skincare Brands
1. Oil of Olay
2. Boots
3. Synergy
4. Nivea
5. Vaseline
6. Plenitude
7. Simple
8. Nivea Visage
9. Crookes
10 Superdrug
Ranked on value sales (52 w/e 3 March 2002) TNS Superpanel
187

Total Skincare Market (UK)
52 w/e
y-o-y
March 3 '02 % change
Value 652,022 12.4
Volume (units or packs 37,657 16.7
% share by sector % % change
Cleansers 32.3 1.3
Facial moisturizers 26.1 -6.3
General purpose 24 7.6
Baby skincare 5.5 5.8
Hand preparations 5.4 -5.6
Lip preparations 3.3 -0.6
Toners 2.6 -8.9
Petroleum jelly 0.8 -5.9
Source: Taylor Nelson Sofres Superpanel (Source: Market for skincare products
in UK grows 12% to UKPd 652 mi - Grocer (The), 225(7551): 43(2), April 27, 2002.)
UK: Leading Mass Market Facial Skin Care Brands 2001
Cleansers Toners Moisturisers
Oil of Olay Boots Oil of Olay
Simple Synergie Plenitude
Clean & Clear Simple Boots
Source: Taylor Nelson Sofres Superpanel
UK: Mass Market Facial Skin Care, 2001
[euro]m Value Volume %[+ or -]
Cleansers 335.7 129.0 +22.0
Toners 26.9 9.6 -8.0
Moisturisers 268.7 54.9 +8.8
Source: Taylor Nelson Sofres Superpanel
Business model of a representative firm
The Aveda Corporation
“Preserving biodiversity is a key to our future as a species- Working to slow global warming helps
save habitats, fragile ecosystems, plants and animals threatened by extinction—protecting the web
of life that touches us all.” This message quoted on the Aveda website sums up the company’s
strong commitment to fair trade and environmental sustainability.
Founded in 1978 by Horst M. Rechelbacher, an active environmentalist, the Aveda Corporation is
a global plant-based cosmetics company purchased by Estée Lauder in 1997 for $300 million. The
Aveda Corporation sells holistic creams and facial products in 8,000 salons and spas and three
188

specialized Aveda Institutes. The company provides hands-on training and marketing strategies to
spas within its network, which exclusively sell Aveda products. Founded on a commitment to using
botanical products, the company is sensitive to environmental impacts of using both wild and
cultivated botanicals in their products and work to select only raw materials certified as organically
grown or sustainably harvested. Their research and development group continues to identify and
develop replacements for ingredients that are petroleum-based or of animal origin.
In Europe and Asia, their products are distributed through Aveda and Estée Lauder subsidiaries
and independent distributors. The Aveda Institute —Minneapolis, Minnesota (AIM) located in the
state with the major production plant offers three training programs for students entering the fields
of cosmetology (hair care and services) and esthiology (skin care, facials, body waxing and
massage). These programs integrate social and environmental responsibility into their curriculum.
The Aveda Institute in New York offers cosmetology and esthiology training. In addition to these
programs, the Institutes provide workshops for professionals in the field interested in further
development of their skills and knowledge as well as education on Aveda’s philosophy, mission,
and products.
Aveda operates as a distinct entity within the Estée Lauder family of companies. It does not report
revenues or operating activities separately. Aveda has grown substantially since its acquisition by
Estée Lauder. In 1999 it acquired 13 additional Environmental Lifestyle Stores and expanded retail
operations to a total of 35. Between 1995 and 1999 production volume increased 56 percent.
Aveda has a demonstrated interest in identifying sources of raw materials from indigenous peoples
which support fair trade and help sustain the environment. Currently they are working with the
Yawanawa people in the Brazilian Amazon. The company funded the planting of a mixed forest
area with bixa, a derivative used for centuries by the Indians which the company uses as a colorant
in lipsticks and other products. They purchase morikue from Peruvian Indians. This innovative
ingredient is a protein complex which nourishes dry, damaged and chemically-treated hair. It is
harvested from Brazil nut trees which are essential to the overall health of the rainforest. A new
Peruvian Forest Law grants concessions to traditional nut-collectors, "castañeros" of the region—
such as the Indigenous Ese'eja Peoples—to gather the edible nuts for personal use and to sell
them for income. Without earnings from Brazil nuts, people from this region would be under great
pressure to earn their livelihood from logging or other practices that result in deforestation. Local
workers gather fallen Brazil nuts from the forest and extract oil from the nuts. The leftover meal is
combined with wheat protein to create morikue protein complex, a pure plant-derived protein.
Aveda is also developing projects in Bolivia and India which seek a balance between community
development and commercial viability of a raw material. The latest product launch from Aveda
uses extracts from a urukum palm tree in the Brazilian Amazon which yields a red seed-pigment
called uruku. The Yawanawa tribe uses this extract to decorate their bodies and faces. Aveda is
collaborating with the Yawanawas to organically grow these trees, thus fostering economic
independence for the Indians and bringing them a new cosmetic to conscientious consumers.
(Source: Aveda web site)
As a member of the Estée Lauder family, Aveda has access to a broad supply chain base which
has allowed them increased access to suppliers who share their interest in environmental values, a
core aspect of the customer-supplier relationship. They have also found suppliers who wish to
work with the company around environmental issues.
The company has carried this idea into product packaging using only environmentally benign
materials. As part of the Coalition for Environmentally Responsible Economies (Ceres) which is
charged with protection of the biosphere, the company has made a strong commitment to progress
189

toward eliminating the release of any substance that may cause environmental damage to the air,
water, the earth or its inhabitants. They address issues such as sustainable use of natural
resources, reduction and disposal of wastes, energy conservation, risk reduction, safe products
and services, environmental restoration, and use the media and the Internet as a mechanism to
inform the public about these practices. Furthermore, they have made a management commitment
that ensures their CEO and Board of Directors is fully informed about environmental issues and
responsible for environmental policy.
Among their top products in hair, skin, make up and “lifestyle” is a line of skincare products
including cleansers, hydrating lotion and facial masques, plant-derived body products for shower,
bath, massage and sun care. Among their products is Tourmaline, based on Ayurveda-the ancient
healing art of India and Aveda's own pure flower and plant essences. Finely-powdered tourmaline,
a naturally energizing mineral is added to the product. Among the Daily Care products are
botanically based skin care called Botanical Kinetics which use plant-derived emollients
combined with natural anti-oxidants and Aveda's pure flower and plant essences. At a world
summit on sustainable development in Johannesburg, South Africa in 2002, Aveda used its
website to broadcast conference proceedings as part of their mission to educate consumers about
environmental issues. Dominique Conseil, President of Aveda stated, "If consumers focus on what
they can control, it will make a big difference, as manufacturers go where consumers take them."
(Health & Beauty Salon, Nov 1, 2002 p99 )
190

Active Use for Anti-Aging Skin Care Applications
Vitamins
Polysaccharides
Botanicals
Proteins/Peptides
65%
18%
6%
6%
Enzymes/Coenzymes 5%
Source: Kline & Company Inc. as referenced in:
Chemical Market Reporter, 2/11/2002, Vol. 261 Issue 6, p15
Strategic Alliances and joint ventures
Aveda has made a commitment to use certified organically grown plant materials where available
which has led to a growing list of new supplier relationships. The company has worked with
packaging suppliers to incorporate environmental concerns into product packaging. All Aveda
products follow an environmental criteria guideline. The incorporation of environmental criteria in
packaging is the major focus of Aveda’s supply chain environmental improvement efforts. The
company works with suppliers who meet the company’s packaging specifications with materials
that are considered to have less environmental impact. The company has developed a relationship
with suppliers who are willing to partner in research and development on new packaging designs.
In turn, suppliers have suggested changes in packaging designs in order to save materials and
reduce waste in the production process.
Relationships with Traditional Communities includes work with regional suppliers for raw materials
and packaging. Some of their supply may be limited to specific regions of the world, especially for
plant-based ingredients, such as coconuts from the South Pacific region or Babassu oil from South
America. Aveda herbalists are charged with the development of organic ingredient sources. This
may include identifying growers who are already committed to organic operations or it may mean
working with existing sources to bring them into the certification process. The company relies on
credible third party certification in compliance with standards set forth by IFOAM (International
Federal of Organic Agricultural Movements).
Cause-related marketing
Cause-related marketing (CRM) is defined as a strategy or collection of strategies employed by a
company that focus on promoting products or services in conjunction with social, community or
global concerns. This category therefore includes Aveda and its activities for the homeless, and
Jane cosmetics with its focus on the welfare of young women. Both companies proudly display
socially responsible marketing on their websites and advertising. Estée Lauder (which owns
Aveda and Jane cosmetics), has a long-standing commitment to research into breast cancer, and
runs programs to raise awareness of the disease. Cause-related marketing is the result of a fourway
relationship between the charity, consumers, the retailer and the manufacturer. The
manufacturer wields most power, and has the most to gain from the relationship. (Source: Reuters
pg. 45)
191

192

Aveda’s Relationship with suppliers from the Amazon who harvest oil from the Babassu palms.
“ In the eastern Amazonian region of Brazil, women gather after morning chores to collect nuts
from lush new-growth babassu (bob-ah-sue) palms. They carry their harvests in woven baskets to
shade trees, where they sit and break the hard shells with a stick over ax blades adjusted to their
legs. The women are from Indigenous and local communities that have occupied the Maranhão
region of Brazil for over four centuries. They are among 600,000 peasants who have developed a
simple livelihood consisting of garden agriculture (corn, beans and small livestock) and the
rudimentary processing of babassu nut oil for cooking and cleansing. They call themselves
quebradeiras de coco-"nut breakers".
Their world was not always this peaceful. Twenty years ago, along these coastal plains, vast
sections of forest were burned and cleared for cattle ranching and the people were forced, often
violently, from the land. Not prepared to see their palm forests destroyed, these women fiercely
resisted. Refusing to leave their homes, they stood up to legions of clear-cutters, tractors and
guns. Songs and chanting became a major weapon of resistance. The women would light candles
over felled trees, pretending to do witchcraft to keep the gunmen away.
As fertile land fell to logging interests, the community lost family farms. Many men were without
work. The nut gathering of the women became a chief means of livelihood. Soon the stories of
these misfortunes were heard, however. Joining with environmental groups, the babassu nut
breakers successfully lobbied local and federal officials to prohibit the clear-cutting of the palm
forests, and to protect the right of forest inhabitants to gather, harvest and sell the nuts.
These local collectives-in this precious region-have been partners with Aveda for six years. Aveda
has taken certified organic babassu as a starting point to create a cleansing ingredient-known as
babassu betaine. This new cleansing ingredient offers luxurious results, and reflects Aveda's
mission: to support sustainable and organic agriculture, protect the ecosystem, and partner with
Indigenous and local communities to encourage their economic independence.
Our collaboration has exceeded expectations-on both sides. Aveda has financed the construction
of a babassu processing facility, a soap-making facility, a paper press for processing babassu
fibers and funded corresponding training in processing and management. We are able to buy
babassu directly from the women's collectives. This means we don't have to go through
conglomerate importers and middleman companies that could usurp Native interests. In turn, we
know exactly where our certified organic babassu is coming from-knowledge that assures us that
our high standards of integrity are met. Ingredient purity can be traced to source, to harvests that
don't harm the land or the people-most especially in the ecologically sensitive Amazonian region.
Currently, with Aveda support, the quebradeiras de coco have begun a living pharmacy project to
produce plant-based medicines, and one collective is becoming a certifying agency in organic
agriculture. In this way, the Native Communities are not reliant on Aveda alone for financial
wellness, as they pursue environmentally sustainable means of economic development.”
(http://www.aveda.com/protect/we/babassu.asp)
193

Market access issues
The product sub-area for skincare and anti-aging is generally dominated by large companies.
However, supplier opportunities for small and medium sized firms exist. This product sub-area is
characterized by medium to high capital requirements. Because of the nature of the products
involved, regulatory restrictions are well established. These are described below along with other
market access considerations, such as technology requirements and intellectual property
protection.
Regulatory issues
The global demand for cosmeceutical products is currently estimated at US$22 billion, and future
growth is expected to come from emerging markets in South America, notably Brazil. As
consumers demand more effective products to fight the signs of aging, the market will depend on
the introduction of new cosmeceutical ingredients which reflect new research on the aging process.
These new ingredients will need to be regulated to protect the safety of consumers, especially in
less developed countries where product awareness may not be as high. For example, consumer
complaints about products containing AHAs, which may irritate the skin resulted in the American
Food and Drug Administration restricting the strength of these acids in cosmetics to between 3%
and 10%. Change in regulation will center on the classification of products containing
cosmeceuticals. Many skincare products include those ingredients which have already been
approved, such as retinol and alpha hydroxy acids. Companies also use vitamins and botanicals
in their skincare products. In the future there may be some restriction on the concentration of
ingredients in cosmeceuticals to allow them to remain as OTC products, or they may reclassify
these products as drugs according to the current definition of the category. If not, there may be an
overhaul of 1933 FDC Act and the creation of a new category definition for cosmeceutical
products. (Source: Reuters)
The General Analysis report pointed out that the imminent final version of the 7th Amendment to
the EU Cosmetic Directive includes an animal testing ban by 2009 for both cosmetic ingredients
and finished products. This new EU Directive will also require cosmetic products to be labeled with
a period of minimum durability dependent upon the product stability or shelf life as it relates to
consumer use. While the exact language is not yet available, products with less than 30 months
durability must state the acceptable time period for use. Conversely, when a product is durable for
more than 30 months, the product will be required to show a symbol of an open container and state
the time period during which the consumer can expect to use the product after opening. These
Labelling requirements will probably go into effect two years after the Commission approves the
Directive.
Following publication of the approved Seventh Amendment to the Cosmetic Directive, member
states will have two years adopt and implement the new law in their respective countries. The
impact on these efforts will be felt throughout the various member states as well as their worldwide
trading partners, especially the United States, Japan, and the growing Asian markets.
There will be many more issues and requirements addressed in the language of this new
legislation. There will need to be additional product Labelling and testing to assure product stability.
A second and more difficult challenge will be the urgent requirement to develop alternative test
methods to assure consumer safety. (Source: The 7th Amendment: A new year's resolution (Rule
& Revelations) Analysis of pending cosmetics regulation in the European Union Global Cosmetic
Industry, 171(1): 20, January 2003.)
194

In Japan new regulations for cosmetics do not require pre-market approval and licensing for
products defined as cosmetics. Companies must provide notification of the product's trade name
and any cosmetic ingredient not prohibited may be used in a cosmetic product. Regulations also
require ingredient Labelling on the package. The industry will use the International Nomenclature
Cosmetic Ingredient (INCI) names as translated into Japanese “Japanese Cosmetic Regulations
Now in Effect” (Reuters)
Technology platforms
According to a Reuters report, in recent years manufacturers experimented with creams consisting
of spheres that contained small amounts of a functional agent which was released into the skin
over time. Estée Lauder launched its Time Release Moisturizer in 1996 and followed it with Virtual
Skin make-up (a foundation) in September 1996. This facial moisturizer contains water in small
bubbles that are broken down and released into the skin over 12 hours. The foundation uses the
same technology. Novaspheres, which are filled with derma-lipids, which mimic the naturally
occurring fat cells in the skin help it to retain elasticity and moisture. This system is said to prevent
the make-up from drying the skin, and helps the product last longer.
The use of ceramides marked an important step in the development of delivery systems in facial
skincare. Ceramides consist of a long-chain or sphingoid base linked to a fatty acid via an amide
bond. They are rarely found at greater than trace levels in tissues, although they can exert
important biological effects. Ceramides are a substance which occurs naturally in the skin so they
did not present problems in terms of allergic reactions in consumers. Ceramide creams are
absorbed very easily so only a little is needed to be effective. Ceramide skincare is promoted as
creating an environment within the skin to combat the visible signs of aging with the creation of bioengineered,
human identical ceramides which is said to allow the skin’s natural processes to do
better at self-repair. In 1996, Elizabeth Arden launched a skincare line which relied heavily on the
use of ceramides in both its lip, make-up and facial skincare products. Another company,
Lancaster developed the Asymmetric Oxygen Carrying System in 1997, using the same principle
as the novaspheres created earlier by Estée Lauder. Their product was designed to go deeper
than the derma-lipids and ceramides and to put oxygen directly into the bloodstream using charged
ions containing oxygen which attaches to the oxygen-bearing blood cells. Low levels of oxygen and
excessive exposure to sunlight (which replaces the vitamin C in the skin with vitamin A) result in
free radical damage which destroys the skin’s capacity to rejuvenate, and results in wrinkles.
(Reuters Business Insight 20)
RonaCare’s Ectoin, a product marketed by EM Industries, addresses the issues of photo aging and
moisturization, but in a different way. Ectoin, an "unnatural" amino acid, is produced by the
bacterium Halomonas elongata to protect it from its native environment, which is hot, dry and
saline. In the same way, Ectoin also protects skin fibroblast cells but it is not a sunscreen. Ectoin
binds a large amount of water and forms a hydrate sheet that stabilizes biopolymers. Ectoin
prevents skin damage by surfactants. Merck KGaA produces Ectoin by fermentation in Germany
which will soon appear in several premium brand products.
The Yves Rocher company, La Gallicy, France, has been committed to creating and producing
cosmetics in an environmentally responsible since l956. The company founded an International
Botanical Research Center located outside Paris which brings together some one hundred
researchers biologists, chemists, physicists, dermatologists, pharmacists and botanists. They work
in close collaboration with the public and private universities and major research institutes both in
France and abroad. As a result of advances made in Plant Biology, there are more than 150 active
195

plant ingredients in Yves Rocher products, Using organically grown plants, limiting waste and using
recyclable packaging and biodegradable formulas, the company has secured numerous patents for
its products including Bio-Specific Nutrition with Vegetal Oleosome Milk which uses an extraction of
native Vegetal Oleosomes for cosmetic application. Another product, Pro-Retinol 100% Vegetal +
Enzymes de Jeunesse, is based on two patents registered for the combination of enzymes and
beta-carotene for application of an anti-aging cosmetic and for the protection enzyme within the
product.
Other recent product launches include Lancome Paris’s, Absolute Replenishing Crème SPF 15
which claims to help the skin restore itself by boosting the function of its cells. It includes a
component called Bionetwork, which is a combination of wild yam, soya and brown sea algae. The
cream also features capriloyl salicylic acid and oils of bergamot, cardamom, green tea, cedar, iris,
jasmine and black tea.
Role of intellectual property
Patents can enhance a product’s profit-making prospects considerably which will give companies a
chance to recoup monies invested in its development. Zila, formerly Inter-Cal holds eight year
patent protection on Vitamin C variant Ester-C. This has allowed them time to establish their brand
name in a market dominated by large pharmaceutical players. Smaller companies have the most to
gain from the patenting process—if they can afford the cost involved to get one in the first place.
Ester-C is manufactured under U.S. Patent No. 4,822,816 a licensed trademark of inter-Cal Corp,
now owned by Zila.
Senetek PLC received a patent from the United States Patent and Trademark Office for its product
which uses "methods and compositions for ameliorating the adverse effects of aging on
mammalian cells in vitro and in vivo, without substantially altering the growth rate or total capacity
of the treated cells". The patent grants protection to VivaKin, Senetek's non-irritating skin treatment
formulated for topical application to human skin. The "ameliorative" effects of VivaKin are
manifested as a decrease in the number or depth of wrinkles; a delay in the appearance of such
wrinkles; or, a decrease or delay in the development of loose sagging skin or other characteristics,
such as discoloration, that are associated with aging skin.
Scientific data suggest that VivaKin has effectiveness and safety in treating aging skin unmatched
by other so-called revitalizing skin treatments, such as cosmetics, chemical peels, injections of
collagen and surgical techniques such as face-lifts. Kinetin (6-furfurylaminopurine), the active
ingredient in VivaKin, is a highly potent growth factor that, along with other plant-growth
substances, promotes cell division and ensures orderly growth and development of plants. Senetek
holds a total of 130 patents and 97 trademarks including: Method and Composition for
Ameliorating the Adverse Effects of Aging and Method and Composition for Treating Hyperproliferative
Skin Diseases.
Relevance of natural products, biodiversity and bioprospecting
As described throughout this section, skin-protecting agents, like previously unknown chemical
emollients that better protect against damage from sun and dryness, may be found in the extracts
of plants and other novel organisms discovered through bioprospecting.
196

Identification of examples of principal producers and distributors of anti-aging skin care
products
Leaders in the Prestige Product Category
Clinique
Estée Lauder
Lancome
Clarins
Origins
Chanel
Christian Dior
Shiseido
Mass Market Categories
197
Bobbi Brown
Orlane
Prescriptives
Decleor
Lierac
Prada
Nars.
Company Product
Beiersdorf Nivea: CoEnzyme CoEnzyme Q10 and CoEnzyme R
Almay (Revlon) Kinetin Skincare
Procter & Gamble Oil of Olay's Total Effects
Neutrogena Visibly Firm and Healthy Skin
Avon Anew
L'Oreal Plenitude
Aveda Botanical Kinetics
RoC Retinol Actif Pur line
Yves Rocher Pro-Retinol 100% Vegetal + Enzymes de Jeunesse
The following companies have been licensed to produce products using Kinetin, a patented
substance for anti-aging.
Osmotics launched Kinetin-based products into the prestige cosmetics market in February of
1999. (http://www.osmotics.com/)
ICN Pharmaceuticals introduced Kinerase to the ethical market in the US in April 1999.
(http://www.icnpharm.com/)
Enprani Co., Ltd successfully initiated a launch of Kinetin-based products in Korea.
(http://www.enprani.co.kr/)
The Body Shop launched Kinetin-based skincare products to the alternative market in North
America in 2001. (http://www.thebodyshop.com/)
Revlon launched Kinetin-based products under the Almay brand to the mass market in North
America in 2001. These products are available in drug stores nationwide. (http://www.almay.com/)
Med Beauty AG began marketing and distributing Kinetin-based products in the Salon Esthetician
market in Switzerland and Germany in 2001. This agreement also provides for expansion into
additional European markets.
(Source): Retail Merchandiser

Enzymes For Food Processing
198

ENZYMES FOR FOOD PROCESSING
As described in the General Analysis Report, food enzymes have the largest market share within
the world market for industrial enzymes (approximately 50%). Two thirds are used by the dairy and
starch industry. Biotechnology and genetic engineering play an important part in product
innovations in food enzyme technology. Concepts of protein engineering and rational protein
design are an important part of the innovations process along with new screening processes for
new enzymes, fermentation and downstream processing.
Enzymes are used for a wide range of applications in the food industry: baking, cheese making,
starch processing, fruit juices, wine and beer production among many others. Enzymes can
improve the qualities of foods including appearance, texture, nutritional content as well as flavors
and aromas. Furthermore enzymes can be used to replace certain chemical-based technology in
the food industry with advantages of less environmental impact and lower energy usage. Because
of their specificity, enzymes often result in fewer waste products. In addition to being important
food ingredients and processing aids, enzymes are also analytical aids and help in quality control
and measurement. Traditionally, enzymes for food processing are derived from plants,
microorganisms, and animal sources. Through technological advances in protein engineering, new
second and third generation enzymes are being developed with improved catalytic activity and
specificity.
Example of firms representative of the sub-area of enzymes for food processing
In reviewing the sub-area of the production and distribution of enzymes for food processing, it is
relevant to review more than one business model. There are major differences in the
commercialization approach depending on the size of the firm, the stage of its growth, and its inhouse
capacity for research and development. The information in this section is derived from data
available for three such enzyme producing companies: Biocatalysts Ltd of Wales, UK, Genencor
of the US, and Novozymes of Denmark. Although not all variables will be discussed for each of
these firms, relevant details will be included where appropriate. In all cases, research and
development investments are an essential component of their business strategies.
Biocatalysts Ltd is an independent company which produces and sells enzymes. This company
specializes in focusing on specific niches of the enzyme market. The company customizes its
products and services to each customer. Biocatalysts Ltd is a relatively small company.
Genencor is a larger company with 1,300 employees which has a number of products for the
industrial and agri-processing sector. In the food processing area, they produce a wide variety of
enzymes for the production of syrups, sweeteners, and other products. Their specialties used in
the food industry for the improvement of baking as well as for the efficient processing of proteins
and food preservation.
Novozymes is a yet larger company with a wide portfolio of industrial enzyme products which
include those for food processing applications.
Description of typical or standard “value-added chains” and associated stages
Each of the above-mentioned firms encompasses a different number of stages relevant to the
value chain in enzyme production and distribution. However, there is also a certain amount of
199

overlap. Broadly common to traditional types of companies producing first generation enzymes are
the following activities relevant to the value chain.
Assay development
Fermentation and process development
Commercial manufacturing
Distribution and customer service
Research oriented companies involved in the development of second and third generation
enzymes include the following activities:
Gene discovery
Development of databases and gene libraries
Development of host production organism and manufacturing process
Criteria for development of strategic alliances and joint ventures
Mergers and acquisitions among companies in this industry continue to affect the number of
companies which have new enzyme technology adaptable to food use. Product developers who
understand the use of enzymes to create and/or enhance new and unique food products are more
likely to find a solution for the expanding selection of novel food enzymes. (Klahorst)
Ongoing supplier relationships with major food processing companies provide both the incentive
and the necessity for enzyme producing firms to seek strategic alliances and partnerships with the
same. Inward investment to the enzyme producing firm is often directed at developing and
expanding its research and development capacity to better serve the needs of the investment
partner/customer. In other cases, such strategic alliances are more geared to vertical integration
of the value-added activities described in an earlier section. Biocatalysts Ltd, for example, has
such an arrangement with Süd-Chemie AG which also has a minority shareholding position in
Biocatalysts Ltd. Süd-Chemie manufactures specialty packaging for certain enzyme products from
Biocatalysts Ltd. Biocatalysts also benefits from Süd-Chemie’s extensive market coverage in
Europe, USA, Asia, and other regions.
Food enzyme production firms are also interested in collaboration with independent researchers,
as well as scientists at research institutions, universities and commercial establishments where a
research partnership is of mutual benefit. New technology innovations are also occurring in the
production scale-up aspects of natural food flavors. Oxford University scientists are developing a
process using an enzyme to selectively oxidize cheap terpenes and turn them into specific flavors.
The researchers are working to develop this process can be on a commercial scale which should
make flavors available in pure high volumes.
In the case of Genencor, a key part of its strategy has been to form alliances with industry leaders
in target markets. They reportedly also look for partners with market share in the target market and
which are willing to fund or participate in research and development efforts. Similarly, they look for
external alliances on the technology side with entities possessing or developing technologies
relevant to their target markets.
Genencor entered such an agreement with a company called Danisco A/S in 2000. Danisco A/S is
one of the world's leading food ingredients companies. This agreement provides for the
development and production of innovative biotechnology derived products for use in the food
industry.
200

Among the other players in the area of specialty additives is Nutrinova which recently acquired
Protos-Biotech, Celanese Ventures GmbH's biotechnology unit. Nutrinova is a wholly owned
subsidiary of Celanese AG which produces specialty food and beverage ingredients. One of its
main products is the high intensity sweetener acesulfame K. This acquisition gives Nutrinova
access to Protos-Biotech's important product which is omega-3 fatty acid docosahexaenoic acid.
Market access issues
Perhaps the most significant market hurdle in the sub-area of enzymes for food processing, is the
fact that the food processing industry is fairly staid in its practices. Medium to high technology
investment is required in the food enzyme area depending on the focus on specialty enzymes
versus bulk enzymes. For the former, strong support is needed for intellectual property protection.
In both areas collateral infrastructure is important, particularly as it relates to levels of skills and
competencies in the workforce. The food enzymes area has a somewhat stable technological life
cycle. The paragraphs below discuss technology platforms, intellectual property considerations,
and regulatory issues as they relate to market access considerations.
New types of technology platforms used to redesign and produce food enzymes
There are continuing innovations in technology platforms used in production of enzymes. These
include: protein engineering, gene evolution, high-throughput robotic screening, gene expression,
scale-up technologies, robotics, integrated genomics, separations, purification.
New cutting edge enzyme technology involves the use of enzymes for forming as well as cleaving
bonds. The enzyme transglutaminase, for example, has been introduced in Europe for crosslinking
peptides in proteins. This new enzyme is designed to offer thickening in protein-based foods
without using heat. The use of lipase enzymes for synthesis of esters is another application which
could find its way into the food industry. The new enzymatic process utilizes lipase enzymes to
rearrange or replace specific fatty acids within triglycerides to improve properties. In the protein
hydrolysate industries which produce savory flavors from soy, yeast, meat and fish protein
hydrolysis by using protease enzymes, the trend will be to design effective enzymes which do not
cause bitter flavors. (Klahorst “Food product design” p. 7-8)
Some advanced technology innovations are based on new genomic information organisms used in
food processing. As recently as December of 2001, the company DSM announced that it had
completed the DNA sequence of one of the principal organisms used in production (Aspergillus
niger). The company states that by understanding the mechanisms of gene expression in enzyme
production processes it is possible to customize enzyme products to specific customer needs by
adjusting individual enzyme activity. The use of this new tool has meant increased sales growth
for many companies. The company Novozymes reports that its sales of food enzymes increased
by 17% in 2001. In the bread making industry, bakers which use frozen dough also gain
advantage from this innovation. Such companies prepare dough and store it frozen for use on an
“as needed” basis.
On another front, FMC BioPolymer has developed a new alginate Protanol GP 115, which the
company says produces a pulpy and rich-in-fruit appearance to fruit filings.
201

Role and significance of intellectual property considerations for the selected product subarea
According to Genencor, the company considers protection of their proprietary technologies and
products to be important to the success of Genencor’s business. The company states that it relies
on a combination of patents, licenses, trade secrets and trademarks to establish and protect its
proprietary rights in its technologies and products. They have currently well over 3,000 patents
which they either own or have licensed or for which they have patent applications. Their
intellectual property portfolio includes rights in technologies ranging from specific products to host
production organisms and technology covering research tools such as high-throughput gene
discovery, molecular evolution, immunological screens and metabolic pathway engineering. (SEC
filing).
Regulatory issues associated with food processing enzymes
The regulation of commercial enzymes and their application to the food industry is controlled by
national and international legislation which varies around the world. Some countries require
approval before a new product is introduced and others need only to be notified prior to the sale.
Enzymes produced using biotechnology are subject to additional regulations with the European
Union, Japan, Australia and others reassessing their guidelines.
The United States regulates enzyme preparations as a secondary direct food additive or Generally
Recognized as Safe (GRAS) substances. The microorganisms that are used in enzyme production
also need to be GRAS. These enzymes are considered food additives and require pre-market
approval from the FDA. Those enzymes considered as GRAS prior to 1958, either by common use
in food or scientific studies, do not require approval.
Within the European Union, enzyme preparations are considered processing aids and have no
technical function in the final food. For this reason their use in food is not covered by regulation
but this situation is being evaluated. To gain approval for a food additive a company must submit a
dossier to the Scientific Committee for Food (SCF) which has issued guidelines. The European
Association of Food Enzyme Producers is an important entity that provides assistance to
manufacturers with science, regulatory, and industrial safety issues. Currently several European
countries have legislation pending covering all food uses for enzymes. (Zeman, May 2002)
Because of regulatory approval processes enzyme biotechnology companies are taking a more
conservative approach to developing new food enzymes than in the non food industries. Long
product development cycles and concerns among consumers about the addition of biotechnologybased
enzymes has cause companies to discover new enzymes from organisms in natural habitats
such as those found in the thermal hot springs of Yellowstone National Park in the U.S. Food
companies interested in understanding how new enzymes meet biotechnology guidelines such as
those established by the National Organic Standards Board in response to bioengineered food
crops which are entering the market.
Sample approximate costs for setting up firms to commercialize food processing enzymes
In the case of Genencor, a major portion of their operating expenses has been related to the
research and development of products. During the period 1999-2001, their total research and
development expenses were $60.1 million, $50.9 million, and $44.0 million, respectively. Of these
expenses, an estimated $11.4 million, $13.2 million, and $15.8 million, respectively, represent total
202

expenses incurred in conjunction with research collaborations partially funded by their various
partners.
Identification of examples of principal producers and distributors for food processing
enzymes
Ajinomoto
Amano
ABM Brewing and Enzyme (Rhodia)
Novozymes
Genencor
DSM/Gist Brocades
Chr. Hansen Biosystems
Danisco Cultor USA Inc.
SKW Biosystems
Enzyme Bio-Systems Ltd
Cultor Food Science
Quest
Ajinomoto is a world leader in the production of amino acids which are used in the food,
pharmaceutical and nutrition industries. Ajinomoto supports the biotechnology industry by
supplying amino acids for culture media, bulk fermentation media, buffers and various other
processing applications. They are reinforcing production of nucleotide seasonings which is a type
of umami seasoning. They are building a new plant in Thailand which is scheduled for completion
in the middle of 2003 with a total capital investment of $51.9 million. The plant will supply Thailand
and other countries and will take advantage of Thailand's tapioca starch, a core raw material for
manufacturing nucleotide seasonings. Ajinomoto says demand for nucleotide seasonings has
increased due to increased demand for processed food, and stable growth is projected.
Relevance of natural products, biodiversity and bioprospecting
Many natural proteins are enzymes that have activity useful in industrial processing. Through
bioprospecting, new enzymes can be found with novel activities that can be applied to existing
industrial processes, often solving problems such as production of pollutants from factories, or the
removal of infectious organisms or toxins appearing in the processing or storage of foods.
203

Transgenic Seeds
204

Transgenic Seeds
205

TRANSGENIC SEEDS
Agricultural Biotechnology and Transgenic Seeds
The market for agricultural biotechnology is about $62 billion, or about 11% of the total agriculture
market of $661 billion. Growth in this market has been only moderate (about 6% in the US) due to
a very gradual increase in public acceptance based on environmental safety concerns and
because of significant cost savings over conventional agriculture. Signs indicate increasing
acceptance around the world, with Europe and Brazil being notable exceptions, meaning good long
term potential is expected. Applications of biotechnology to agriculture are expanding and the
knowledge base and technology platforms are developing.
The field of agbiotech provides many opportunities for added value. Agbiotech has driven rapid
increases in plant quality, beyond what is achievable by traditional cross-breeding, through genetic
engineering and the development of biopesticides and biofertilizers. Natural biological means for
protecting plants from adverse weather conditions or plant pests and diseases can be studied and
developed into protective applications. Traits that help in the growth rate or survival of various
organisms can be introduced into crop plants. Benefits include enhanced growth rates, reduced
pesticide use, lower crop losses, and lower costs. Foods from those crop plants can be enhanced
as to color, flavor, shelf life, water content, improved processing characteristics, and in many other
ways. Plant crops can also be engineered to produce therapeutic human proteins, enzymes, and
biomaterials.
The field of agbiotech is dominated by large agrochemical and seed companies that have recently
added biotechnology to their arsenals. As the primary products of agbiotechnology are foods, they
are subject to regulation for safety. Environmental issues are particularly sensitive in this field.
The life cycles for agbiotech products are relatively stable, but competition from original and metoo
products are intense. Capital markets have not been very supportive of agricultural
biotechnology. This is expected to change as environmental issues with the public concerns are
addressed.
The subarea chosen for more detailed investigation is transgenic seeds, especially as a subsector
of crop protection. This is primarily based on market size, which is estimated to be about $3.7
billion in 2002, or 22.5% of the $12-15 billion high-value seeds market. Market growth in this
sector is high, with acreage planted and the number of farmers using transgenic seeds increasing
dramatically, especially in developing countries. It may be expected that crop protection by
conventional agchemicals, currently a $28 billion market, will be replaced over time by more
convenient and environmentally friendly agbiotech products. Transgenic seeds with crop
protection traits will be particularly attractive as they replace the need for costs and labor of
acquiring and applying pesticides or biopesticides.
Crop Protection and Transgenic Seeds
Globally, the market for bioprotection of crops is small but growing, and is considered to be the
primary factor in the decline of the mature market for chemical crop protection. The reasons for
the rise of bioprotection include greater specificity, reduced volumes of active products used,
cleaner application, less residual toxicity, and lower cost.
Soybeans, cotton, and corn crops together account for more than 45% of pesticide use in the US.
206

However, the conversion of fields from traditional crops to "self-protecting" GM crops is such that,
today, 74% of soybean acreage, 71% of cotton acreage, and 32% of corn acreage is planted in
transgenic crops. According to Frost & Sullivan, this increase in transgenic crops, particularly
seeds, have had the greatest contribution to the recent decline in the agrochemical market.
Indeed, in 2000, the global agbiotech crop protection market was about $2.4 billion and growing at
44.5%, and the greatest contributor to this increase was transgenic seeds.
Estimates of market size vary from one analyst to the next. To determine the best estimate, we
have combined data from different sources. In 2001, the US market for transgenic seeds and
plants was $1.64 billion according to The Freedonia Group (2002), and was growing at an annual
rate of 5.1%. According to Wood Mackenzie Agrochemical Services (2002), the global sales of
transgenic seeds in 2000 was $3.0 billion and had grown by 50% since 1998. This would
represent an average annual increase of about 22% per year globally. As the market is known to
be expanding more outside than inside the US, assuming a growth rate from 2000 to 2002 similar
to that of 1998 to 2000, market size for 2002 would be about $3.7 (author's calculation).
The potential for growth in this sector are very good. Indeed, transgenic seeds and plants
containing foreign genes specifically for crop protection (herbicides, insecticides, fungicides) have
had a greater rate of acceptance than any other new agricultural technology.
Typically, the transgenic seed field is dominated by agrochemical companies that have merged
with seed companies. Monsanto has led in sales in the transgenic area due to its monolithic
product, the herbicide Roundup, and the associated transgenic crop seeds with a "Roundup
Ready" gene that confers resistance to the herbicide. Monsanto is also known for its work in insect
resistance in soybeans and cotton transformed with a gene from Bacillus thuringensis, commonly
known as "Bt". Roundup is coming off patent, but other Monsanto GM products are just reaching
the market now. Syngenta is the second largest company in transgenic crops. It has many
products in development for herbicide, disease, and insect resistance.
Market acceptance has been a difficult problem for transgenic food crops. Demand is now
growing, particularly in North America and in developing countries where food shortages are
chronic problems, and where product loss due to insects and disease cause major crises. In
developed countries, where arable land is becoming increasingly scarce, productivity increases
through transgenics can boost production and reduce the use of herbicides, pesticides,
fundgicides, and antibiotics, with obvious environmental advantages.
Representative Companies: Mycogen and Syngenta
Mycogen was formed in 1982 with a commitment to apply biotechnology to the development of
environmentally-friendly products in crop protection and pest control. The company went public in
1987, grew rapidly on its way to becoming an international agrobusiness company, collecting over
150 US and over 270 foreign patents for its efforts. Ultimately, Mycogen was bought by Dow
AgroSciences, a subsidiary of The Dow Chemical Company.
From 1998 to 2000, the Monsanto model of the integrated life sciences company began to falter
due to international fears over GM crops and the subsequent decline in acceptance and sales.
Pharmacia, having merged with Monsanto earlier in 2000, started selling off its shares of
Monsanto. Aventis SA also moved to sell off its crop protection business. One of the most
dramatic turns was when, in November, 2000, Novartis and AstraZeneca spun off their agriculture
businesses, Novartis Agribusiness and Zeneca Agrochemicals, to form Syngenta. Sygenta
instantly became the world's largest crop science company, with sales of $6.2 billion in 2002, and
207

20,000 employees in 90 countries, with its headquarters in Basel, Switzerland. Among the large
agribusiness companies, Syngenta ranks first in crop protection, second in herbicides, and third in
the world in high-value commercial seeds. The top six crop science companies in the world
involved in agricultural biotechnology, inclu!ding transgenic seeds, are Syngenta,
BayerCropScience, Monsanto, DuPont, BASF, and Dow AgroSciences (listed in decreasing order
by sales).
Business Strategy
Business strategy is very different for large agribusiness firms and small niche agbiotech
companies. Companies like Monsanto and Syngenta will inlicense technologies or ally with or buy
out small agbiotech companies in order to rapidly acquire new technologies. Small agbiotech
companies like Mycogen will develop expertise in a niche area and then form partnerships with
larger firms for revenue and to take advantage of the marketing and distribution networks of those
solid, influential, cash-rich firms. These small firms will then use the capital to expand and
diversify.
Since its incorporation in 1982, Mycogen saw itself as an expert in developing and marketing
added traits for genetically enhanced crops, and in providing crop protection through
biotechnology. From the beginning Mycogen had the goal of becoming a global integrated
agribusiness and agbiotech company. It now specializes in high value seeds and in crop
protection. The business strategy of its Mycogen Seeds division was heavily focused in
biotechnology research and crop breeding, and developed seeds with pest resistance and other
beneficial traits. To accelerate commercialization of its seed products, Mycogen established
corporate relationships with Dow AgroSciences, Pioneer Hi-Bred, Novartis, Japan Tobacco, and
others. In 1995, Mycogen began a collaboration with Pioneer Hi-Bre International, to develop
insect resistance for several crops, including corn, soybean, sunflower and canola. In 1996,
Mycogen introduced corn seeds engineered with Bacillus thuringiensis (Bt) !genes to confer
resistance to the corn borer. The company was granted many patents, and began buying seed
companies all over the world. It also developed its crop protection business, which markets
insecticides, and fungicides based on naturally occurring compounds, and customized services to
high end growers (ReCAP reports 2003, Mycogen Backgrounder).
Syngenta's business strategy is to maintain its position at the peak of the agrobusiness industry,
and maintain its position by innovating, particularly by applying biotechnology to the areas of
transgenic seeds and biopesticides (ReCAP reports 2003, Syngenta Backgrounder).
Value-added Opportunities
The production of transgenic seeds gives ample opportunities for value-added activity. Starting
with natural cross-bred seed stock, genes for a wide number of traits can be added. Transgenic
plants may be produced with a single transgene, e.g., for pesticide resistance or herbicide
tolerance, or with additional traits, such as agronomic traits allowing the plants to tolerate harsh
conditions (drought, excessive heat or cold, flooding, etc) or "output" traits which enhance the
color, flavor, shelf life, nutritional content, palatability, or processing of the crop food product. This
type of multiple value-added is referred to as adding "stacked traits" (Signals Magazine 2000).
The other major way for adding value is for a company to develop the techniques for engineering a
useful trait in one crop species and then apply these techniques to transform additional species of
crop plants with the same gene. For example, transformation with the Bacillus thuringiensis gene
conferring insect resistance has now been applied to many crop species, including all of the big
208

four: soybeans, corn, cotton, and canola (Ernst & Young 2002).
In the Andean region, there are many opportunities to work with the native biological resources to
identify novel traits, and the genes which code for them. These, in turn, can be used to create new
biopharmaceuticals, enzymes for industrial applications, ingredients for consumer products, and to
supply beneficial traits to be engineered into other organisms. One measure of diversity is the
number of species endemic to a particular area. The number of endemic species of plants in the
Andes Region is impressive. The number of plant species endemic to each of the Andean
countries is as follows: Venezuela, 8,000; Peru, 5356; Ecuador, 4,000; Bolivia, 4000; and
Columbia, 1,500. The total number, 22,836 species, is the minimum number of species endemic
to the Andean region; the actual number is probably much higher. Similarly, the number of
endemic Amphibian species in the Andean countries is as follows: Columbia, 230; Ecuador, 162;
Peru, 152; Venezuela, 122; and Bolivia, 28!, for a minimum total of 694 species endemic to the
Andean region. (Source: World Conservation Monitoring Centre (WCMC) Species Database,
unpublished data (WCMC, Cambridge, U.K., December, 1999)
Another important bioresource in the Andes is the presence of many promising crops grown in
remote areas. About 30 of these have been identified that warrant further exploration for their
potential to become major crops in Latin America and for export to the world. Value can be added
to these crops by traditional cross-breeding and by genetic engineering of traits to enhance growth
and product qualities or the Andean crops may be used as a source of useful traits to be
engineered into other plants for their enhancement.
Strategic Alliances and Joint Ventures
The degree of alliances, partnerships, collaborative development agreements, acquisitions,
licensing of patents, and other joint ventures is extremely high in the field of transgenic plants.
Alliances allow companies to decide which projects are most core to the mission of the company,
and therefore most important to keep in house, and which are most productively and effectively
handled in collaboration with outside experts. Alliances also help by sharing cost burdens for
R&D, preparing for regulatory review, and marketing and distribution, while the company still
receives a revenue stream to keep the company operating to meet its most strategic goals.
Between 1989 and 1998, Mycogen had a total of 21 Alliances with 20 different companies and one
research university. Twelve of them were specifically associated with crop seeds and transgenic
crops (core business), two dealt with agripharming, 6 were acquisitions, and 2 were equity
participations.
Besides having its own research and manufacturing and distribution sites in 86 locations around
the world, Syngenta also collaborates with 400 companies on a range of projects. Of course,
many of the alliances Syngenta enjoys were pre-existing and carried over from Novartis
Agribusiness and Zeneca Agrochemicals. In the US most of the transgenic crop research is
carried out at the Syngenta Biotechnology division in North Carolina.
Market access issues
According to Frost & Sullivan (1999) there are a number of barriers to market access facing the
transgenic crops:
1. The market for new traits introduced into crop plants is constrained by finite farm resources.
209

2. Plant transformation technologies are a major bottleneck, and different procedures and
conditions are needed for different species.
3. Transgenic seeds are more expensive up front than non-modified seeds.
4. Agro companies are not motivated to invest R&D expenses to genetically engineer minor
crops, where there is less opportunity to recoup the investment.
5. Intellectual property claims for plants is shrinking.
6. Genomics research partnerships may lead to conflicts over intellectual property interests.
7. Agbiotech is the poor stepsister to biopharmaceuticals. As a result, there is an noted lack of
public funding for plant genomics startups, as compared with therapeutics.
8. As the agbiotech industry consolidates, with the top six companies dominating the market,
access to germplasm is reduced, and seed production and distribution is limited.
9. Proteomics will increasingly become central to the discovery process.
10. Laws restricting the importation of transgenic seeds, and laws requiring labeling of transgenic
products severely impact the return on investment for agbiotech companies.
11. Negative attitudes regarding genetically modified plants occur in some major and some small
markets.
(Source: Frost & Sullivan 1999. World Agriculture Genomics and Biotechnology Markets.)
On this last point, a number of countries around the world, particularly in Europe, are against the
use of genetically-engineered, or "GM" foods. In addition to imposing a ban on the import and use
of GM foods, much of Europe feels that GM foods should be labeled as such. This contrasts with
the US position that labeling is unnecessary because GM foods are safe and have met the
regulatory requirements. The argument is that labeling would stigmatize GM foods and create a
market barrier that would impede free trade. Labelling would also require that GM foods be kept
separate from non-GM foods, thus requiring expensive duplication of storage and transportation
facilities (Ernst & Young 2002).
International organizations including the United Nations, the World Health Organization, and the
World Trade Organization provide another level of protection. According to these organizations,
labeling of biotech foods is somewhat in parallel with US law. That is, GM foods should be labeled
"if their composition or nutritional content is significantly different from their conventional
counterparts or if they pose any health risk." (Syngenta 2002).
The following paragraphs further discuss market access in terms of regulatory considerations,
technology requirements, intellectual property protection, and financial aspects.
Regulatory Considerations
All foods, including those developed through biotechnology, are subject to regulation by the Food
and Drug Administratrion (FDA) under the Food, Drug, and Cosmetic Act. Before granting
approval of food products, the FDA reviews a broad range of factors, including safety, nutrition,
allergenicity, and toxicity. The legal burden of meeting these requirements is on the manufacturer,
who must test their products extensively. For example, one transgenic soybean strain was
subjected to 1,800 analyses. After approval, and for products that are being sold illegally without
approval, the FDA also has the power to remove any harmful product from the market and to bring
criminal prosecution upon the manufacturer.
Further guidelines were proposed by the FDA in 2001 requiring biotech companies to notify the
FDA at least 120 days before marketing a food or animal feed developed through biotechnology,
and to demonstrate and document that the product was "as safe as its conventional counterpart."
210

Biotech foods must be labeled if their composition or nutritional content is significantly different
from their conventional counterparts or if they pose any health risk. For example, labels are
required if biotech food contain genetic material from known allergens. This requirement is void if
test data demonstrates there is no allergy risk. There is an existing controversy over labelling food
products on the basis of the presence of ingredients developed through biotechnology. The US is
against it because it sees this as a trade barrier and an unnecessary expense to manufacturers.
The Europeans are banning biotechnology-derived imports, but are showing signs of approval if
such labelling is done.
Biotech crops are also regulated by the Environmental Protection Agency (EPA) and the US
Department of Agriculture (USDA). Food and other products derived through biotechnology are
subject to a broad range of federal environmental laws and state and local regulations and
standards. The EPA is the agency overseeing crops resistant to pests and insects. The Animal
and Plant Health Inspection Service (APHIS) oversees field testing and environmental testing of
biotech crops.
Besides these agencies, international organizations including the United Nations, the World Health
Organization, and the World Trade Organization provide another level of protection. International
law requires the Labelling of biotech foods in parallel with US law, i.e., "if their composition or
nutritional content is significantly different from their conventional counterparts or if they pose any
health risk." (Source: Syngenta 2002, Safety Policies)
Technology Platform
The technology platform for creating transgenic plants centers on three methodologies: "bolistics,"
or bombarding plant tissues with microscopic gold particles coated with foreign DNA;
electroporation, or exposing plants tissues to an electric field which allows the cells to take up
substances from outside the cell, including DNA; and the preferred method -- bacterial infection
using Agrobacterium tumefacians -- to carry DNA into the plant cell. The foreign gene is integrated
into the plant genome in random locations and often in multiple copies. As the gene may disrupt
the function of normal plant genes, the transformed laboratory plant must be back-crossed with a
desired premium field variety multiple times to cover up for any damaged genes in the laboratory
variety. Extensive biochemical testing for toxins, nutrient levels, and other plant characteristics
follows to ensure that the desirable new trait(s) manifest themselves and that desirable normal
traits of t!he field variety are still present. (Signals 2000; Syngenta 2002, Plant Transformation).
Intellectual Property
A central controversy in patenting is whether genes can be patented. As genes (and other natural
substances) exist in their natural state, they are not patentable. However, when genes or any
biological substance are isolated, purified, or otherwise produced by a technical process, they may
be patentable if they meet the patentability criteria of novelty, utility, and non-obviousness. An
inventive process resulting in an improved useful quality of the naturally-occurring plant material
may be patentable; and plants made "novel" by incorporating foreign DNA may qualify as well. In
the transgenic field, there are many products and processes that are patented and patentable.
Mycogen has over 150 US and 270 foreign patents in the seed, transgenic seed, and biopesticide
areas. Syngenta holds over 175 patents in the plant genomics area alone (Syngenta 2002,
Patents). As in the pharmaceutical field, patents are vital for investor confidence, and that
confidence drives financin!g. However, it often takes deep pockets to be able to afford the costs of
litigation of a patent infringement. Furthermore, patents can be "engineered around"
211

Costs to set up a Business
Most of the large agribusiness companies produce agrichemicals and seeds and employ standard
chemical tools that have recently acquired biotechnological tools. Many of these were formed by
mergers of seed companies with pesticide or herbicide companies. The more recent acquisition of
biotechnology capability usually came from the buyout of small agbiotech companies. Syngenta
resulted from the merger of Novartis Agribusiness and Zeneca Agrochemicals.
Many smaller biopesticide companies, like Mycogen, started ad novum, operated for a few years
and found it difficult to meet expenses and hard to compete with other sectors for financing. They
tried to manage through product development agreements and alliances with larger concerns.
Many of these smaller agbiotechs were ultimately acquired by large seed and biopesticide
companies looking to fill the R&D pipeline with more cost-effective and environmentally friendly
opportunities. The financial risks in this area are still high due to the level of resistance to GM
crops in many parts of the world. But the benefits of transgenic crops are so profound in areas in
which they are used, that they will ultimately prevail.
Part of the problem has been the unwillingness of the agbiotech industry to acknowledge the
concerns of the public regarding the risks of the technology. This is manifest in the unwillingness
of the agbiotech companies to remove antibiotic markers genes from the procedures for selecting
successful transformed plants in a transformation experiment. Alternatives to using antibiotic
markers have been around for years, but the agbiotech companies brushed off the public's fears of
the spread of antibiotic resistance to humans and animals and other plants, and kept pushing
ahead with its current processes. The result was the dearth of investments in agbiotech starting in
1998, and the divestiture of agrobusiness divisions from the large integrated life science
megacompanies.
The costs of setting up a transgenics business are medium on the scale of biotech enterprises.
What is needed to start is a plant biotechnology laboratory, a greenhouse facility, and some top
notch plant genomics researchers. This is a field in which it is possible to be a niche player and
from that vantage point service the big seed companies and develop your expertise to a point
beyond which the larger companies are unwilling to commit. As a niche player, you can push off
much of the field testing, regulatory burden, marketing, and distribution to the large agribusiness
seed and chemical companies.
Other Producers and Distributors
Besides Syngenta and Monsanto, other major producers and distributors of transgenic seeds in
this field are Bayer CropScience, DuPont, and Dow AgroSciences.
Relevance of natural products, biodiversity and bioprospecting
In the bioprotection field, natural anitibiotic agents in plants and other organisms may be
discovered through bioprospecting, and engineered into crop plants and their seeds to boost
productivity, for example, by protecting them from insects, fungi, and other scourges. There are
demonstration projects under way in Europe that apply new molecular markers for identifying
different varieties of crops. Molecular markers may be used for detecting the presence of
impurities in bulk samples, which may have an application in avoiding contamination of wild-type
crops with genetically-modified or other varieties. (European Commission, 2001)
212

Genomic Bioinformatics
213

Genomic Bioinformatics
214

GENOMIC BIOINFORMATICS
Bioinformatics
The bioinformatics field is an information technology field centered around research databases,
and software for coding, organizing, sorting, accessing, and mining that data. The most highly
developed field of bioinformatics is biogenomics. The current size of the industry is estimated at
$1.1 billion, and is expected to sustain tremendous growth.
Bioinformatics is a $1.1 billion industry primarily focused on genomic and proteomic research
databases and associated software for collecting, organizing, storing, retrieving, analyzing, and
visualizing data. Its applications are largely in the drug discovery area, but also extend to natural
products discovery and any research or diagnostic applications that generate enormous amounts
of complex laboratory or clinical data. The bioinformatics field is growing at 33.5% per year, driven
by advances in the microarray field (which allows from hundreds to tens of thousands of analyses
to be performed in a single experiment), the robotics and microfluidics fields (which automate these
experiments), and the computing hardware and software, and information technology fields (which
make possible the rapid handling of massive amounts of data).
The market drivers for bioinformatics are many, including:
1. Value of data increases exponentially as data is integrated from from broader range of research
fields.
2. Technology is driving a surge in drug leads and data generation at each stage of drug
discovery.
3. As drug discovery moves from the laboratory to the computer, adoption of information
technology capability is stimulated.
4. The projected growth in R&D drives the size of the market for R&D tools, like bioinformatics.
5. In silico modeling is becoming essential for optimized drug discovery.
6. Capability of eliminating false leads in early stages of drug discovery by using modeling and inf
informatics saves opportunity costs and dollars.
7. Reduction of risk in pre-clinical and clinical trials drives acceptance of in silico simulation
technologies.
8. Ethical concerns are pushing toxicology studies away from animal tests into alternative
technologies such as bioinformatics-driven modeling and simulation.
(Source: Frost & Sullivan, 2002. U.S. In Silico Simulation of Biological Systems Markets.)
Opportunities for added value include creating new databases. Besides genomics and proteomics,
new databases are being constructed for the emerging fields of glycomics (complex sugars and
glycosylated proteins), metabolomics (compounds involved in metabolic pathways), and other
areas to be developed. Also, software is being continually enhanced to handle more complex
databases, to combine unlike databases from different laboratories or experiments into a single
coherent database, and to mine data more efficiently. New factors, such as population differences,
are being considered for biomedical databases to check for population-wide genetically-based
responses to drugs or susceptibility to disease.
Capital requirements for entering the field are relatively low if focus is on the software side, and
medium to high to build the capacity to generate experimental biodata for the databases. For
example, there is a growing network of sequencing centers around the world. A high degree of
technology investment is required to run an efficient operation, and the turnover of the technology
215

is every 2 to 3 years in the corporate setting.
The subarea chosen to be examined in the detailed analysis is genomic bioinformatics. At present,
genetic information is the most highly developed in terms of content of databases and
sophistication of software. Genetic databases are expanding at an enormous rate as functional
genomic activities increase. Also, intense activity is focused on sequencing genomes of
importance beyond the human genome. Infectious disease organisms are a prime example.
Genomic profiling is another expanding area, in which one can analyse which genes are active at
different stages of development, under different conditions of stress, or disease. The impact of this
field on research and commercialization of biotechnology is revolutionary.
Representative Company: Gene Logic, Inc.
Gene Logic, Inc. is a Gaithersburg, Maryland-based bioinformatics firm specializing in genomic
databases and associated software products and services serving the biotechnology and
pharmaceutical industries. The company was incorporated in 1994, and began operations in 1996.
This mission of the company is "to develop products and services based on leading genomics
technologies that improve outcomes and enable improved effectiveness, productivity, and safety in
the research efforts of drug discovery and development companies worldwide." Toward this end,
Gene Logic incorporates biosample collection, handling, and processing; genomic data production;
and data management and software systems. The company currently employs 264 full time
workers, with the highest numbers (86 & 67) in software and database development, and genomic
data production, respectively.
Business Strategy
Gene Logic has spent five years developing the GeneExpress System, what the company calls
"the world's first comprehensive survey of human gene activity." The objectives of their
development strategy is to expand the use of their genomic products and services in existing
markets, to seek new market opportunities for those products and services, and to create more
efficient and effective means to create valuable research information and services to clients.
The primary goal is to "create a sustainably profitable company." Gene Logic derives almost all of
its revenue from the R&D budgets of the biotechnology and pharmaceutical industries. None of
the revenue income comes from royalties or other revenue from the commercialization of products
by customers of the Gene Logic information products. The business is driven by their client's
needs to contain costs, to move beyond the limits of their internal capacity, to accelerate the
identification of drug leads, to take advantage of cutting edge genomics technologies that
traditional pharma companies are lacking, and to acquire a more systemic knowledge of human
biology. Through its range of products and services, Gene Logic aims to fill these needs in a cost
effective manner.
Value-Added Chains
The core products and services of the company are within the GeneExpress System. This broadranging
system is based on data from gene expression studies of human and animal tissues and
cells. It helps researchers understand patterns of gene expression, genetic abnormalities, and
mechanics of disease and toxicity. Customer companies subscribe to the service on a multi-year
basis for non-exclusive rights to access the genomic information products. Customers may also
request specific data for lower fees. Revenue is also raised for contract research services, as well
216

as software services, and for licensing of some of the GeneExpress products.
217

The elements of the GeneExpress System consist of BioExpress Solutions, ToxExpress Solutions,
and Other Products and Services Solutions.
The BioExpress Solutions consist of the BioExpress System, BioExpress Suites and BioExpress
Services, which include BioExpress Reports, Sample Processing Services, and Bioinformatics
Services.
ToxExpress Solutions consist of the ToxExpress Predictive System, ToxSuites and ToxExpress
Services, which include ToxScreen Reports, ToxMOT (Mechanism of Toxicity) Services, and
Custom ToxExpress Services.
Other Products and Services Solutions include the Genesis Enterprise System, data integration
services, and other custom software and database products and services.
These products match the various phases in product testing necessary for drug approval.
Value-added products take the form of specialty databases generated by Gene Logic for single
diseases and suites of databases and software for oncology, central nervous system,
cardiovascular system, inflammation, women's health, and the "human atlas" sampling of various
human tissues.
Value-added opportunities in the bioinformatics field include greater integration of disparate
biological databases relating to structure and function of biomolecules, genetic polymorphisms,
biochemical processes and their constituent elements. There are also opportunities to determine
how these processes are regulated. Bioinformatics will contribute to the building of a systems
biology that is increasingly more data-based, more complex, and more predictive. At this level,
bioinformatics will have a growing effect on personalized medicine. In the environment,
bioinformatics will provide new and more complex ways of describing the organismal and
molecular makeup of ecosystems, and . help to identify the presence and biological activity of
novel molecules. It will provide ways of evaluating the health of ecosystems so that they can be
exploited and managed in ways that ensure the resources are sustained.
Strategic Alliances and Joint Ventures
The company receives most of its revenues from subscriptions paid by pharmaceutical and
biotechnology companies to access its databases and informatics services. Therefore, alliances
are not a major part of the company's operations.
The company generally markets its genomic information products and services directly. However,
in Japan, it has a nonexclusive distribution agreement with Amersham Biosciences K.K.
(“Amersham”) through which Amersham markets and distributes GeneExpress products and
services. This was a significant source of its revenue in 2002. In return under the agreement,
Amersham receives a percentage of revenue from sales it generates in Japan.
Gene Logic also has a multi-year agreement with Affymetrix to supply it with GeneChip DNA
arrays.
Technology Platforms
The Genesis Software System is an integrated informatics platform that is Oracle-based and spans
the biotechnology and pharmaceutical research areas. The platform includes a database of
218

iological parameters for tissue samples with related clinical notes; a database of gene expression
measurements from each sample; a database (the GX Gene Index) that links directly to genomic
information from curated, private, and public sources; a set of gene expression data mining,
analysis and visualization tools; and software for integrating a customer-generated gene
expression data. This proprietary data software manages, integrates, explores, and mines
heterogeneous databases from different sources as if they were part of a single database.
The database and analysis platforms can be supplied on servers installed at customer sites or
residing on a secure virtual private network from the Gene Logic computer facility. Data cloning
tools are supplied which allow for the content updates and software upgrades from the company,
including integration and analysis of additional data such as sequence and proteomic and other
complementary research data.
The company also has a biosample retrieval and processing platform for tissues and cells in its
biodepository.
The genome expression analysis of these samples is done using the GeneChip array platform
developed by Affymetrix, and the data generated is added to the genomic databases in the
GeneExpress System platform.
Intellectual Property Considerations
Gene Logic relies upon patent protection for elements of its technology platform, specifically for its
genomics and bioinformatics technologies. Intellectual property protection through patents, trade
secrets, trademarks, etc., ensure the company a freedom to operate that is necessary for
innovation and incentive for commercialization. The company also uses license agreements to
allow others to access some of its technology, and to allow Gene Logic to access external
technologies. Trade secret protection is also important for confidential and proprietary information.
As of December 31, 2002, the company held 20 US and 30 foreign patents, and had submitted 77
US and 61 foreign patent applications relating to the technology platform. These pertain to
methods of obtaining and using genomic information; databases, software, and user interface tools
for using and managing them. Some of the patents related to methods of identifying and using
gene expression profiles and genetic markers; these markers include toxicity and disease-specific
markers. The company may even make claims to novel genes and gene fragments, or novel uses
for known genes or fragments of them.
Trademark protection for products and services are important for "branding" of quality for
successful companies. By December 31, 2002, the company held 6 US and 11 foreign trademark
registrations and 12 US and 14 foreign trademark applications.
Regulatory Considerations
Human tissue samples are vital for supplying the depository and for generating data on gene
expression and identification of toxicity and other markers in both normal and diseased tissues.
Access to human tissue samples may become subject to government regulation. Similarly,
restrictions may be placed of the use of data derived from human or other tissue samples.
The Food and Drug Administration (FDA) has issued final and proposed regulations concerning
human cellular and tissue-based products, mostly for transplantation, but these do not currently
impact Gene Logic's operations.
219

Environmental regulations may impact the use of biological and other hazardous materials,
chemicals, and radioactive materials. Federal, state, and local laws and regulations apply to the
generation, use, storage, handling, and disposal of these materials and some waste products, and
the exposure of workers to these materials. Gene Logic does not believe that current and
proposed endeavors qualify for special environmental regulation beyond those rules that apply to
companies generally.
Costs for Setting up Firm
The costs for operating this bioinformatics firm are much less than the costs anticipated in a
manufacturing facility. This firm does generate data; it requires laboratory facilities for collecting,
storing, processing and preparing biological samples and testing them against genomic arrays.
In 1998, Gene Logic acquired Oncormed for $35.2 M. Otherwise, it spent $14.4 M on database
production and $2.3 M on R&D, plus $7.6 M on selling, general, and administrative expenses.
Total expenses incurred (not including Oncormed payment) were $24.5 M in operating expenses.
Revenues amounted to $13.2 M. Net loss for the year was $44.9 M ($11.3 M without Oncormed
charge).
In 1999, the company had operating expenses of $40.3 M, including $26.3 M for database
production, $3.2 M for R&D, and $9.2 M in selling, general, and administrative expenses.
Revenues for the year were $19.2 M. Net losses were $20.6 M for the year.
In 2000, Gene Logic expenses continued to rise to $63.3 M, which included $40.4 M for database
production, $3.6 M in R&D, and $17.8 M for selling, general, and administrative costs. Revenues
for the year were $26.9 M. Net losses were $24.0 M.
In 2001, the company showed operating expenses of $79.9 M; these include $55.5 M for database
development, $3.6 M for R&D, and $19.3 M for selling, general, and administrative costs.
Revenues for the year increased 61% to $43.3 M for the year. Net losses were $33.2 M.
In 2002, Gene Logic recorded expenses of $80.0 M, which included $57.9 M for database
development, $2.4 M for R&D, and $19.7 M for selling, general, and administrative costs.
Revenues for the year increased 27% to $54.8 M. Net losses were $24.0 M.
Market access issues
Discussion of technology requirements, intellectual property protection and regulatory
considerations as they relate to market access were discussed in the foregoing paragraphs.
The challenges to market access in the bioinformatics industry are many. There is serious
competition from information generation and management companies. Pharmaceutical spending
on bioinformatics is kept in-house for fear of losing exclusive product rights. At the same time,
generic drugs are threatening to dominate the market and reduce new drug revenues that could be
spent on bioinformatics development.
The field is so new, and customer demands are changing so rapidly, that bioinformatics product
life-cycles are accelerated. It is difficult to keep the databases and software abreast of the
demand. Product complexity is increasing with demand for diverse data integration creating a
rising threshold for market entry.
220

The newness of the technology hinders the perception of value to customers, particularly as
databases are still relatively small, though growing rapidly, in most research areas. Another
problem is the variability of protein expression under different conditions, which hinders the
development of protein informatics.
Established patents for data integration and data management information technologies make
market entry and expansion difficult. The value of intellectual property in this area is undermined
by international patent vulnerability.
(Source: Frost & Sullivan, 2002. U.S. In Silico Simulation of Biological Systems Markets.)
Other Principal Producers and Distributors
Other producers and distributors of genomic informatics are Affymetrix, 3rd Millenium, Celera
Genomics, Rosetta Inpharmatics, Strand Genomics, Anvil Informatics, and Biobase Biological
Databases. A South American company involved in the genomics of important crops is Alellyx
Applied Genomics based in Brazil. This company was created in 1992 with US$30M in Brazilian
(industial) venture capital and has participated in genome sequencing projects of sugar cane and
eucalyptus and will be working on soybeans, oranges and grapes.
Relevance of natural products, biodiversity and bioprospecting
Bioprospecting has an important contribution to make to genomic databases. The discovery and
examination of species at the genome level will help us uncover relationships between known and
novel species. The sequence variations and similarities in particular genes will help identify those
of most interest for further study and perhaps for development into products with novel properties.
Developing genomic databases based on organisms from regions with the greatest number of
unique species will create a lasting repository of information which can be mined for novelty and
potential activity even after the extinction of a species. This is critical as we continue to lose many
species every year.
221

DNA Chips
222

DNA Chips
223

DNA CHIPS
DNA Chips are the largest market sector for biochips. While protein- (peptide) chips and glyco-
(polysaccharide) chips are being developed, as well as lab chips with microfluidic channels, DNA
chips are the market leaders and the companies that produce them have moved farther down the
value chain than companies in other sectors.
The estimated size of the global market for Biochips and Microarrays is $900 million. Growth in
this field is a remarkable 40% annually, as the technology of high efficiency, high-throughput
microexperimentation is being incorporated by the entire bioresearch and biomedical research
enterprise.
The opportunities for adding value in this product area are many. There are many opportunities to
make arrays of different biomolecules or chemical entities, either generic custom ones, to serve
research and industry. There are opportunities to further miniaturize the microarrays, or to create
them on different materials. Opportunities exist in electronic and robotic innovations in the systems
using the arrays. There are software opportunities for controlling the systems employing the
microarrays.These opportunities exist because the technology platform involves multi-disciplinary
technologies.
This level of technology requires medium to high capital requirements. Strong intellectual property
support is required, as well as a high level of technical skills. The technology life cycle for the
system can be short even though the actual microarrays may be standardized.
As the field of biochips and microarrays is relatively young, the subarea of the field that is
designated for detailed analysis is the gene chip, as distinguished from the protein chip and other
chips.
The following description of Affymetrix, Inc. serves to illustrate selected aspects of the market
activity at the firm level relating to DNA chips.
Summary of Company
Affymetrix Inc.
Affymetrix is a publicly owned biotechnology firm whose principal shareholder (34%) is Glaxo
Wellcome. Its mission is to develop new technologies for obtaining, processing, and managing
genetic information for three purposes: biomedical research, genomics, and clinical diagnostics.
The chief product of the company is its GeneChip technology, designed for applications requiring
nucleic acid analysis.
As of January 1, 2003, the company has gone through 9 rounds of financing, has formed 103 US
and international alliances and agreements with large pharma, large and small biotech firms,
government labs, and academia, and has expanded its product and services base, including
developing two new pharmaceutical products in preclinical testing.
Total revenues for the company were $225 M for 2001, and its total assets were $580 M.
However, the company is still in its growth phase, carrying R&D expenditures of $68 M, operating
losses of $42 M, and net losses of $33.0 M (all 2001 figures).
224

As of December 31, 2001, the company had 905 full-time employees. The technical staff includes
chemists, engineers, computer scientists, mathematicians, and molecular biologists. Their
industrial experience ranges from diagnostic products, medical products, semiconductors,
computer software, and electronics.
Business Strategy
The business strategy for the firm is representative of firms in this field, which is characterized by
rapidly changing technology. Affymetrix' niche is to bring semiconductor technology to the life
sciences field. The company got in on the ground floor in biochips and rode the wave of
automation for studies of DNA to become a market leader. It is a good example of a firm starting
with venture capital seed funding and then to corporate private investors until going public, then
continuing to go to private sources and public financing for relatively small amounts of additional
funds. Typical of startups, it is also a good example of developing a revenue stream early with a
central product and adding value to it through other products and services. This includes licensing
technology and creating alliances with firms of all sizes as well as the government and academia.
Affymetrix will capitalize upon its leadership in DNA probe arrays by applying its GeneChip and
spotted array technologies to gene expression monitoring, genetic polymorphism analysis, and
disease management. Currently, the company is commercializing its technology for the
pharmaceutical and biotechnology markets, academic research centers, private research
foundations, and clinical reference laboratories.
Value-Added Chains in this Sector
The value-added chain in Affymetrix is typical of this product sector. Its basic product is the
GeneChip, which was initially marketed for research purposes. Various derivatives of the original
technology were added, such as chips with genomes from other species, and chips with DNA
probes for genes that are expressed in specific diseases, like cancer and HIV. DNA arrays
specifically for identifying single nucleotide polymorphisms are also being made.
In addition to DNA chips for research, Affymetrix is developing them for diagnostic purposes in
collaboration with other companies. For example, bioMerieux is developing instrumentation and
assays using GeneChip arrays in their diagnostic system to identify the bacteria or viruses
responsible for various infections.
To capture added value in the field of genotyping individuals, Affymetrix formed Perlegen Sciences
in 2000 to look for patterns in the millions of genetic variations in human DNA. Affymetrix will have
access to some of the genetic information from Perlegen's efforts for the development of new
genotyping arrays. As Perlegen has raised $100 M in private financing, Affymetrix' ownership
position has reduced to 53%.
In February 2000, in order to add value to the instrumentation side of its product, Affymetrix
acquired Genetic Microsystems, a private Massachusetts instrumentation company specializing in
DNA array technology. To capture the data analysis and data mining portions of the market,
Affymetrix acquired Neomorphic, a private computational genomics company, in October 2000.
225

In addition to existing hardware and software, Affymetrix has developed several subscription
programs for different types of clients to have access to the latest technology developed by the
company. In late 1997, Roche became the first "easy access partner" signed up with the company
in this plan. In 1999, the "Academic Access" program was launched to allow academic research
institutions access to the technology by subscription.
Another measure of value-added is by the increase in sources of revenue for the company over the
years 1991-2001 according to the following table, which shows revenues coming from zero
sources and slowly but consistently increasing over the years to 5 source areas and total revenues
of $225 M in 2001.
Year Ended December 31,
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01
Revenue Sources
Contract R&D, Grants - + + + + + + + + + +
Interest Income - - + + + + + + + + +
Product Sales - - - - - + + + + + +
Lic. Fees & Royalties - - - - - - - + + + +
Spin-off Company - - - - - - - - - - +
____________________________________________________________________________________________________
(Source: compiled by R. Johnson from SEC filings 10-K450 dated 3/31/1997 and 3/29/2002).
In summary, a company that desires to grow and not become obsolete in this field has no choice
but to continue to innovate. As Affymetrix has stated in its SEC filings, "If we cannot continuously
develop and introduce new products and keep pace with the latest technological changes, we will
not be able to compete successfully in our highly competitive and rapidly changing market; if we
cannot compete effectively, our revenue may decline." (http://ccbn.tenkwizard.com/filing).
Development of Strategic Alliances and Joint Ventures
Affymetrix wishes to establish its Gene Chip system as the dominant platform for analyzing
complex genetic information. Affymetrix has attempted to dominate the research market on its
own, but wishes to expand its applications to the clinical, diagnostic, and other regulated sectors,
and to acquire access to other useful technologies and resources. The strategy for doing so is by
collaborating with others with expertise and instrumentation in those particular applied fields.
In September 1996, Affymetrix joined in a collaborative development agreement with bioMerieux, a
Missouri firm, to develop instrumentation using DNA arrays supplied by Affymetrix for the clinical
diagnosis of bacterial infections. The conditions included R&D support and payments from
bioMerieux, specific prices for DNA arrays, and royalties on any product sales. In 1997 and 1998,
the collaboration was extended to developing non-exclusive arrays for clinical diagnostics in the
fields of virology, food testing, and industrial testing.
In 1997, Affymetrix entered into an agreement with Agilent Technologies. In the interest of
developing a complete system around the Gene Chip technology, Affymetrix agreed to buy an
annual minimum number of array scanners each year for a period of 6 years. In return, Agilent is
required to manufacture and supply GeneArray scanners to Affymetrix standards on an OEM
basis.
Also in 1997, Affymetrix entered into a corporate consortium with Bristol-Myers Squibb to fund a
functional genomics research program at the Whitehead Institute. Affymetrix and Bristol-Myers
226

Squibb provided funds and products amounting to $6 M per year to the Whitehead Institute.
Scientists from all three institutions work together to develop new genomics tools and identify novel
genetic markers. For their contributions, Affymetrix and Bristol-Myers Squibb received licensing
rights to inventions made through the consortium.
In 1998, Affymetrix entered into a non-exclusive development agreement with Roche Molecular
Systems to develop diagnostic products. The companies will develop arrays, instrumentation, and
reagents. Affymetrix manufactures the arrays and Roche Molecular Systems will manage clinical
trials, regulatory submissions, and market and sell the products. Each company funds its own
contributions, and the two companies share revenues and profits.
Also in 1998, an agreement was made with Enzo Diagnostics to be the exclusive developer and
distributor of Labelling kits used for preparing samples for analysis on Genechip arrays.
Also in 1998, Affymetrix made a series of agreements with Beckman Coulter, allowing Affymetrix to
purchase Beckman's array business including a license to DNA array patents owned by Oxford
Gene Technology. In exchange, Affymetrix granted licenses to Beckman to commercialize probe
arrays using technologies other than light-directed synthesis. Beckman pays Affymetrix transfer
prices and royalties on sales of these products.
In 1999, an agreement was made with Orchid BioSciences to develop and commercialize
genotyping assays for single nucleotide polymorphisms combining technologies from both
companies in exchange for a private equity investment in Orchid. The agreement was extended in
2001 to the development of genotyping kits using additional custom technologies.
In 2000, the Mouse Sequencing Consortium brought together Affymetrix, SmithKline Beecham,
Merck & Co., the National Institutes of Health and the Wellcome Trust to provide funding and
technical expertise to support mouse genome research at three academic DNA sequencing labs.
The goal is to make the mouse genome data publicly available without restriction.
In 2001, an agreement was made with Encode EHF to use their population-based gene marker
approach to pharmacogenomics and the Affymetrix GeneChip technology to conduct gene
expression analysis of the response to drugs for common conditions like high cholesterol,
depression, asthma, hypertension, breast cancer, schizophrenia, and migraines. Affymetrix and
Encode can develop tests based on the markers. Encode performs the clinical work, and
Affymetrix shares revenue from tests developed in the collaboration.
Also in 2001, an R&D development agreement was made with Millennium Pharmaceuticals to
jointly develop applications of GeneChip technology for genome-based drug discovery and
development. Affymetrix has the right to commercialize certain technologies developed under the
collaboration.
In 2001, Affymetrix entered into a collaboration with Callida Genomics (a subsidiary of Hyseq, and
sole owner of N-Mer) for the development and commercialization of a high speed DNA sequencing
chip using Affymetrix DNA chip technology and Hyseq's sequencing-by-hybridization technology.
Licensing technology to third parties under favorable conditions is another part of the strategy for
developing the platform technology and forwarding its dominance in the field. Licenses for
commercializing DNA array products have been made to Beckman, Genomic Solutions, Amersham
Biosciences, MWG-Biotech, Perkin Elmer, and Takara.
227

Types of Technology Platforms used in Production and Commercialization
The basic technology platforms for Affymetrix are GeneChip arrays of gene probes on silicon
wafers, and spotted arrays. Based on this platform, Afymetrix sells a portfolio of standard and
custom GeneChip arrays. For gene expression monitoring, the standard arrays cover most of the
genes in the human, mouse, rat, Drosophia, yeast, E. coli and Arabidopsis organisms. Standard
arrays are also produced for particularly important biological testing such as in cancer and
toxicology. Custom arrays can be made to meet client specifications for genes or gene groups.
Role and Significance of Intellectual Property Considerations
The field of DNA chips and genomics has advanced so rapidly, that new discoveries are made at a
remarkable rate. To maintain its competitive position and to protect its own discoveries, Affymetrix
has acquired over 170 US patents and 370 additional patent applications are under review. Many
of these patents and applications have also been filed or issued in one or more foreign countries.
As these patents are expensive to maintain, the fact that so many are maintained by the company
manifests the importance of patent protection for this technology area.
Besides patents, Affymetrix relies on copyright protection, trade secrets, and its ability to innovate,
its avoidance of infringing on intellectual property rights of others, and its ability to acquire licenses
to technologies that will enable the advance of Affymetrix technology and products. For example,
Affymetrix currently licenses technology relating to miniaturized PCR products, which enable
Affymetrix to sell integrated device products.
New patent legislation coming out of the General Agreement on Trade and Tariffs (GATT) became
effective on June 8, 1995. This legislation changed the patent period of 17 years from the time of
issue of the patent, to 20 years from the date of filing the patent application. As patent review for
many biotechnology applications takes longer than three years, the effect of this legislation in this
sector is often a substantially shortened period of patent protection.
Regulatory Issues
Currently, Affymetrix has marketed its research technology products to research institutions. Its
goal is to market its technology as medical devices for use in the health management industry for
testing and diagnostic purposes. These products are expected to be subject to regulation in the
United States and many other countries. The Food and Drug Administration (FDA) considers
diagnostic tests and specific reagents and components of such tests, including those sold to
laboratories certified under CLIA, the Clinical Laboratory Improvement Amendments of 1988, to be
medical devices requiring regulatory review.
The FDA requires that all medical devices to be sold in the US earn either a premarket notification
clearance (a "510(k)"), or a premarket approval ("PMA"). The "510(k)" clearance applies to
products that are substantially equivalent to another device or devices that are already legally
marketed. The FDA may also require premarket clearance or approval for products that are
modifications of existing products. A 510(k) application may require substantial data, including
clinical data, as well as a substantial review. The FDA may approve the product for marketing, or
may determine it is not equivalent to an existing product, pushing the product into the PMA
process, or the FDA may require more test data, clinical data, or other information before it can
decide on the issue of equivalence.
228

A PMA process is more stringent, involving extensive clinical studies, manufacturing information
including proof of compliance with quality requirements, and reviews by expert panels external to
the FDA. Clinical studies supporting either form of review must be conducted according to FDA
requirements. If not, the FDA may refuse the data or may impose regulatory sanctions, or limit the
way a device is marketed or to whom it may be sold.
In addition to these regulations, manufacturers of medical devices are required to register and list
their products with the FDA, and to comply with the agency's Quality System Regulations ("QSR").
The QSR requires that medical devices be manufactured in prescribed ways and that documents
be kept in a particular format regarding the manufacturing, testing and quality control. Producers
must also meet Labelling and promotional requirements, and must not be marketed for uncleared
or unapproved uses.
Producers of medical devices are required to report to the FDA whenever there is reasonable
suggestive evidence that a marketed device has caused or contributed to a serious injury or death,
or has malfunctioned in a way that could lead to same. They are also subject to preapproval
inspections and ongoing periodic inspections by the FDA and often by state level agencies.
Manufacturers must also comply with many Environmental Protection Agency (EPA) laws and with
safety regulations of the Occupational Safety and Health Administration. These laws and
regulations apply to construction of facilities, to working conditions, and the use and disposal of
hazardous and biological materials. For these purposes, permits must be applied for and obtained
before operations can commence.
Approximate Costs for Developing and Commercializing
Development phase
Affymetrix began operations as a division of Affymax N.V. in 1991 to develop gene chip
technology. The division had no contract or grant revenue, and spent $1.6 M on R&D and $261 K
on general and administrative expenses, showing a net loss of $1.8 M. In that same year, its
research development of the gene chip was on the cover of Science magazine.
In 1992, the first microarray patent was issued for the gene chip technology. That year, the
division attracted $43 K in contract and grant revenue; its R&D expenses rose to $4.1 M and its
general and operating expenses rose to $582 K, for a total net loss of $4.7 M.
In 1993, Affymetrix began to operate independently of its parent company. In that year, contract
and grant revenues rose to $1.4 M and interest income was $138 K; R&D expenses grew to $6.6
M, and general and administrative operating expenses were maintained at $577 K. The net loss
for the company was $5.6 M.
In 1994, Affymetrix made its first commercial sales of its GeneChip system for research use. That
year, contract and grant revenue rose to $1.6 M and interest income rose to $532 K; R&D jumped
to $9.5 M, general and administrative costs rose to $2.3 M, and net losses jumped to $9.7 M.
Post-development phase
In 1995, there was a huge increase in contract and grant revenue to $4.6 M, and interest income
rose to $881 K. R&D expenses jumped to $12.4 M, and general and administrative charges rose
to $3.8 M. Net losses for the year were $10.7 M.
229

In 1996, Affymetrix launched its first catalogue product, and celebrated its initial public offering
(IPO), selling 6 M shares of common stock to raise. Product sales began this year and contributed
$1.4 M; interest income leaped to $4.3 M, and contract and grant revenue leaped to $10.6 M. R&D
costs rose to $18.8 M, while general and administrative costs rose to $7.6 M. Net losses for the
year were $12.2 M.
In 1997, Roche was the first partner to be signed on to Affymetrix' Easy Access subscription
program. Product revenues rose to $4.8 M, contract and grant revenues rose to $15.0 M. Interest
income contributed $5.2 M. R&D costs rose to $28.5 M and selling, general, and administrative
costs rose to $47.9 M. The net loss from all operations was $22.7 M.
In 1998, Affymetrix product sales surged almost eightfold to $36.9 M, research fees rose to $14.5
M, and license fees and royalties began, bringing in $1.0 M, plus another $4.8 M from interest
income. Total revenue rose to $52.4 M. R&D costs were $38.4 M, while selling and general and
administrative costs reached $31.6 M. Net losses for the year were $26.8 M.
In 1999, Affymetrix acquired Genetics Microsystems, opened its Sacramento manufacturing facility,
and launched its Academic Access program. Product sales nearly tripled to $98.2 M, research
service income dropped to $8.0 m, license fees and royalties rose to $2.8 M and interest income
was unchanged at $4.8 M. R&D expenses rose to $43.5 M; selling, general, and administrative
costs rose to $53.6 M. Net loss for the year declined slightly to $25.5 M.
In 2000, Affymetrix launched its Biotech Access program, spun off Perlegen, and acquired
Neomorphic. Product sales nearly doubled to $173.5 M, research service income dropped to $5.8
M, licenses fees and royalties increased seven-fold to $$21.5 M and interest income increased to
$8.0 M. R&D expenses totaled $57.4 M, and selling, general, and administrative costs amounted
to $113.4 M. Net loss for the year was $54.0 M.
In 2001, Affymetrix launched its Custom Express program and its NetAffx product. Revenue from
product sales increased by 12% to $194.9 M; revenue from Perlegen brought in another $11.5 M,
research services declined to $4.7 M, licenses and royalties brought in $13.7 M, and interest
income came in at $7.0 M. R&D expenses increased by 19% to $68.2 M, selling, general, and
administrative costs declined to $95.3 M. Net loss for the year declined to $33.1 M.
The most recent data shows that sales income is growing rapidly (31%) for arrays, reaching $101.5
M in 2001; instrumentation sales have declined by 19% to $46 M, and subscription fees and
contract services have grown slightly (1.5%) to $47.7 M. The major markets served by Affymetrix
are the US, growing 12% to $132.0 M in 2001, Europe growing at 3% to $37.5 M, and the rest of
the world growing at 34% to $25.4 M (Sources: www.Affymetrix.com; Affymetrix filing SEC form
424B1 dated 6/7/1996; Affymetrix SEC filing 10-K405 dated 3/29/2002).
Market access issues
Other market access considerations relating to technology requirements, intellectual property
protection and regulatory concerns were discussed in the foregoing paragraphs.
Market access is affected by a number of factors. Market drivers include increased government
spending from the National Institutes of Health, the Department of Defense, and other agencies to
support R&D efforts in all nanotechnologies, including biochips. At the same time, advances in
technology, manufacturing, and medicine are pushing the market forward. The benefits of
230

miniaturization are attracting the attention of many new user segments, including forensic and
environmental areas. Another major force is that existing equipment cannot meet the expanding
demands for use of new detection abilities. High-throughput testing is moving to ultra highthroughput
screening.
Restraints on the market include recent purchases of upgraded robotics and high throughput
screening equipment. Reluctance to replace these recently pruchased systems with newer
technologies may depress demand. Further, technological barriers and long product life cycles at
the initiation of new platform technologies can limit product introductions. In addition, regulatory
restraints in important application sectors such as medical diagnostics and cell and tissue analysis
will slow adoption of new technologies.
Various factors affect market access in the biochip field. First, uncertain intellectual property and
regulatory environments threaten progress. Secondly, innovations in existing automation products
slows the adoption of biochip technologies. New requirements for pre-processing of samples for
use with biochips may reduce market appeal, and this slow adoption of new technology may hinder
investment and growth of the biochip sector. Finally, the current economic climate has depressed
new capital expenditures and acquisition of novel strategies.
Strategies for accessing the market include:
1. Pursue deals with pharmaceutical and biotechnology companies for generating service revenue
and assistance with product development.
2. Develop long-term diagnostic and consumer products while generating short-term products and
revenues from collaborations.
3. Target niche applications where proprietary technologies provide the highest value.
4. Form partnerships or make acquisitions to fill gaps in research, intellectual property, or
distribution capability.
(Sources: Frost & Sullivan, 2002. Biosensors: Emerging Technologies and Growth Opportunities;
Frost & Sullivan ,2002. Nanotechnology and Biochips; Frost & Sullivan 2002, World
Microfluidics/Lab-on-a-Chip Markets)
Principal Producers and Distributors
The primary competitors to Affymetrix are in the DNA probe array and related technologies area.
These competitors include both public and private companies, and include Agilent Technologies,
Axon Instruments, BD Biosciences, Clontech, CombiMatrix Corporation, Digital Gene
Technologies, Illumina, Lynx Therapeutics, Motorola, NimbleGen Systems, Sequenom, and Visible
Genetics. Companies who are providing gel-based sequencing technologies that compete with
the DNA chip technology are Abbott Laboratories, Applied Biosystems, and Amersham
Biosciences.
There are a limited number of companies already competing in the applied health management
sector. These include diagnostic companies that may have advantages in instrumentation, assays,
investment resources, patent portfolios, regulatory expertise, and marketing networks. These
companies include Abbott Laboratories, Becton Dickenson, Bayer AG, Roche, and Johnson &
Johnson.
Relevance of natural products, biodiversity and bioprospecting
231

DNA chips are a powerful research tool that can be very useful in bioprospecting. A company
searching for new compounds with novel activity can, for example, take chips with DNAs from
every known human gene, and test them with extracts from organisms from biodiverse areas to
discover natural compounds that interact with genes. Some of these may ultimately become drug
leads. Similarly, human protein chips may be exposed to extracts to check for protein.protein
interactions that may have ultimate therapeutic value. In addition, DNAs from many organisms,
such as plants in a forest preserve, for example, may be tested against a well-studied standard
plant species on a DNA chip to look for hybridization differences which suggest differences in
sequence. The degree of divergence is an indicator of novelty and signals plant or animal
genomes that may be worthy of further investigation.
232

CONCLUSIONS AND RECOMMENDATIONS FOR FURTHER STUDY
The growth of commercial biotechnology
The impressive growth of commercial biotechnology in recent years has significant implications for
traditional industries worldwide. Each of the sectors of pharmaceuticals, cosmetics, industrial
enzymes, agriculture, food processing, forestry, mining and others have benefitted from the everevolving
applications of biotechnology and related technologies. All of these areas have followed
different dynamics in accordance with different direction and pace of technological innovation,
degrees of market acceptability and investment flows. Although competition is emerging from
virtually every corner of the globe, the overall expansion of the biotechnology industry is constantly
opening up opportunities for new applications, new technology approaches and new links in the
supply chain. The biotechnology industry areas globally are dominated by healthcare over food
and agriculture and industrial applications. While food and agriculture have lagged behind,
primarily because of consumer concerns, there is evidence that public perception is changing and
there is growing realization of the potential benefits of biotechnology applications to food
production and environmental protection.
Because many of the traditional industry sectors mentioned above are dominated by large, often
multi-national, corporations, partnerships and alliances have become important vehicles for small
and medium sized biotechnology companies to gain market access and distribution capability.
Strategic alliances can add significant value at each stage of development. Andean region
countries have an opportunity to establish their own “customized” biotechnology networks in
accordance with their respective commercial linkages, established trade partnerships and selected
niches.
The US and certain countries in Europe are the leaders in biotechnology despite the high cost of
doing business in these regions. These counties have learned to help create and manage
intellectual property, sustain viable investment flows and attract and retain a qualified science and
technology community. There is renewed interest in the emerging markets and resources offered
by biologically diverse regions like Asia and Latin America. The challenge for the countries of the
Andean region will be how to participate in the globalized value-added supply chains while
pursuing the development of its own regional markets and technology development to give
maximum benefit to regional industries and populations.
The role of natural products in various sectors and product areas
Sections of this report have indicated how natural products are relevant to various stages of
research, development and manufacturing in the major product areas. These natural products
range from antibiotics for therapeutic use, to nutrients in functional foods, and industrial enzymes
for industrial applications. Bioinformatics applications, already used widely in the drug discovery
area, are being applied to other research and development areas that can benefit from high
throughput testing and experimentation. One area of application that could exploit this technology
is the screening for bioactive natural products from endemic organisms of all kinds .
Modern science and technology tools are allowing greater access to the information stored in
diverse biological resources and new ways to isolate and process active compounds from them for
productive application. Furthermore, selected organisms and chemical combinatorial libraries
containing millions of compounds can be screened against panels of multiple targets by robotic
233

high throughput screening methods. In turn, promising molecules can be tested rapidly in animal
models that are genetically modified to simulate disease.
Natural products are also enjoying a new level of public interest in US, Europe, Japan and other
regions due to evolving demographic trends coupled with a new awareness of health benefits and
environmental appreciation.
Biodiversity regions as a source for biologically active agents and related information
The value of biodiversity preservation and bioprospecting has been characterized in both economic
and social terms. It is estimated that the value of worldwide biodiversity is at $2.9 trillion per year.
At a recent presentation at Harvard University, Dr. Antonio Paes de Carvalho, the founder of one of
Brazil’s foremost bioprospecting firms, Extracta, pointed out that “The biological resources of the
earth are vital to the economic and social development growth of humanity. There is growing
recognition that biological diversity is a global asset of tremendous value to present and future
generations.” At the same time, the threat to species and ecosystems has never been so great as
it is today. And although novel technologies such as biotechnology can be used as a unique tool to
analyze and preserve biodiversity, it has no comparable capabilities like nature to create new
varieties. If a unique genetic trait disappears, there is no way to regain it. Intellectual property
considerations will also continue to require attention. Dr. Carvalho noted a growing recognition
among the developing world, where much of the biodiversity-based environmentally sustainable
bio-business exists, that natural molecules which have been isolated from nature and have a
definite application should be considered “inventions” and thus be subject to intellectual property
protection. He recognized that abundant animal and microbial life, together with a large coastal
extension rich in marine organisms, make certain regions of Latin America prime areas for the
application of modern science and modern technologies to the creation of economic activity.
A number of companies, both large and small, are involved in to bioprospecting. The case of
Diversa Inc. of the US and BioProspect Limited of Australia illustrates an arrangement for
biodiversity access and research collaboration agreement that gives Diversa the right to discover
genes from collections of Australian biological material supplied by BioProspect. Like the Andean
region, Australia is considered to be a biological hotspot and is estimated to contain at least 2
million species of plants, animals, invertebrates and microorganisms, many of which are still
unknown or yet to be described. This biota represents nearly one-fifth of the world's biodiversity,
with 80% of the terrestrial and aquatic species found nowhere else in the world.
The Andean region countries collectively have remarkable bioresources. Perhaps the most
powerful measure of the economic potential of a country’s bioresources, are the number of species
that are endemic, that is, existing nowhere else in the world. Each of the Andean region countries
has an impressive number of higher plants unique to their homeland. Collectively, this amounts to
18,856 species, or about 7% of the estimated 270,000 species of higher plants that exist in the
world today. Taken as a group, the number of plant species occurring in this region and not
existing in other regions of the world is, in all probability, much larger. The expectation is that we
should find similar degrees of diversity across the other classes of biological resources in the
region.
234

Lessons from the field
The company examples discussed in the detailed analysis sections of this report illustrate the
various business models and strategies used to introduce value-added activities and processes to
traditional industries through biotechnology. In pointing out the major company players and their
respective product sub-area niches, it is instructive to consider the resources required and the
major obstacles and hurdles relating to investment needs, required technology platforms,
regulatory framework, professional services and other factors.
The relevance of the case examples for the countries of the Andean region is not for the purpose
of selecting one product area over another, but rather to gain an insight into the program and policy
considerations appropriate to the development of the public and private infrastructure requirements
alluded to above.
In this regard, it is particularly relevant to observe the various stages and cycles pertinent to
individual companies as well as to sectors and to the biotechnology industry itself. Most of the
innovation and new employment in the developed world comes from small business, and this is
also the case in the developing world. The rule, rather than the exception in biotechnology, is to
start small, with an idea that is funded often by the inventors themselves until a demonstration
called a “proof of concept” can be developed to attract funds from outside. At this point, “seed”
money from private investors, foundations, government, or venture capital can allow expansion of
facilities and personnel to accelerate the research and development of the idea. As research in
biotechnology can be very expensive, small enterprises can join technology incubators with shared
research equipment and infrastructure, to develop their business at lower cost. Patents are
applied for early on, but can take 18 months or more for review before they are issued or denied.
With patents in hand and a working idea, a company can look for more financial support from
venture capital sources and government programs, or can look to for an alliance with another
company with complementary resources and skills to co-develop the product. Outlicensing and
inlicensing of patents s common at this phase.
Companies in this sector can develop a large amount of debt as they develop. They seek
revenues from whatever sources available. These sources include contract services offered to
other companies or research institutes and universities. Licensing revenues and deals involving
royalties are common to keep the company afloat. Spinning off companies while holding partial
ownership is another means of realizing value in another product area while focussing on your core
business. As the companies come close to realization of a product ready for sale, they commonly
prepare to “go public” in order to bring in the very substantial funding from the sale of stock in the
company itself. At this point, the company is considered a public company, owned by and directed
in the interest of its shareholders.
In order to fulfill business opportunities that arise, companies at the beginning middle and later
stages of development, often acquire other companies or are bought out by other companies. The
greatest limiting factor on doing so is, of course, access to capital. When at the product sales
stage, small companies often create alliances with larger companies who have a more developed
international marketing and sales capacity.
Once a company is “stable” it may stick to and further develop its core business, or it may decide to
vertically integrate, for example, to become a full fledged pharmaceutical company instead of a
genomics company. It may due this by mergers and acquisitions. Similarly, it may horizontally
integrate, by diversifying and applying its core technologies to diverse market areas.
235

Companies is this field run the gamut from single product companies to multi-product horizontallyintegrated
to multi-product vertically integrated companies. The key to survival for startup or
mature companies in the biotechnology field is to always innovate and look for the next trend leave
your business behind or keep it ahead of the competition.
Recommendations for further study and consideration by CAF and related entities
Andean countries looking to develop a sustainable platform of biotechnology-based businesses will
do well to prepare for long-term commitments. The respective Andean region countries must seek
to ensure stability in the business climate and a certain degree of predictability for investors. This
includes the need for clarity and consistency in the national regulatory frameworks, uniform
biosafety provisions, and international regulatory harmonization. Equally critical are the
considerations for intellectual property protection, professional services, and appropriate financing
mechanisms for each stage of company growth.
Science and technology development is a high priority; not just for the formation of scientists and
engineers but also for attaining public understanding and public support. . Similarly, as efforts
continue in the preparation of a science and technology-enabled workforce in the Andean region,
new enterprise formation, employment opportunities and corresponding infrastructure need to be
there in time to absorb the new skills and talent.
There a need to differentiate between Andean regional-level strategies and actions to be
considered on a country-by-country basis. It is understood that Colombia, for example, is one of
the leaders in the Andean region in terms of its biotechnology capacity. It will be important to
determine how best to disseminate intra-regional models which will allow a certain degree of
institutional “mentoring” for other countries in the region. The cultivation of an internal market is
essential to the long-term sustainable growth of the industry.
It will also be of value to learn from the experiences of other neighboring countries such as Brazil
which has developed strong environmental laws such as Bioprospecting Registration
requirements, adherence to the Convention on Biological Diversity (CBD) and other regulatory
laws which provide licenses for genetic resources and provide benefit sharing contracts with client
corporations.
The creation of new economic models and strategies for the world’s agricultural and
pharmaceutical industries is clearly required to render adequate valuation to the national sources
of biodiversity. The government agencies, the scientists and biotechnology entrepreneurs
themselves in the Andean region can play a pioneering and vital role in said restructuring.
Scientists and entrepreneurs can, and must, ensure that source countries participate as equal
partners in all phases of the new biodiversity-centered programs. The mechanisms for achieving
this include establishing on-site facilities for collecting, extracting, and screening; inclusion of local
scientists and local inputs in the numerous genome projects already underway; and the creation of
truly first-rate international laboratories dedicated to the production of economic and social wellbeing
through the best applications of biotechnology.
The authors of this report consider that the commercialization of botanicals is one example of an
area that holds particular promise for the Andean region. Specific plants can be evaluated for
nutraceutical purposes and active ingredients can be identified. The next step should be to devise
a plan to create a seed capital fund for encouraging new commercial initiatives in this area.
236

APPENDICES
A. References
B. Glossary
C. Company lists
D. Additional tables
E. NIH List of Entities in Natural Products Research
F. Notes on the discussions with CAF representatives on February 25, 2003
237

Appendix A
References for introductory sections
Alexander von Humboldt Institute, 1999. Intellectual property and biodiversity - intellectual
property in the World Trade Organization and its relationship with the Convention on Biological
Diversity. Bogota, Columbia, Instituto Humbolt, 1999.
Biotechnology and Bioprospecting for Sustainable Development. Government of India. Ministry of
Enviornment and Forests. India’s presentation for the Ministerial Meeting of Megabiodiversity
Countries. Cancun, Mexico, February 16-18, 2002.
Biotechnology Australia submission to the House of Representatives Standing Committee on
Primary Industries and Regional Services Inquiry into Development of High Technology Industries
in Austrailia based on Bioprospecting . Canberra, Austrailia. 2000.
Dutfield, Graham, Biodiversity in industrial research and development: implications for developing
countries. International Journal of Biotechnology. Vol. 2, Nos. 1/2/3, 200 p. 103-114.
Gaisford, James D., and Jill E. Hobbs, William A. Kerr, Nicholas Perdikis, and Marni D. Plunkett,
The Economics of Biotechnology, United Kingdom: Edward Elgar Publishing Limited, 2001.
Gaull, Gerald E., and Ray A. Goldberg, New Technologies and the Future of Food and Nutrition:
Proceedings of the First Ceres Conference, Williamsburg, VA, October 1989, Virginia: John Wiley
& Sons, Inc., 1991.
Japan Bioindustry Association, Japan Bioindustry Letters, JBA, Vol. 18, No. 3, January 2002.
Jaramillo de Hodson, Elizabeth, and Rafael H. Aramendis, Biotechnology in Colombia: Research
Groups, 1998, Colombia: Tercer Mundo, Editores, S.A., 1998.
Megadiverse 2002. Report of the First Ministerial Meeting of Like-minded Megadiverse Countries
on the Conservation and Sustainable Use of Biological Diversity, Feb. 16-18, 2002, Cancun,
Mexico. (see Secretaria de Medio Ambiente below).
Menrad, Klaus, Demosthenes Agrafiotis, Christien M. Enzing, Louis Lemkow , and Fabio Terragni,
Future Impacts of Biotechnology on Agriculture, Food Production and Food Processing, New York:
Physica-Verlag, 1999.
Moran, K. 2000. Bioprospecting: lessons from benefit-sharing experiences. International Journal
of Biotechnology, v2:132-144.
Peritore, N. Patrick, and Ana Karina Galve-Peritore , Biotechnology in Latin America: Politics,
Impacts and Risk. Delaware: Scholarly Resources, Inc., 1995.
Plotkin, Mark, J, “Takes of a Shaman’s Apprentice”, Penguin Books, 1993.
Quebec Science, Biotechnology 2000 and Beyond, Canada: La Revue Quebec Science
238

Secretaria de Medio Ambiente y Recursos Naturales, Report of the First Ministerial Meeting of
Like-minded Magadiverse Countries on the Conservation and Sustainable Use of Biological
Diversity, Mexico, 2002.
Senker, Jacqueline, Biotechnology and Competitive Advantage, United Kingdom: Edward Elgar
Publishing Limited, 1998.
Sittenfeld, A., 1996. Issues and strategies for bio-prospecting, Genetic Engineering and
Biotechnology (UNIDO, Emerging Technology Series) 4, 1-12.
Sittenfeld, A., Biotechnology, Biodiversity Prospecting and Access to Genetic Resources: Issues
for Latin America. Isnar, The Netherlands. October l996.
Sittenfeld, A. , Espinoza, Muñoz and Zamora. Biotechnology-Biodiversity: Challenges and
Opportunities. Centro de Investigación en Biología Celular y Molecular (CIBCM) Universidad de
Costa Rica, San José, Costa Rica. 1999.
Sittenfeld, A., 1996. Issues and strategies for bioprospecting. Genetic Engineering and
Biotechnology Monitor 4:1-12.
Sittenfeld, A. and A. Lovejoy, 1999. Managing bioprospecting and biotechnology for conservation
and sustainable use of biological diversity. In: J.I. Cohen (ed.), Managing Agricultural
Biotechnology--Addressing Research Program Needs and Policy Implications. CAB International,
1999.
Tzotzos, G.T., and K.G. Skyrabin, Biotechnology in the Developing World and Countries in
Economic Transition, New York: CABI Publishing, 2000.
Web references:
http://www.humboldt.org.co/default-ing.htm
Alexander von Humboldt Institute
www.conservation.org/web/fieldact/megadiv/list.htm.
Conservation International
References for Biopharmaceutical and Nutraceutical Sections
Aarts, Thomas, Executive Editor. Global Industry Overview - Nutracon 2001. San Diego, CA. 2001.
Nutrition Business Journal. Annual Industry Overview 2001.
Ashton, G., Nature Biotechnology 19, 307 - 311 (2001)
(Anon., 2000. Nutrition Business Journal. Vol. 5.10/11:3)
(Anon. 1998. Nutrition Business Journal. Vol. 3. 10/11:1).
(Nutrition Business Journal – Nutrition Business Journal, 2001).
Nutrition Business Journal, Volume VI, no. 5/6 Industry Overview, 2001.
239

C. Hasler, 2002. "Functional Foods" Present Knowledge in Nutrition, 8th Edition, Chapter 64
PhRMA, “2002 Survey. New Medicines in Development. Biotechnology” , 2002.
Web references:
http://www.agr.gc.ca/food/nff/enutrace.html
Agriculture and Agri-Food Canada
http://www.hoovers.com
Hoovers Online – The Business Information Authority
http://www.imshealth.com
IMS Health Incorporated
http://sis.windhover.com
Windhover's Information, Inc.
http://www.nutranet.org
Saskatchewan Nutraceutical Network
http://www.nutritionbusiness.com
New Hope Natural Media Online: Nutrition Business Journal
http://www.massbio.org
Massachusetts Biotechnology Council
http://www.bio.org
Biotechnology Industry Organization (BIO)
http://www.ipo.org
International Property Owners (IPO) Organization
http://www.uspto.gov
United States Patent and Trademark Office
(An Agency of the U.S. Department of Commerce)
www.ncbi.nlm.nih.gov
National Center for Biotechnology Information
http://csdd.tufts.edu
Tufts Center for the Study of Drug Development
http://www-3.ibm.com/solutions/lifesciences
IBM Life Sciences
240

http//www.genome.gov
National Human Genome Research Institute
http://vector.cshl.org.
The Dolan DNA Learning Center
http://river.mit.edu/mitlibweb/FMPro?-db=RS_Items.fp5&-Lay=web&format=ro_search.htm&-findany
MIT Libraries
http://river.mit.edu/mitlibweb/FMPro?-db=RS_Items.fp5&-Lay=web&format=ro_search.htm&-findany
MIT Libraries
http://www.isb.vt.edu/othersites/indexlinksdblevel1.cfm
Annotated Database of WWW Sites Pertaining to Agricultural/Environmental
Biotechnology
http://www.bioworld.com
BioWorld Online, The Worldwide Biotechnology News and Information Source
http://www.globaltechnoscan.com/
GlobalTechnoScan: A Complete Technology Site: R&D News, Technology Transfer,
Venture Capital
http://www.globaltechnoscan.com/
GlobalTechnoScan: A Complete Technology Site: R&D News, Technology Transfer,
Venture Capital
http://www.ta.doc.gov/OTPolicy/default.htm
Technology Administration: Office of Technology Policy
http://www.wws.princeton.edu/~ota/
Office of Technology Assessment
http://www.ich.org/ich1bis.html
International Conference on Harmonisation
of Technical Requirements for Registration of Pharmaceuticals
for Human Use
http://www.fda.gov
Food and Drug Administration
U.S. Dept. of Health and Human Services
241

http://www.ncbi.nlm.nih.gov/entrez/query.fcgi
Entrez-PubMed: NCBI/National Library of Medicine
References for Cosmetics and Personal Care Sections
US and West European Consumption Of Specialty Raw Materials for Cosmetics & Toiletries, 2001
Product Area.
Kline & Company From “ Facing the future:” Soap, Perfumery & Cosmetics, 74(1), January 2001.
Sales of color cosmetics 1995-99 (US$m)
Source: Euromonitor From :“ Facing the future:” Soap, Perfumery & Cosmetics, 74(1), January
2001.
Table: Global value sales of color cosmetics by sector 1995-99 (US$m)
Source: Euromonitor From: :“ Facing the future:” Soap, Perfumery & Cosmetics, 74(1), January
2001.
Table: Value of the Aging Baby Boomer Market in the U.S., 1996 TO 2006 ($ Millions at
Manufacturers’ Level), From RB-111 Drugs and cosmetics for aging boomers: a surging market,
Business Communications Company, Inc. Business Communications Company, Inc. 25 Van Zant
Street, Norwalk, CT 06855.
Table: Europe's leading color cosmetics brands, 2000
Source: Taylor Nelson Sofres.
Table: Skin care by region % analysis 1996 - 2000
Source: Euromonitor in “Skin care: The market report: Soap & Cosmetics, 78(1): 34(4), January
2002.
Table Facial Skin Care By Sub Sector Source: Euromonitor. from: “Skin care: The market report:
Soap & Cosmetics, 78(1): 34(4), January 2002.
“Skin care: The market report:” Soap & Cosmetics, 78(1): 34(4), January 2002.
US department stores top 5 brands prestige skin care January – September 2001 Source: NPD
Beauty Trends.
“Comfort Zone: Aromatherapy products market in the US, the UK, Japan, France and Germany is
expected to increase from $574.5 mil in 1998 to about $800 mil by 2003”. Global Cosmetic
Industry, 168(2): 40+, February 2001.
“US cosmetics and toiletries market is forecast to grow in constant value terms to 2005”. Chemical
Specialties, 3(7): 18(1), November 2001.
Chart: Top 10 Body Care Categories & Subcategories
SPINSCAN -- Natural Product Supermarkets
52 Weeks Ending Feb. 23, 2002 vs. 52 Weeks Ending Feb. 24, 2001, Total U.S.
SPINS/ACNielsen.
242

”Market Overview 2001: Natural Beauty Care Sales Solid”
Natural Foods Merchandiser, XXIII(6): 42+, June 2002.
“Cosmetics raw material suppliers fill a growing appetite for multifunctionality.” (Focus 2002:
Consumer Specialties) Chemical Market Reporter, 262(17): FR3, November 11, 2002.
Chart: Europe's leading color cosmetics. Source :Nelson Soares. From: “ Facing the future
Worldwide market sales of facial make-up products grows from $7,817.0 mil in 1995 to $8,139.4
mil in 1999 ” Perfumery & Cosmetics, 74(1), January 2001.
“UK: Top ten fine fragrances” in The Market Report: Women's Fragrances: UK Enhanced Title :
According to industry estimates, the total UK fragrance market for women grew from UKPd353.3
mil.” European Cosmetic Markets, 18(5): 181+, May 2001.
Chart: Top 10 skincare brands
Ranked on value sales 52 w/e 3 March 2002, TNS Superpanel.
Chart: Total Skincare Market
Source: Taylor Nelson Sofres Superpanel
From “ Market for skincare products in UK grows 12% to UKPd652 mil”
Grocer (The), 225(7551): 43(2), April 27, 2002.
European Union: Facial Skin Care in Italy, Spain, UK and US
Facial skin care: Something for everyone. (The Market Report) [Part 2 of 2]
Chart: Italy: facial skin care products 1999-2000
Unipro, converted to [Euro] by ECM.
Chart Spain: Facial skin care breakdown by category 2001
Source: DroquerPress based on ACNielsen data, 12 months to May/June 2000-2001.
Chart: Spain: Facial skin care brand shares 2001
Drogueria & Perfumeria.
UK: Leading mass market facial skin care brands 2001
Taylor Nelson Sofres Superpanel.
Table UK: Mass facial skin care, 2000 Source: Taylor Nelson Sofres Superpanel.
Table: Asia Pacific fragrance market ($m) 1996, 2000, Euromonitor.
SPC Asia: 14+, September 2000 and official statistics/trade associations/trade press/company
research/store checks/trade interviews/Euromonitor estimates.
Table: Premium fragrance vs mass fragrance 2000 (% retail value)
Source: Euromonitor. From: SPC Asia: 14+, September 2000 and official statistics/trade
associations/trade press/company research/store checks/trade interviews/Euromonitor estimates.
Table: Value sales of cosmetics and toiletries, 1998-1999 (yen) from: SPC Asia: 14+, September
2000 and official statistics/trade associations/trade press/company research/store checks/trade
interviews/Euromonitor estimates.
243

Japan Table Value sales of cosmetics and toiletries by sector, 1995-1999 (yen, current rsp)
From: Ken Tanaka, The cosmetics & toiletries market in Japan totaled Yen 2,266 bil in 1999, with
heavy interest in hair loss treatments by both men and women; skin care products are the largest
segment in Japan, with sales totaling about Yen700,415.8 mil in 1999” SPC Asia: 14+, September
2000 and official statistics/trade associations/trade press/company research/store checks/trade
interviews/Euromonitor estimates.
Japan Table: Forecast value sales of cosmetics and toiletries, 1998- 2004 (yen, % constant)
Source: Ken Tanaka SPC Asia: 14+, September 2000 and official statistics/trade
associations/trade press/company research/store checks/trade interviews/Euromonitor estimates.
Cosmetics International, 26(596): 3, October 25, 2002.
Table: Latin American market for color cosmetics, 1999
Euromonitor from Soap, Perfumery & Cosmetics, 73(5): 38 May 2000.
Table: Color cosmetics market, % country shares, 1999 from Soap, Perfumery & Cosmetics,
73(5): 38 May 2000.
Table 3 Latin America hair care market, 1995-99 (US$m current prices
Source: Euromonitor from Soap, Perfumery & Cosmetics, 73(5): 38 May 2000.
Table Latin America hair care market, 1995-99 (US$m current prices
Source: Euromonitor from Soap, Perfumery & Cosmetics, 73(5): 38 May 2000.
Table Latin America skin care market, 1995-99 (US$m current prices
Source: Euromonitor from Soap, Perfumery & Cosmetics, 73(5): 38 May 2000.
Table Latin America bath & shower market, 1995-99 (US$m current prices
Source: Euromonitor from Soap, Perfumery & Cosmetics, 73(5): 38 May 2000.
“By 2002, Brazil's exports of cosmetics are forecast to outstrip imports; imports totaled $187 mil in
2000 Valor, “ Economico: B8, February 01, 2001.
Table: Argentina: Key cosmetic and toiletry sectors, 2001
Source: ACNielsen. From : “In for a rough ride: Overview and predictions of cosmetics and
toiletries market in Argentina” European Cosmetic Markets, 19(4): 119+, April 2002.
Table: Market Sector
Source: Datamonitor From: “Value of the ethical personal care market in Europe for 2001,
[euro]m from “Seeing green: ethical personal care is forecasted to grow reaching a market value of
[euro]3 billion in Europe by 2006.(World Market)Global Cosmetic Industry, 170(5): 16(2), May
2002.
“The 7th Amendment: A new year's resolution? (Rule & Revelations)Analysis of pending cosmetics
regulation in the European Union “ Global Cosmetic Industry, 171(1): 20, January 2003.
Mintel “Four intelligence reports, Cosmetics and Skincare, covering France: Germany: Italy and
the UK. www.mintel.com.
244

“Is Asia's sleeping giant awakening? With more citizens living in urban areas, recent entry into the
WTO and better products, China may be on the brink of dynamic growth. Overview of current
state and potential of China's cosmetics and toiletries market.” Happi-Household & Personal
Products Industry, 39(2): 53(5), February 2002.
Table: China, Market Share by Company Source: Euromonitor, From “Is Asia's sleeping giant
awakening? Overview of current state and potential of China's cosmetics and toiletries market
Happi-Household & Personal Products Industry, 39(2): 53(5), February 2002.
Web references:
http://www.cir-safety.org/publications.shtml
Cosmetic Ingredient Review: Ingredient Reports Ingredients with a literature citation (Journal of the
American College of Toxicology - JACT, Journal of Environmental Pathology and Toxicology -
JEPT, and International Journal of Toxicology - IJT) last updated on December 30, 2002.
http://www.fragrance.org/main.html
The Fragrance Foundation was established in 1949 by six industry leaders affiliated with Elizabeth
Arden, Coty, Guerlain, Helena Rubenstein, Chanel and Parfums Weil, to develop educational
programs about the importance and pleasures of fragrance for the American public. America is the
largest fragrance market in the world and The Fragrance Foundation has become an international
source for historic, cultural, scientific and industry related reference materials.
http://www.senseofsmell.org/resources/aromachology.asp
Sense of Smell Foundation: Aromachology Resources.
References for Skin Protection and Anti-Aging
“Aveda's global broadcast” . Health & Beauty Salon, Nov 1, 2002 p99.
“Bottles of Youth” . Retail Merchandiser, Feb2002, Vol. 42 Issue 2, p44
“Spa Wars” Fortune (Asia), 05/28/2001.
“Plant Derived Chemicals,” January, 2003. The Freedonia Group, Inc. Cleveland, OH. Jan.2003.
The study provides historical data for 1992, 1996 and 2001, as well as forecasts to 2006 and 2011
by product and market including data and profiles for over 40 US industry participants.
“Dermaceuticals Antagonize Your Age” Psychology Today, Mar/Apr2001, Vol. 34 Issue 2, p50.
“Fine Lines Reduced in Study” Dermatology Times, Sep97, Vol. 18 Issue 9, p3.
“Fountains of Youth “(Cosmetics)
Los Angeles Magazine, May 2001 v46 i5 p116.
“The market for Cosmeceuticals: A business information report”
from the Leading Edge Group, Commack N.J. 2001.
“Alphabet Soup: SPF, UVB, and UVA Protection Explained “
Sun & Skin News, The Skin Cancer Foundation, New York, NY Vol. 15, No. 1 1998.
245

“Skin Care: A Look at the Cosmeceutical Side” . Freedonia Group, January 2003.
Reuters Business Insights” New Profit Opportunities in Cosmetics and Toiletries” Datamonitor,
l999.
Web references:
Aveda
http://www.aveda.com/protect/we/esp.asp
SenetekPLC website
http://www.senetekplc.com/
VesPro Life Sciences: Vitamin C Ester (Cfactor TM)
http://www.cfactor.com/c-index.html
Dr. Nicholas Perricone Cosmeceuticals
http://www.drperricone.com/consult.html
Transgenica: Online Resource for Natural Product Researchers
http://www.transgenica.com/database/k/kinetin.htm
“Everything you need to know about Kinetin”
http://www.imsb.au.dk/~rattan/Kinetin.html
Vitamin C Ester
http://www.positivehealth.com/permit/Articles/Nutrition/vitcpre.htm
Osmotics website
http://www.osmotics.com/clinical.cfm
References for Industrial Enzymes Section
Phillipa Maister, Atlanta Business Atlanta Business Chronicle,
Sept, 2002.
Chemical Market Reporter [CHM]
Vol: 261 Iss: 24 Date: Jun 17, 2002 sec: FR p: 9.
Menrad, Klaus, Demosthenes Agrafiotis, Christien M. Enzing, Louis Lemkow , and Fabio Terragni,
Future Impacts of Biotechnology on Agriculture, Food Production and Food Processing, New York:
Physica-Verlag, 1999.
Pacific Northwest National Laboratory Press Release, “Two-for-one special: industrial enzymes
and food grown in one plant” July 12, 1999 “ http://www.pnl.gov/news/1999/99-30.htm.
Business Communications Company, inc. study RC-147NA Industrial Enzymes: Products,
Technologies and Applications, Business Communications Company, Inc. 25 Van Zant Street,
Norwalk, CT 06855.
246

Stikeman, Alexandra. Technology Review [TCR] Vol: 105 Iss: 9 ( Nov 2002 p: 35).
Saddler, J.N. , Mansfield, S.D., K.K.Y. Wong, T. Astle, 1996. Enzymatic modification of coarse
pulp fibers derived from Douglas-fir. pp. 173-176 in E. Srebotnik and K. Messner (eds.), Advances
in Applied and Fundamental Research. Proc. 6th Int'l Conf. on Biotechnology in the Pulp and
Paper Industry.
Research & Development . Vol: 44 Iss: 9 Date: Sep 2002 p: 54.
“Genencor to acquire Rhodia's enzymes. (Europe/Mideast).Genencor International, brewing and
enzymes business”, Chemical Week, 165(2): 13, January 15, 2003.
“ What's coming to dinner?: Future crops will come with some baggage”. The Atlanta Journal -
Constitution Atlanta, GA. May 19, 2002.
Research & Development, Vol: 44 Iss: 9 Date: Sep 2002 p: 54.
Web reference:
http://www.nautilusbiotech.com/tech-enz.php3
Nautilus Biotech Press Release:
References for Food Technology
“Food’s catalytic converter”, Food Manufacture, March 2002, p. 41.
Nagodawithana, T. and G. Reed, (eds.) , Enzymes in Food Processing, New York, Academic
Press, 1993.
Takeoka, G.R. , et. al. (eds.), Biotechnology for Improved Foods and Flavors, American Chemical
Society, 1995.
“Tasty enzymes”, Food Manufacture, December 2002, p. 33.
Van Arnum, Patricia, “Speciality Additive Palyers” Chemical Market Reporter, June 17, 2002.
Volume 261. Issue 24.
Web reference:
http://www.ajinomoto-usa.com/
Ajinomoto website
References for Agriculture and Forestry Section
Becker, E. 2003. US delays challenge to Europe's ban on modified food. The New York Times,
Feb. 4, 2003.
Chandrasekharan, C. 1993. Non-wood forest products in forestry education. Paper presented to
247

the FAO Advisory Committee on Forestry Education, Bangkok, Thailand 13-15 December 1993.
Rome, FAO.
Chemical Week, 2000. Biotechnology Eats Away at Conventional Agchems. Chemical Week: 29,
February 9,2000.
Cook, O.F. 1925. Peru as a center of domestication. Journal of Heredity 16:33-46; 95-110.
Economist, 2002. Brave new world of farmaceuticals. The Economist, Dec 12, 2002.
Ernst & Young LLP, 2002. Beyond Borders: The Global Biotechnology Report 2002, UK.
FAO, Forests in Transition, at www.fao.org.docrep/t4450E0j.htm .
FAO, 2001. Global Forest Resources Assessment 2000.
FAO, 2002. The State of Food and Agriculture 2002.
Feedstuffs Magazine, 2002. U.S. pesticide demand to reach $10.5 billion in 2006. Feedstuffs, 74
(11): 27(1), March 18, 2002.
The Freedonia Group, 2002. Agricultural Biotechnology.
Gordon, J. 1998. In brief. Scientific American 278:22.
Holla, R.A.H.G., and R.B. Johnson 1996. Patent Law and Innovation in Biotechnology and
Software. Discussion Paper, Center for Science and International Affairs, John F. Kennedy School
of Government, Harvard University. September 26, 1996.
International Food Policy Research Institute (IFPRI).
International Service for the Aquisition of Agri-Biotech Applications (ISAAA).
International Tropical Timber Organization (ITTO).
James, Clive, 2002. Impact of agricultural biotechnology felt globally. In: Ernst & Young, Beyond
Borders 2002, UK.
National Public Radio, 2003. Bioprospecting. Science Friday, February 17, 2003; www.npr.org.
National Research Council, 1989. Lost Crops of the Incas: LIttle-Known Plants of the Andes with
Promise for Worldwide Cultivation. National Academy Press, Washington, D.C.
Nature Biotechnology, 1996. Editorial: Biodiamonds and paying back debts. Aug. 1996,
14(8):925.
Open Ocean Aquaculture, 1996. Proceedings of an International Conference, May 8-10,1996,
Portland, Maine. Marie Polk, editor. New Hampshire/Maine Sea Grant College Program Rpt.#
UNHMP-CP-SG -96-9, 640 pp.
Parascandola, S.T., 2001. Businesses face significant regulation bringing biotech productsw to
248

market. Business North Carolina, August 2001 v21 i8 p56.
Phillips McDougall, Chemical Week Associates, 2000.
Sedjo, R.A., 2000. Forest Biotechnology. Resources for the Future, document # RFF 00-06.
Tlusty, M.F., et al., (eds.), 2001. Marine Aquaculture and the Environment: A Meeting for
Stakeholders in the Northeast. Cape Cod Press, Falmouth, MA.
Tzotzos, G.T. and K.G. Skryabin. 2000. Biotechnology in the Developing World and Countries in
Economic Transition. CABI Publishing, UK.
United Nations. 1995. Review and Appraisal of the World Population Plan of Action. 1994 Report,
United Nations, New York.
US Congress, Office of Technology Assessment, 1995. Selected Technology Issues in US
Aquaculture, OTA-BP-ENV-171. Washington, DC: Office of Technology Assessment, September,
1995.
Wood Mackenzie Agrochemical Services.
Wood Mackenzie 2002. Phytofile. June 2002
Web References:
www.bioprospect.com
www.diversa.com
www.syngenta.com
www.conservationinternational.org
www.fao.org
www.woodmac.com
References for Transgenic Seeds
Becker, E. 2003. US delays challenge to Europe's ban on modified food. The New York Times,
Feb. 4, 2003.
Economist, 2002. Brave new world of farmaceuticals. The Economist, Dec 12, 2002.
Ernst & Young LLP, 2002. Beyond Borders: The Global Biotechnology Report 2002, UK.
FAO, 2002. The State of Food and Agriculture 2002.
The Freedonia Group, 2002. Agricultural Biotechnology.
249

International Food Policy Research Institute (IFPRI) .
Garber, K. 2000. Agbio at bat. Signals Magazine, 10/11/2000; Recombinant Capital, Walnut
Creek, California.
International Service for the Aquisition of Agri-Biotech Applications.
James. C. , 1999. Global Review of Commercialized Transgenic Crops: 1998. International
Service for the Acquisition of Agri-biotech Applications (ISAAA), October 22, 1999.
James, C., 2002. Impact of agricultural biotechnology felt globally. In: Ernst & Young, Beyond
Borders 2002, UK.
Parascandola, S.T., 2001. Businesses face significant regulation bringing biotech products to
market. Business North Carolina, August 2001 v21 i8 p56.
Phillips McDougall, Chemical Week Associates, 2000.
R&D Magazine, 2002. US biotech / genetically modified crop acreage as a percentage of the
soybean, cotton, and corn crops from 1996 throuh 2002. Reed Business Information, 44(5):11,
May 2002.
R&D Magaznie, 2000. Sales of agricultural biotechnology products to rise to $2,875 million in 2004
and biopesticide sales to grow to $120 million. Cahners Business Information, 42(11):13.
November 2000.
ReCAP reports 2003, Mycogen Backgrounder.
ReCAP reports 2003, Syngenta Backgrounder.
Signals Magazine 2000.
United Nations Conference on Trade and Development (UNCTAD) 2002. Trade and Development
Report, 2002.
Wood Mackenzie Agrochemical Services.
Wood Mackenzie 2002. Phytofile. June 2002
World Conservation Monitoring Centre (WCMC) Species Database, unpublished data (WCMC,
Cambridge, U.K., December, 1999) .
Web references:
www.metabolix.com
www.mycogen.com
www.seedquest.com.
World demand for transgenic seedsto grow 12% annually through the year 2006. News Releases,
March 21, 2002.
250

www. syngenta.com
www.woodmac.com
References for Bioinformatics and Genomic and Proteomic Databases Section
Advest, Inc., Pharmaceutical Informatics and Bioinformatics, June 18, 2001.
Boguslavsky, J., 2002. The evergrowing web of proteomic data. Genomics & Proteomics,
July/August 2002.
Cunningham, B., 2002. Get with the program. The Scientist, August 19, 2002.
Front Line Strategic Management Consulting (FLSMC).
Medical and Healthcare Marketplace Guide, Vol 1, 2001-2002. Dorland's Biomedical, Philadelphia,
PA, 17th edition, v1, pp 280-282.
References for Genomic Bioinformatics
Advest, Inc., Pharmaceutical Informatics and Bioinformatics, June 18, 2001.
Boguslavsky, J., 2002. The evergrowing web of proteomic data. Genomics & Proteomics,
July/August 2002.
Cunningham, B., 2002. , “Get with the program”. The Scientist, August 19, 2002.
Front Line Strategic Management Consulting (FLSMC). See www.frontlinesmc.com
Frost & Sullivan, 2002, U.S. In Silico Simulation of Biological Systems Markets, at www.frost.com
Medical and Healthcare Marketplace Guide, Vol 1, 2001-2002. Dorland's Biomedical,
Philadelphia, PA, 17th edition, v1, pp 280-282.
Gene Logic Inc., 2003. SEC filing 10-K dated 3/19/2003.
“The race to computerize biology” The Economist, 2002. Dec. 12, 2002.
Meyers, E., “3rd Millenium receives Phase II SBIR contract to continue development of innovative
bioinformatics system for the US Department of Defense”. Press Release, January 28, 2003.
Gene Logic. Recombinant Capital, Inc.
Scrip Pharmaceutical Companies Fact File, 2003. Gene Logic.
Web references:
www.frost.com
251

www.ReCap.com, 2003.
Celera Genomics at:
www.ReCap.com
Celera Genomics in:
www.ScripPharmaceuticals.com
References for Biochips and Microarrays
D&MD Reports, "Biochips: Progress and Prospects," report 9016 (2001), D&MD Publications,
Westborough, MA.
Drug Discovery & Development, 2000. DNA Chip market to surge. June, 2000.
Drug Discovery & Development, 2001. Robots, chips, and fireflies push screening limits. January
2001, p. 53ff.
The Economist, 2002. The race to computerize biology. Dec. 12, 2002.
European Molecular Biology Laboratory (EMBL), 2002. The human genome on a chip. Press
Release Dec. 15, 2002.
Med Ad News, 2002. Important facts and figures. June 2002, 21(6):24(1).
Medical and Healthcare Marketplace Guide, Vol 1, 2001-2002. Dorland's Biomedical, Philadelphia,
PA, 17th edition, v1, pp 280-282.
Pharmaceutical Technology Europe, 2001. When two techs are better than one. April 2001,
13(4):62ff.
R&D Magazine, 2000. Pharms/biotechs up use of microarrays. April 2000, 42(4):11.
Web reference:
www.Affymetrix.com
References for DNA Chips
Affymetrix, Inc. 2002. SEC filing 10-K405 dated 3/29/2002.
Afymetrix, Inc. 1998. SEC filing 10-K405 dated 3/31/1998.
Affymetrix, Inc. 1997. SEC filing 10-K405 dated 3/31/1997.
Affymetrix, Inc. 1996. SEC filing 10-Q dated 8/14/1996.
Afymetrix, Inc. 1996. SEC filing 424B1 dated 6/7/1996.
252

D&MD Reports, 2001. Biochips: Progress and Prospects, report 9016 (2001), D&MD Publications,
Westborough, MA.
Economist, 2002. The race to computerize biology. Dec. 12, 2002.
European Molecular Biology Laboratory (EMBL), 2002. The human genome on a chip. Press
Release Dec. 15, 2002.
Frost & Sullivan, 2002, World Microfluidics/Lab-on-a-Chip Markets, www.frost.com.
Med Ad News, 2002. Important facts and figures. June 2002, 21(6):24(1).
Medical and Healthcare Marketplace Guide, Vol 1, 2001-2002. Dorland's Biomedical, Philadelphia,
PA, 17th edition, v1, pp 280-282.
www.recap.com, Affymetrix, Recombinant Capital.
Reuters Business Insight, 2002. Affymetrix.
San Jose Mercury News, 2000. Santa Clara, Calif. Company facies competition in DNA chip
development. Nov. 7, 2000.
Scrip Pharmaceutical Companies Fact File, 2003. Affymetrix.
Web references:
www.Affymetrix.com
Appendix B
Glossary
Bioactivity: An abbreviation of 'biological activity', meaning the elicitation of a biological response
through modifying the function of an enzyme or receptor, or interfering with other physiological
processes.
Biobased: An abbreviation of 'biologically based', meaning derived from organic matter.
Biodegradable: Describes any material able to be decomposed by natural biological processes,
such as by being digested by bacteria or fungi.
Biodiscovery: The extraction and testing of molecules for biological activity, identification of
compounds with promise for further development, and research on the molecular basis for the
biological activity.
Biodiversity: The variety of the world's organisms, including their genetic diversity and the
assemblages they form. The breadth of the concept reflects the interrelatedness of genes, species,
and ecosystems.
253

Biofuel: An abbreviation of 'biomass fuel', meaning any liquid, solid, or gaseous fuel produced by
conversion of biomass. Biofuels include ethanol, biodiesel, and methanol, methane, and hydrogen.
Bioindustry: An industry based on biodiscovery which has been successfully developed and
scaled up for commercial production.
Bioinformatics: All aspects of gathering, storing, handling, analysing, interpreting and spreading
vast amounts of biological information in databases. The information involved includes gene
sequences, biological activity/function, pharmacological activity, biological structure, molecular
structure, protein-protein interactions, and gene expression. Bioinformatics uses powerful
computers and statistical techniques to accomplish research objectives, for example, to discover a
new pharmaceutical or herbicide. Biological resources Include genetic resources, organisms, parts
of organisms, populations and any other biotic component of an ecosystem with actual or potential
use or value for humanity.
Biomass: Any organic matter which is available on a renewable basis, grown by the
photosynthetic conversion of solar energy (for example, by plants), and organic matter from
animals. Biomass includes forest and mill residues, agricultural crops and wastes, wood and wood
wastes, animal wastes, livestock operation residues, aquatic plants, fast-growing trees and plants,
and municipal and industrial wastes.
Biomining: The use of microorganisms to aid recovery of metals from ores.
Biopesticide: A pesticide in which the active ingredient is a virus, fungus, bacterium, or parasitic
disease, or a natural product derived from a plant source.
Biopolymer: A high molecular weight organic compound found in nature, whose structure can be
represented by a repeated small unit. Common biopolymers include cellulose and proteins.
Bioprocessing: The use of biological materials, generally microorganisms or enzymes, to carry out
specific chemical reactions for industry, for example, to extract, process or purify.
Bioproduct: Product derived from biological materials.
Bioprospecting: The search for valuable chemical compounds and genetic material from plants,
animals and microorganisms. The term is sometimes used more narrowly to refer only to the initial
collection of biological material for subsequent use for biodiscovery, or more broadly to include the
search for new bush foods.
Bioreactor: A contained vessel or other structure in which chemical reactions are carried out
(usually on an industrial scale), mediated by a biological system, enzymes or cells. They are used
to produce pharmaceuticals, antibodies, or vaccines, or for the bioconversion of organic waste.
Bioregion: An area of land or sea composed of ecosystems that occur in a repeating pattern
throughout the region and can be distinguished from other regions with different patterns. They are
described in terms of the dominant physical and biological attributes of the region (for example,
climate, landform, vegetation, ocean currents, sea temperatures and salinities).
Bioremediation: The use of plants and microorganisms to consume or otherwise help remove
materials (such as toxic chemical wastes and metals) from contaminated sites (especially from soil
and water).
254

Biota: The combined flora and fauna of a region.
Biotechnology: The application of science and engineering principles to the processing of
materials by biological agents to provide goods and services.
Bryozoan: Any of various small aquatic animals of the phylum.
Bryozoa: that reproduce by budding and form mosslike or branching colonies permanently
attached to stones or seaweed.
Combinatorial chemistry: The technologies that generate a large number of samples of (new)
chemicals, which are then tested (screened) for potential use (for example, for therapeutic effect, in
the case of a pharmaceutical).
Ecology: The study of the interrelationships between organisms and their environment.
Ecosystem : All of the organisms in a given area in interaction with their non-living environment.
Endemism: Being indigenous to only a specified area.
Enzymes: Proteins that act as catalysts, speeding the rate at which biochemical reactions proceed
but not altering the direction or nature of the reactions.
Extremophiles: Organisms that require extreme (from a human perspective) environments for
growth. They are found in environments characterised by high temperature, pH, pressure and salt
concentration, or low temperature, pH, nutrient concentration, or water availability. Some can
tolerate very extreme conditions including high levels of radiation or toxic compounds, or live in
rocks 1.5 km below the surface of the earth. In addition, they may be found in environments with a
combination of extreme conditions.
Fermenter: An apparatus that maintains optimal conditions for the growth of microorganisms.
Fermenters exist in a wide variety of configurations, from experimental systems of less than one
litre to large commercial towers, and are used in the commercial production of antibiotics and
hormones.
Functional food: A food that has beneficial effects on target functions in the body, beyond
adequate nutritional effects, in a way that is relevant to health and well-being and/or reduction in
disease.
Gene: Each of the units of heredity which may be regarded as the controlling agents in the
expression of single phenotypic characters. Genes are sequences of nucleotides within nucleic
acid molecules, each of which determines the primary structure of some protein or polypeptide
molecule.
Metabolism: The sum of all of the enzyme-catalysed reactions in living cells that transform organic
molecules. The term covers the conversion of food and water into nutrients that can be used by
cells, and the use of those nutrients by those cells (for example, to sustain life and grow).
Microorganism: An organism of microscopic or submicroscopic size, especially a bacterium or
protozoan.
255

Nutraceutical: Any non-toxic food extract that is used as a dietary supplement and has
scientifically proven health benefits for both disease treatment and prevention. In some uses of the
term, whole diets; isolated nutrients; designer, biotechnology-enhanced foods; and functional foods
are included.
Pathogen: A virus, bacterium, parasitic protozoan, or other microorganism that causes infectious
disease by invading the body of an organism known as the host.
Peptide: Two or more amino acids joined by the sharing of one or more electrons between atoms.
Polypeptides (protein) are chains of amino acids linked in this way. Each protein in nature is the
ultimate expression product of a gene.
Petrochemical: A chemical derived from petroleum or natural gas.
Pharmaceutical: Relating to preparing and dispensing drugs.
Platform technology: A technology likely to have many applications. An example is a technology
that links drugs with specialised fats to facilitate delivery of drugs and genes into cells could
significantly enhance therapy in a number of human diseases.
Polyester: Any of numerous synthetic polymers in which the units are joined by ester linkages.
Polyesters are used primarily as light, strong, weather-resistant resins in boat hulls, textile fibres,
adhesives, and moulded parts.
Ramsar wetlands: Wetlands listed as internationally significant under the Convention on Wetlands
of International Importance. This convention is known as the 'Ramsar Convention' after the city in
which it was finalised.
Scale up: The transition step in moving a (chemical) process from experimental (test tube, small,
bench) scale to a larger scale producing more or much more product than the bench scale
(tons/year in a chemical plant). A process may require a number of scale-ups, with each scale-up
producing more product than the last one.
Taxonomy: Theories and techniques of naming, describing, and classifying organisms. The
taxonomic hierarchy is, from top to bottom: kingdom, phylum (for animals) or division (for plants
and fungi), class, order, family, genus, species. some uses of the term, whole diets; isolated
nutrients; designer, biotechnology-enhanced foods; and functional foods are included.
(Source: “ High technology products and processes from natural sources”
Bioprospecting: Discoveries changing the future” September 2001.
Australian Government
http://www.aph.gov.au/house/committee/primind/bioinq/report/contents.htm)
GLOSSARY: Industrial Enzymes
Agricultural sector: Uses advanced plant breeding techniques to introduce beneficial traits to crops
grown for food and fiber. Tools allow plant breeders to select genes that produce beneficial traits
256

and move them from one plant to another. Benefits include increased production, decreased costs,
and higher nutritional value.
Agricultural waste: A vast amount of waste product known as biomass is produced from the
agriculture industry. These may include: animal byproducts, stalks from processed corn, or
pesticide residue.
Alkaline cellulose: Enzyme used in detergents that helps reduce disadvantages like degradation of
the fabric, loss of strength, 'back staining' (discoloration of the white weft yarn and reddening of
original indigo stain).
Amino Acids: A group of 20 different kinds of small molecules that link together in long chains to
form proteins. Often referred to as the "building blocks" of proteins. The sequence of amino acids
in a protein determines the structure and function of the protein.
Amylase: An enzyme that digests starch, removing the residue of starchy foods.
Animal feed: A rapidly growing market for enzymes. The common protein sources used in animal
feeds are deficient in certain essential amino acids; they are added through the biotechnology
methods as supplements for poultry, pigs, etc.
Anti-viral: for use against viruses: capable of eliminating or inactivating viruses.
Antibody: A blood protein that is produced in response to and counteracts an antigen. Antibodies
are produced in disease states and help the body fight against the particular disease.
Antigens: A foreign substance that can stimulate an immune response when introduced into the
body.
Ascorbic acid: A natural antioxidant which traps oxygen; used in beverage processing such as
beer manufacturing to reduce oxygen.
Autoimmune disorders: A disease whereby an individual's immune system mounts an attack on a
portion of its own tissues. Tissues undergoing such an attack can be destroyed in the process.
Rheumatoid arthritis is an example of an autoimmune disease.
Biocatalysts: In bioprocessing, an enzyme that activates or speeds up a biochemical reaction.
Developed by industrial biotechnology companies to be used in chemical synthesis.
Biodiversity: The variety of life in all its forms, levels and combinations. Includes ecosystem
diversity, species diversity, and genetic diversity.
Biofinishing: A characteristic that gives textiles such things as: a stonewashed look, soft khakis, or
sand washed garments.
Bioinformatics: The science of informatics as applied to biological research. Informatics is the
management and analysis of data using advanced computing techniques.
Biomass: A vast amount of waste product; the totality of biological matter in a given area.
257

Biomaterials: Biological molecules, such as proteins and complex sugars, used to make medical
devices, including structural elements used in reconstructive surgery.
Biopharmaceuticals: Biopharmaceuticals are proteins produced by living organisms that have
medical or diagnostic uses.
Bioprocess: A process in which living cells, or components thereof, are used to produce a desired
product.
Biotechnology: The application of biological research techniques to the development of products
that improve human health, animal health, and agriculture.
Building block: An element or component contributing to the growth of a system. Amino Acids are
building blocks for proteins.
Byproducts: Other substances produced during the manufacture or production of a desired
product.
Carbohydrates: A chemical compound composed of carbon, hydrogen and oxygen. Starch, sugar
and cellulose are the most common carbohydrates that supply energy.
Catalysts: A substance that speeds up a reaction without undergoing any permanent chemical
change.
Cellulase: An enzyme that breaks down cellulose, the primary component of plants. Cellulases are
used in the textile industry to give denim a stone washed look, prevent pilling, and improve texture
of clothes.
Chemical synthesis: The construction of complex chemical compounds from simpler ones. A
synthesis usually is undertaken for one of three reasons: 1) to meet an industrial demand for a
product 2) to determine structures of compounds that occur naturally 3) a synthesis may be carried
out to obtain a compound of specific structure that does not occur naturally and has not previously
been made in order to examine the properties of the compound.
Crop-based sources: Raw materials taken from crops; i.e. Soya beans used to develop products
like diesel fuels or fabric softeners; corn, beets, or rice used to develop feed stocks; sugar used for
alcohol.
DesignPath: Genencor’s approach to metabolic pathway engineering, it is the integration of a
variety of tools including genomics and functional genomics.
Desizing: In textiles: the removal of the sizing (starch sizing is used to strengthen warp yarns in
order to speed up the weaving process) with amylases.
Directed Molecular Evolution: A laboratory process whereby mechanisms employed during
"natural" selection are employed at the molecular and single cell level to cause and then identify
evolutionary adaptations to novel environmental challenges. This often includes deliberate
modification of genetic sequences.
DNA: (Deoxyribonucleic Acid) A macromolecule composed of carbon, nitrogen and phosphorous
present in the nucleus of a cell. It is the genetic material of most livings organisms.
258

Enzyme: A protein that catalyzes a biochemical reaction, usually speeding it up. Enzymes are vital
components of any living organism.
Enzyme Substrates: A substrate is a substance that is acted upon by the enzyme in a biochemical
reaction. The enzyme binds its substrate by forming weak chemical bonds with it. Since these
bonds break rapidly it is a readily reversible reaction and so the enzyme, substrate and enzymesubstrate
complex exist in a state of equilibrium. If one examines all the enzyme molecules
individually at one time, one would find that a proportion of them exist as free enzyme molecules,
while the remainder exist bound to substrate molecules, in the form of an enzyme-substrate
complex.
Enzyme-catalyzed reactions: Biochemical reactions that are catalyzed by enzymes leading to the
building or breaking down of biological material.
Enzymology: The branch of biochemistry that studies enzymes.
Ethanol: The most widely used renewable biofuel today. Ethanol is made by converting starch
crops into sugars, the sugars are fermented into ethanol which is then distilled into its final form. Its
main uses are to enhance vehicle performance and as a fuel oxygenate to improve the emissions
profile of gasoline.
Expression Technology: In genetics, manifestation of a characteristic that is specified by a gene.
With hereditary disease, for example, a person can carry the gene for the disease but not actually
have the disease. In this case, the gene is present but not expressed. In industrial biotechnology,
the term is often used to mean the production of a protein by a gene that has been inserted into a
new host organism.
Extremophile: Micro-organisms that live optimally at relatively extreme levels of acidity, salinity,
temperature or pressures; discovered through bio-prospecting. Enzymes isolated from these
organisms are used in some industrial manufacturing processes.
Filamentous fungi: Filamentous fungi are microorganisms that grow as long, multi-celled strands
(filaments. These filaments can combine to form larger masses like mushrooms or toadstools. The
production of valuable molecules and materials by genetically engineered fungi has tremendous
potential in industry, medicine, agriculture, and basic science.
Formulation Delivery Systems: A system in which final products (biomaterials) are formulated in a
manner customized for the intended use by the customer. These formulations protect biomaterials
against harsh chemical and environmental conditions.
Fossil Fuels: Fuels like coal, oil and natural gas that we rely on for the majority of our energy.
Fuel Ethanol: A liquid transportation fuel, which accounts for roughly two thirds of world ethyl
alcohol. Most bioethanol is made from sugar cane, corn and other starch crops.
Gelatin solutions: A transparent protein material made from boiling animal hides, bone, and
cartilage that forms a firm gel when mixed with water. It is used in foods, medicine, glue, and
photography.
259

Gene screening: Testing a population to identify a subset of individuals at high risk for having or
transmitting a specific genetic disorder.
Genes: The functional and physical unit of heredity passed from parent to offspring. Genes are
pieces of DNA, and most genes contain the information for making a specific protein.
Genetic Code: The instructions in a gene that tell the cell how to make a specific protein. A, T, G,
and C are the "letters" of the DNA code; they stand for the chemicals adenine, thymine, guanine,
and cytosine, respectively, that make up the nucleotide bases of DNA. Each gene's code combines
the four chemicals in various ways to spell out 3-letter "words" that specify which amino acid is
needed at every step in making a protein.
Genetically Engineered Enzymes: Enzymes derived from genetically modified organisms (GMOs).
GMOS are obtained by altering the genetic material of cells or organisms in order to make them
capable of making new substances or performing new functions. GMO derived enzymes are used
primarily in laundry and dish washing detergents; and as aids in food processing.
Genomics: The study of the genetic content of an organism.
Glucose Isomerase: A bacterial enzyme, routinely used in the production of high-fructose syrups.
Protein engineering of glucose isomerase has led to improved performance under normal
operating conditions, at elevated temperatures and at lower pH.
Granulation: The process of forming granules (small grains or particles) from a chemical.
Hazardous waste: A subset of solid wastes that pose potential threats to public health or the
environment and meet any of the following criteria: - is specifically listed as a hazardous waste by
EPA; exhibits one or more of the characteristics of hazardous wastes (ignitability, corrosiveness,
reactivity, and/or toxicity); is generated by the treatment of hazardous waste; or is contained in a
hazardous waste.
Hemicellulases: Cellulose-degrading enzymes that are used to improve and standardize the
quality of bread (softness, volume, crumb quality)and to bleach in the pulp and paper industry (to
decrease chemical costs, reduce harmful compounds in the environment and help achieve higher
pulp brightness).
Heterologous proteins: Different proteins.
High fructose corn syrup: A natural sweetener made by converting glucose (produced from corn)
to fructose.
High-throughput screening: Automated robotic systems which allow scientists to automatically
search and screen gene sequences.
Hormones: A chemical or protein that acts as a messenger or stimulatory signal, relaying
instructions to stop or start certain physiological processes. Hormones are synthesized in one type
of cell and then released to direct the function of other cell types.
Host production organism: A cell or organism used for growth of a virus, plasmid or other forms of
foreign DNA, or for the production of proteins from cloned genes.
260

Hypoallergenic: Not likely to cause an allergic reaction.
i-biotech: An approach developed by Genencor to address the complexity inherent in the
commercialization of biomaterials (for application in the health care, agriculture and industrial
chemical markets). i-biotech integrates several related technology platforms that we apply to the
discovery, optimization, production and delivery of biomaterials.
Immunology: Study of all phenomena related to the body's response to antigenic challenge (i.e.,
immunity, sensitivity and allergy).
Industrial biocatalysts: Biocatalysts used in industrial processes (generally referring to enzymes).
Industrial biotechnology: Application of biotechnology to create new and alternative bio-products
for consumers. Key areas include chemicals, textiles and leather, food and animal feed, pulp and
paper, the energy industry, metals and minerals.
Industrial Chemicals: Chemicals used for industrial processes; includes commodity chemicals,
pharmaceuticals, specialty and fine chemicals, plastics and enzymes.
L-threonine: One of the essential amino acids.
L-tryptophan: One of the essential amino acids.
Lipase: An enzyme used to digest fats and remove greasy stains.
Liquefaction: The first major step in the conversion of starch to syrup. The starch as a raw material
comes as dry matter and needs to be first gelatinized and liquefied to make it susceptible to further
enzymatic breakdown. This is achieved by adding a temperature-stable enzyme to the starch
suspension. The mechanical part of the process involves the use of stirred tank reactors,
continuous stirred tank reactors or jet cookers.
Low Allergenicity: Little or no potential for human allergic response.
Lysine: An amino acid with a pharmacological use much more specific than that of most other
amino acids. So far, supplementation of l-lysine is one of the best options available for the
treatment of herpes simplex virus infections, especially oral forms. Also insures the adequate
absorption of calcium, helps form collagen (which makes up bone cartilage & connective tissues),
and aids in the production of antibodies, hormones & enzymes.
Metabolic engineering: A process used to modify host production organisms so they will produce
small molecules and chemicals, or biochemicals.
Microbes: Any organism that can be seen only with the aid of a microscope. Also called
microorganism.
Microorganisms: Living cells seen only with the aid of a powerful microscope. A general term
referring to bacteria, molds and yeasts.
Molecular biology: A branch of biological science that studies the biology of a cell at the molecular
level. Molecular biological studies are directed at studying the structure and function of biological
261

macromolecules and the relationship of their functioning to the structure of a cell and its internal
components: including nuclei, cell membranes and mitochondria.
Molecular Evolution and Design: The process or set of tools by which we accelerate the natural
evolutionary process in order to engineer or optimize gene products for customer needs.
Mutator Technology: A technology whereby the host production organism is adapted/mutated to
allow economical, high level production of the desired biochemicals.
Oncology agents: Agents used in the field of Oncology (caner biology), such as new types of
monoclonal antibodies (MAbs). These agents work by focusing on cellular mechanisms that play a
role in various cancers.
Organic chemicals: Raw materials of the chemical industry such as acetone, glycerol and
alcohols. These are key components for the development and production of substances like
explosives, resins, plastics and fibers.
Organism: A living being whose physiological functions are carried out by subunits, or "organs"
(like a heart or a liver), which are separate in function but mutually dependent.
Oxidase: Enzymes that catalyze the transfer of hydrogen from a donor molecule to oxygen in an
acceptor molecule. Oxidative enzymes (e.g. glucose oxidase) can partially replace the use of
chemical oxidants and achieve better bread quality. Enzymes such as oxidases can directly or
indirectly improve the strength of the gluten network and so improve the quality of the finished
bread.
Pathogen: Disease-causing organism.
Peptides: Two or more amino acids chained together by a bond called a "peptide bond."
Petrochemicals: A commercially used chemical derived from petroleum or natural gas.
Pharmacogenetic: The study of pharmacogenetics and pharmacogenomics presents opportunities
to researchers working at levels ranging from the most molecular to the most clinical, in the fields
of pharmacology, physiology, genetics, genomics, medicine, epidemiology, statistics,
bioinformatics, and Computational biology.
Phosphates: Derived from the mineral apatite; any salt or ester formed by the reaction of a metal,
alcohol, or other radical with phosphoric acid.
Product Stewardship: Part of the sustainability management system. Includes working with
customers and ensuring safety in terms of product use and disposal.
Protease: Enzymes that are involved in the breakdown of proteins. They are most widely used
enzyme in detergents; it removes protein stains from egg, grass, blood, and sweat. Also used to
treat wool and raw silk.
Protein: A large complex molecule made up of one or more chains of amino acids. Proteins
perform a wide variety of activities in the cell.
262

Protein engineering: Protein Engineering Technology will often be used in conjunction with genetic
modification to improve existing proteins, usually enzymes, and to create proteins not found in
nature. These new and improved proteins will encourage the development of ecologically
sustainable industrial processes because they are renewable, biodegradable resources.
Protein processing: Modification of a protein such that the protein may be cleaved to form the
mature protein or peptide; amino acid residues may become modified, such as by addition of other
groups; the polypeptide must be folded into its active three-dimensional conformation; the
polypeptide may travel to a destination other than the one in which it was synthesized; or the
polypeptide may be targeted for degradation. Following their synthesis most proteins undergo
some form of protein processing within the cell.
Protein Production: A process that covers all aspects of protein formation right from its gene
expression to the production of the final product. Within a cell, this process is achieved through
adjustments of cell physiology, post-translational processing, and secretion of the final product.
Proteomics: The study of proteins.
Raw Materials: A natural unprocessed material used in a manufacturing process.
Recombinant Enzymes: Enzymes derived from recombinant DNA technology as opposed to
naturally occurring enzymes.
Renewable: Resources able to be sustained or renewed indefinitely, either because of
inexhaustible supplies or because of new growth.
Robotics: Tools that drive biotechnical manufacturing of food and fiber, and cloned beefsteaks
grown in nutrient tanks that could provide consistent, high-quality protein without breeding, feeding,
and caring for cattle. Similar processes for other products eliminate the plant or animal as
intermediary between raw nutrients and the dinner table. Robotics and biotechnology could make a
crucial difference for rural communities. Under the teleological paradigm, such technologies can be
organized and structured to provide employment, services, and amenities for an educated,
enlightened rural population.
Sorghum: One of two cereal grasses, Sorghum vulgare or S. bicolor, with broad, cornlike leaves, a
tall stem; cultivated mainly for stock feed and syrup.
Sustainability: A goal, that aims towards preserving quality interactions with the local environment,
economy and social system.
Sustainable Development: Developing polices and programs that contribute to the sustainability of
a company.
Textile: Enzymes used in textile processing to remove starch-based sizing, fiber preparation, pretreatment
and value-added finishing processes.
Transgenic models: An organism whose genome has been altered by the inclusion of foreign
genetic material. This foreign genetic material may be derived from other individuals of the same
species or from wholly different species. Genetic material may also be of an artificial nature.
263

Vaccines: A preparation that contains an antigen consisting of whole disease-causing organisms
(killed or weakened), or parts of such organisms, and is used to provide immunity against the
disease that the organisms cause. Vaccine preparations can be natural, synthetic or derived by
recombinant DNA technology.
Vitamins: A group of essential micronutrients.
X-ray crystallography: Study of the molecular structure of crystalline compounds through X-ray
diffraction techniques. When an X-ray beam bombards a crystal, the atomic structure of the crystal
causes the beam to scatter in a specific pattern.
Xylanase: An enzyme that breaks down the non-starch components of complex carbohydrates.
These are used in animal feed and added to cereal-based diets to the efficiency of carbohydrate
breakdown. Also used in the pulp and paper industry to cut and remove hemicelluloses from fibers.
(Source :Genencor,2002)
264

Appendix C
Company lists
Major Companies in the Cosmetic and Toiletries Industry
Avon
United States
http://www.avon.com/
Avon is a world leader in cosmetics and has outlets for personal care products on six continents
and in 143 countries. The largest direct-selling company in the world, with annual sales revenues
of nearly 6 billion US dollars Avon’s product line includes: Makeup, Skin Care, Hair Care,
Fragrance and bath products. The largest seller of perfumes in the world, Avon's Women of Earth
fragrance combines unique fragrances from around the world including Andean snowdrops.
They work with a network of scientists affiliated with major universities in Europe, Asia and North
and South America. Their skin care line is the most technologically driven beauty category and
these global relationships allow them to meet the specific needs of individual ethnic groups and
skin types across the globe.
Avon is also a major contributor to causes for women's health, annually supporting the Avon Walk
for Breast Cancer in cities across the United States whose profits go to support research for breast
cancer. Avon has been empowering women for 116 years and has a unique history, legacy of
employee diversity, and strong sense of responsibility to consumers and the environment.
Avon Botanisource Comforting Moisture Cream targets dehydrated and blotchy skin and includes
Botanisource contains a Phyto-Nutrient Complex which is a blend of plant-derived extracts
including: ginseng, gingko biloba, echinacea and green tea. It also includes an aromatic blend of
essential oils including: lavender, cedarwood, marjoram and juniper berry.
LANCÔME
France
http://www2.lancome.com/_int/_en/index.aspx
Lancôme, the world leader in the selective market of skincare, body care, makeup and fragrance
has distribution in 140 countries around the globe.
The Lancôme brand is spread out evenly over three continents: 1/3 in Europe, 1/3 in America, and
1/3 in Asia and the rest of the world. An exceptional balance which gives Lancôme its world-class
strength and solidity. Signature fragrances have been developed for some of the world’s greatest
actresses like Juliette Binoche, Isabel Rossellini and Uma Thurman
Founded by Armand Petitjean in l935, the Lancôme group created a line of lipsticks, Rose de
France - a pink lipstick, the first pink lipstick scented with natural Bulgarian rose. Lancôme was first
launched with five great fine fragrances. Founder Petitjean was a student of the school of Francois
Coty the “father of 20th century luxury perfumes such as its top sellers Trésor and Poême.
Lancôme has been a leader in combining aromatherapy with the use of essential oils, and by
conducting scientific research in the field of skincare treatments developed a product called
Lancôme Aromacosmetics .
265

Lancôme was also the first brand to understand the importance of vectors in cosmetology. In 1986
Lancôme launched Niosôme applying techniques of scientific vectorisation which still remain the
most innovative on the market. Their latest product, Retinol Nanocapsule, is the most sophisticated
and most elaborate vector ever developed.
L’Oreal
France
http://www.loreal.com
According to a press release in December, 2002, consolidated sales of L’OREAL at 31st
December 2002 amounted to €14.3 billion.
In Western Europe the growth rate was +6.1%, considerably higher than in previous years, with
growth of +12% in the United Kingdom, +5% in France and +9% in Spain. In North America
growth reached +5.6% over the year as a whole, despite difficult economic conditions. There was
a +21.1% growth in Asia, +22.5% in Latin America and +30.3% in Eastern Europe. L'Oréal
achieved particularly high growth rates in the following countries: China (+61%), South Korea
(+30%), Russia (+61%) and Brazil (+50%).
Technological advances combined with L’Oréal Research and product innovation helped to ensure
a successful year in 2002. Most notably: they Strengthened positions in core business segments.
This was the case in skin care with Visible Results from L’Oréal Paris, the Garnier Skin Naturals
line, Prodigy by Helena Rubinstein, Oligo 25 from Vichy and Effaclar K from La Roche-Posay; and
in hair colorants with Feria Booster from L’Oréal Paris and Majirouge Mix + from L’Oréal
Professionnel. Watershine "Diamonds" was the world's top-selling lipstick.
The group’s position in perfumes was also bolstered by Sensi from Giorgio Armani; they moved
into new sectors including Biotherm’s Skin Loving Colors make-up range. They reached out to
new and younger consumers, with products such as Juicy Tubes lipstick from Lancôme, Paris, and
developed new types of service, with the Elasto Curl range by Kerastase and Sleek Look from
Matrix.
Beiersdorf AG
Germany
http://www.beiersdorf.com/
Beiersdorf AG has three major product areas of which the Cosmetic and Personal care division is
only one. They use the latest techniques are used to study the metabolism of the skin and the
action mechanisms of the division's own products. Major advances were made during the last
months, e.g., in the field of skin aging processes and fine regulation of the skin's moisture balance.
Findings will be used to develop future technologies for innovative, high-performance active
cosmetics.
According to a February 05, 2003 press release, Cosmed sales: reached (euros) € 3.17 billion.
The cosmed division of Beiersdorf AG enjoyed another successful year in 2002. Despite extremely
difficult market conditions, sales increased by 7.2% to € 3.17 billion (previous year: € 2.95 billion).
At constant exchange rates, the division once again recorded double-digit sales growth of 10.3%.
As in the past, this increase was due primarily to organic growth. Florena Cosmetic GmbH,
Döbeln, which was acquired in 2002, contributed sales of € 50.4 million. Dermatological products
in the medical division generated an additional € 217 million (previous year: € 187 million) for the
266

company’s skin care and personal care segment. The Beiersdorf Group recorded total sales of €
4.74 billion in 2002. (All figures are still provisional.)
Income in the cosmed division grew broadly in proportion to sales. As in the previous year, the
EBIT return on sales was around 13.0%, an extremely high value in international comparison.
Qualitative growth: In the 54 countries in which it has a systematic presence, NIVEA holds 160
leading market positions (previous year: 140) in the individual product categories; five years ago,
this figure totaled only 50. By 2006, the company plans to feature at least 250 "No. 1’s".
NIVEA has increased sales almost five-fold since 1990. In 2002, the company recorded growth of
6.9% (at constant exchange rates: 11.0%) to € 2.63 billion previous year: € 2.46 billion). The driver
in the organic growth of the cosmed division was once again the international segment, where
sales rose by 7.6% to € 2.32 billion (previous year: € 2.16 billion). cosmed thus continued to
generate 73% of its total sales internationally.
The difficult economic conditions in North and South America caused the region’s sales to decline
9.9% to € 412 million (previous year: € 457 million). At constant exchange rates, however, an
increase of 2.2% was achieved. In the US, for instance, sales increased by only 0.3% year-on-year
to € 178 million (previous year: € 177 million), while a 6.8% increase was recorded at constant
exchange rates.
Unilever
United States, United Kingdom, Netherlands
http://www.unilever.com
Unilever products are found around world, from the emerging markets of Asia and Latin America
to the developed areas of Western Europe and North America. Their business is based on two
global divisions: Unilever Bestfoods and Home and Personal Care. The Unilever Group has two
parent companies: Unilever NV and Unilever PLC. Although these companies are separate legal
entities, with separate stock exchange listings in the UK and Europe. In much of the world,
Unilever leads the Home Care market, which includes cleansing and hygiene products. Market
leaders include Brilhante, Cif, Comfort, Domestos, Omo, Skip and Snuggle. They are global
leaders in products for skin cleansing, deodorants and antiperspirants. Our global core brands
include Axe, Dove, Lux, Pond's, Rexona and Sunsilk. Their launch of Pond's Perfect in Japan
reaching a leading position in the mass sector of the anti-aging market.
Unilever has a strong commitment to social responsibility which aims to meet the highest standards
of corporate behaviour towards their employees, consumers and the societies and world in which
they live. With more than two-thirds of our raw materials sourced from agriculture, the company is
acutely aware that the survival of much of their business depends on a healthy and productive
environment. They have worked to reduce environmental impacts in the manufacturing process
and are working on other issues in the wider supply chain. They have a strong statement about
their commitment to sustainable development in a special section on their website. The DJSI World
Index ranked Unilever as the leading company in terms of sustainability in the food and beverage
sector. The index, published in September 2002, includes over 300 companies from 23 countries
that are sector leaders in sustainability. It covers 18 sectors in total. SAM Research, which
compiles the information for the index. According to this report, "Unilever's sustainability
performance is excellent and underlines the company's commitment to sustainability as a business
concept. Its management capabilities are very strong in all dimensions of corporate sustainability."
267

http://www.unilever.com/environmentsociety/default.asp?ComponentID=633&SourcePageID=271#
1
Schwarzkopf & Henkel
Germany
http://www.henkel.com/int_henkel/company/index.cfm
The Schwarzkopf & Henkel division is one of the largest of its kind in the world and its brand-name
products business is continuously expanding. In l999 they achieved sales of 1814 million Euro in
140 countries worldwide. They hold leading market positions in all of the international market
segments of our strategic including brand-name products in the fields of hair colorants, air styling
and care, toiletries, skin care, oral hygiene and fragrances. The Schwarzkopf Professional
hairdressing unit is among the world’s our leading suppliers of hair salon products. Henkel and
Lion, Tokyo, form a joint venture and jointly operate their haircolorants businesses through the
Yamahatsu Sangyo Group.
Coty/Reckitt Benckiser
US
http://www.coty.com/
Coty is one of the leading manufactuers of personal care products and a leader in both mass and
prestige markets with sales of 1.6 billion dollars. Although the current company was established in
l996, the history of company dates back to France. 52 % of sales were in Europe and 40% were in
North America with the rest in other areas of the globe. 68% of the market targets mass market
fragrance and 32% targets prestige fragrances. Prestige perfume brands include Joop, Lancaster,
Jennifer Lopez, and Isabel Rossellini. The mass market fragrance includes Calgon. Club Med,
Jovan, Stetson, Rimmel and the Healing Garden.
Antonio Puig, S.A.
Spain
http://www.puig.com/selectLan.asp
Antonio Puig S. A. is a family owned company, founded in 1914 by Antonio Puig Castelló. It is a
leading company in the fields of perfumery, toiletries and cosmetic products. It is currently run by
the third generation of the Puig Family. The Group Puig (Puig Corporation) includes companies
such as: Paco Rabanne, Nina Ricci, Genesse, Laboratorios ISDIN which is a leading company in
Spain in dermatology), Carolina Herrera and Vitorio Luchino.
The R&D laboratories of PUIG include 24 specialists with degrees in chemistry, pharmacy,
engineering, and biology. The Toxicology Department and Evaluations Department have been
pioneers in the development of new techniques for the evaluation of safety and have received
many scientific awards for this (Venice 1980, London 1977,Buenos Aires 1984, London 1988,
Acapulco 1997). Products are distributed in over 150 countries via a network of 40 subsidiaries.
More than 5,000 people work in ten manufacturing centers producing perfumery and cosmetics . In
2002, the Puig Beauty & Fashion Group had doubled sales in the last four years achieving a
turnover of 914 million Euros.
268

Chanel
France
http://www.chanel.com/fb/index.cfm
The name Chanel is synonymous with elegance. Indeed, Chanel N o .5 is still the top selling
perfume in the world. Created in 1921 by Gabrielle “Coco” Chanel, Chanel N o .5 was the first
perfume ever launched by a couturier. Indeed, the bottle has a place in the Museum of Modern Art
in New York. Chanel has since expanded into many directions including skin care, makeup as well
as fashion and fine jewelry. The company maintains A center for Epidermal and Sensory Research
and Investigation, a “laboratory without walls” whose researchers maintain permanent links with
the international scientific community who are French, British, American German and Japanese.
Shiseido
Japan
http://www.shiseido.co.jp/e/annual/html/anu20000.htm
In 2002, Shiseido marked its 130th year of operations. The Japanese company has made
consistently offered high-quality products and services that incorporate advanced skin-care
technologies based on both “soft” (behavioral) and “hard” (physical) scientific principles. Shiseido
strives to become a prominent Skin-Care House and has considerably accelerated progress in
such areas as research and development, sales counter activities, and customer service.
For the past several years, total sales of the domestic cosmetics market have remained stable at
approximately (yen) ¥1.5 trillion annually which translates into global sales of toiletries and
cosmetics of around $ 589,962 million in 2001.
The Shiseido Group engages in a range of businesses that foster beautiful and healthy lifestyles,
including toiletries, beauty salons, health and beauty foods, pharmaceuticals, and fine chemicals.
Drawing on the product development and marketing expertise accumulated in their cosmetics
operations, these businesses in turn now play a supportive complementary role to our mainstay
cosmetics business. Shiseido’s R&D system is organized into three geographical sectors: Asia,
North America, and Europe.
Shiseido’s environmental objectives announced in 1998 are key elements in the company’s effort
to help establish a sustainable society. They worked towards reduction and recycling of industrial
wastes generated by their production facilities—during the year ended March 31, 2000, one year
ahead of schedule. They announced a new environmental objective in 2001: zero-emission
operations, or 100% recycling of industrial wastes, at all seven of the company’s domestic
cosmetics production facilities by the year ending March 31, 2004.
Procter and Gamble
US
http://www.pg.com/main.jhtml
The Procter & Gamble Company (P&G) is a recognized leader in the development, distribution and
marketing of superior Fabric & Home Care, Baby Care, Feminine Care, Family Care, Beauty Care,
Health Care, and Snacks & Beverages products. P&G markets nearly 300 brands - including
Pantene, Crest toothpaste, Vidal Sassoon, Pert Plus, Max Factor, Oil of Olay and Clairol - in more
than 160 countries around the world. P&G’s worldwide headquarters is located in Cincinnati, Ohio,
USA. has on-the-ground operations in more than 70 countries. Their top brands command more
than a fourth of their markets including global leadership in seven product categories.
269

Yves Rocher
La Gallicy, France
http://www.yves-rocher.com/
Supported by 3 major distribution networks, with the recent addition of its on-line sales, the Yves
Rocher Group turned over a total of 2 billion euros in 2001, an increase of 10.2% over the previous
year. With a presence on 5 continents and in 88 countries, employing 13,500 personnel and with
more than 215,000 additional indirect jobs, the Yves Rocher Group is a major player in the
feminine cosmetic world.
Since 1956, Yves Rocher has been committed to creating and producing cosmetics in an
environmentally responsible way by using organically grown plants, limiting waste with product
refills, preferring recyclable packaging and biodegradable formulas and by refusing to test finished
products on animals. For its packaging reduction policy, the Yves Rocher Group was awarded the
1999 Pricewaterhouse-Enjeux Les Echos "Business and the Environment" Prize.
It has secured numerous products for its products the latest of which are : Bio-Specific Nutrition
with Vegetal Oleosome Milk: 2 patents registered in France for extracting native Vegetal
Oleosomes for cosmetic application. The company also Pro-Retinol 100% Vegetal + Enzymes de
jeunesse and has two patents registered for the combination of enzymes and beta-carotene for
application of an anti-aging cosmetic and for the protection enzyme within the product. In La
Gallicy, Brittany Yves Rochers established the first museum in Europe entirely devoted to the plant
kingdom, the Végétarium grew out of the collaboration between the National Museum of Natural
History and Yves Rocher. It includes reconstruction of natural environments (tropical forest and
arid desert), along with interactive games and audiovisuals.
Colgate Palmolive
United States
http://www.colgate.com/cp/corp.class/about_us/index.jsp
Founded more than 200 years ago Colgate-Palmolive is a global company conducting business
around the world. Many of their brands are among the world's most familiar consumer names
including Colgate toothpaste and toothbrushes, Palmolive soaps and shampoos, Softsoap hand
soap, and Mennen deodorants .
Colgate Palmolive is a $9.4 billion global company serving people in more than 200 countries. The
Company focuses on strong global brands in its core businesses —Oral Care, Personal Care,
Household Surface Care, Fabric Care and Pet Nutrition. Colgate has delivered strong global
growth by following a tightly defined strategy while increasing market leadership positions for key
products, such as toothpaste, toothbrushes, bar and liquid soaps, deodorants/antiperspirants,
dishwashing detergents, household cleaners, fabric conditioners and specialty pet food.
Colgate has strong corporate values:caring, global teamwork and continuous improvement. In
1998 Colgate became the toothpaste market leader in the U.S., thanks to the tremendous success
of Colgate Total toothpaste
As a leading consumer products company they are using advanced technology to address
changing consumer needs throughout the world. In fact, our goal is to use our technology to create
products that will continue to improve the quality of life for our consumers wherever they live. In
270

spite of an ongoing recession in the U.S., on February 4, 2003 Colgate Palmolive posted strong
earnings results for fourth quarter and full year 2002.
Major Companies with interests in industrial enzymes
Cargill-Dow LLP
Indianapolis, IN
http://www.dowagro.com/about/who/index.htm
Dow AgroSciences LLC, is a global leader in providing pest management and biotechnology
products that improve the quality and quantity of the earth's food supply and contribute to the
safety, health and quality of life of the world's growing population. Dow AgroSciences has
approximately 6,000 people in over 50 countries dedicated to its business, and has worldwide
sales of approximately $3 billion (US dollars). Dow AgroSciences is a wholly-owned subsidiary of
The Dow Chemical Company. Dow AgroSciences has continued to grow through mergers,
acquisitions, and alliances. Dow AgroSciences has purchased Brazil Seeds, Cargill Hybrid Seeds
and most recently, the Rohm and Haas Agricultural Chemicals Business in June of 2001.
Diversa
San Diego, CA
http://www.diversa.com/
The Diversa Corporation is a global leader in developing and applying proprietary technologies to
discover and evolve novel genes and gene pathways from diverse sources. Diversa develops
novel enzymes and other biologically active compounds, such as orally active drugs, produced by
these genes and gene pathways. Diversa's proprietary evolution technologies facilitate the
optimization of genes to enable product solutions for the pharmaceutical, agricultural, chemical
processing, and industrial markets. Within these broad markets, Diversa is targeting key multibillion
dollar market segments where its technologies and products will create high value and
competitive advantages for strategic partners and customers. Diversa’s strategic partners include
Dow Corning, Glaxo Smith Kline, Celera Genomics and others.
Dow Corning
Michigan
www.dowcorning.com
In 2000, the Dow Chemical Company (NYSE: DOW) and Diversa Corporation (Nasdaq: DVSA)
announced formed a new joint-venture company to develop and commercialize innovative products
for the industrial enzyme market segment. The company, is a 50/50 joint venture and will contract
with Diversa to discover and evolve novel enzymes, and with Dow for optimized strains,
expression, product development and manufacturing.
DuPont Bio-Based Materials
Delaware
http://www.dupont.com/biotech/
A world leader in chemicals, DuPont Bio-Based Materials (NYSE: DD) DuPont has successfully
manufactured a critical ingredient for its newest polymer, Sorona (TM) , using a fermentation process
based on corn sugar, a renewable resource. Before this development, the substance could only be
produced from petrochemicals . Dupont has just entered have entered into a multi-project alliance
with Diversa to discover and utilize novel biocatalysts for the production of high-value chemical
271

products. Diversa will use its proprietary technologies to identify and develop enzymes with
enhanced performance characteristics, such as increased activity, stability, and specificity, for use
in several DuPont proprietary chemical manufacturing processes. The first project initiated under
the alliance will focus on the development of enzymatic processes to generate carbohydrates for
the DuPont microbial 1,3 propanediol (PDO) production process. PDO is a key ingredient in the
manufacture of DuPont Sorona® 3GT polymer, which can then be spun into apparel-grade
textile fibers. Fabrics made with Sorona® fiber are soft to the touch, exhibit excellent stretch and
recovery characteristics, can be dyed readily, and feature easy care.
Dyadic
Jupiter, FL
http://www.dyadic-group.com/wt/dyad/about_dyadic
Dyadic International, Inc. is a leading genomics company using technology that brings nature to
the marketplace. A global leader in proteomics through the discovery, development, and
manufacturing of products derived from the DNA of complex living organisms found in the earth’s
biodiversity. Dyadic develops biological products such as proteins, enzymes, polypeptides and
small molecules for applications in large segments of the agricultural, industrial, chemical and
biopharmaceutical industries.
Genencor International
Rochester, NY
http://www.genencor.com/wt/home
Genencor International Inc., is a diversified biotechnology company that develops and delivers
innovative products and services for the bioproducts and health care markets. With over $325
million in year 2001 revenues, Genecor uses modern biotechnology in the areas of agriprocessing,
industrial chemical and health care industries. Genencor International, Inc. is the
second largest developer and manufacturer of industrial enzymes in the world. Genencor holds
many patents and applications worldwide validating its numerous breakthroughs in biotechnology
for commercial applications. Genencor introduced the first industrial scale, recombinant enzyme in
1988 and is a leader in the areas of protein engineering, expression/secretion technology and
enzyme-substrate interaction.
Metabolix
Cambridge, MA
http://www.metabolix.com/
Metabolix is using life science technologies to forge new links between agriculture and industry in
response to calls for renewable, sustainable products. Metabolix, Inc. reports that it has
successfully scaled up production of its PHA bioplastics (polyhydroxyalkanoates) and at a cost per
pound that represents a significant benchmark towards making these bioplastics competitive with
traditional petrochemical resins for a wide variety of applications in polymer markets. Metabolix’s
PHAs are the newest generation of sustainable, environmentally friendly bioplastics, stable to
water, but that benignly biodegrade, even in marine and anaerobic environments. They were the
recipient of an award totaling more than $7.4 million from the U.S. Department of Energy to
continue the company’s pioneering efforts to produce (PHA) biopolymers directly in plants.
272

Novozymes
Denmark
http://www.novozymes.com/cgi-bin/bvisapi.dll/portal.jsp
Novozymes is the world leader in enzyme solutions and the world's largest manufacturer of
enzymes today. Based on an advanced biotech platform they produce and sell more than 500
enzyme products in 130 countries. Since 1941 Novozymes has introduced almost every new
industrial enzyme on the market. They use 13% of net turnover for research and development.
Between 1996-2001 they introduced 41 new products.. Starting with the acquisition of Sybron
Biochemicals in July 2001, Novozymes has built up an industrial microorganisms group and have
added InterBio in July 2002, and now Semco Bioscience in February 2003. The acquisition of
Semco Bioscience is expected to increase Novozymes’ turnover by approximately DKK 30 million
and contribute positively to Novozymes Biologicals’ operating profit.
273

Companies Supplying Herbal and Botanical Supplements
Abbott Laboratories/Ross Products Division
Aboca
Alacer
Amerifit
Anabolic Labs (Vitamer)
Apex Fitness Group, Inc. (Ergogen Labs)
Arkopharma
Ast Sports Science
Atkins Nutritionals
Bayer
Bluebonnet Nutrition Corp.
Bodyonics
Botanical Labs
Champion Nutrition
Chattern (Sunsource)
Childlife
Colorcon
Country Life
Cytodyne Technologies
Daily Wellness Company
Delavau
Douglas Laboratories
Enforma Natural Products
Enzymatic Therapy
Experimental & Applied Sciences (EAS)
Health and Nutrition Systems Inc.
Herb Pharm Inc.
Herbal Products & Development
Hmco
Integrative Therapeutics
Inverness Medical Innovations
Arrow Formulas
Ir Carlson Laboratories
Lane Labs
Leiner Health Products
Lichtwer Pharma
Maharishi Ayur-Ved Products Int’l., Inc.
Mead Johnson Nutritionals (Ensure)
Metabolic Maintenance Products
Metabolife International, Inc.
Metagenics
Mlo Products: Genisoy Products Company
Muscletech
Natrol
Nature’s Way
Naturade
Natural Alternatives International.
Natural Balance
Nature's Answers
274
Nature’s Best
Nature’s Life
Nature's Plus (Natural Organics)
Nbty
Nelson Bach
Next Proteins International
New Chapter Inc.
Novartis
Novogen Inc.
Now Foods
Nutraceutical International
Nutrition Now Inc
Ocean Nutrtion Canada Ltd
Omni Nutraceuticals (Irwin/4health)
Optimum Nutrition
Pacific Nutritional Inc.
Pangeo Pharma
Perrigo
Pharmaton Natural Health Products
Pharmavite Corp. (Otsuka Phamaceuticals)
Planetary Formulas
Prince of Peace Enterprises Inc
Progressive Laboratories
Quigley Corporation
Rainbow Light Nutritional Systems
Royal Numico
Sportpharma
Standard Homeopathic (Hylands)
Standard Process
Thorne Research Inc.
Tishcon Corporation
Trace Minerals Research
Twinlab Corporation
Unilever (Slimfast)
Universal Nutrition
Vanson Halosource
Vitatech International
Wakunaga of America
Weider Nutrition Group
Wyeth

The following seed companies are developing products for markets in the U.S.
Abbott and Cobb
Agrisale
Agritope
Akkadix
American Meadows
American Seed Exchange
American Takii
Ampac Seed Co.
Applewood Seed Co.
Asgrow Vegetable Seeds
Atlas Seeds
Baily Seed Co.
Ball Horticultural Co.
Baker Creek Heirloom Seeds
Bakker Brothers
Barenburg Seed
Baxter Seed Company, Inc.
Beck's Hybrid
Bejo Seeds
Bethlehem Seed Co.
BHN Seed
Bodger Seeds
Bonanza Seed International
Brett-Young Seeds
Burpee Seed
Burrell Seeds
California Asparagus Seed and Transplants
Carolina Seed
Champion Seeds
Corona Seeds, Inc
Cyberseeds
Daehnfeldt seed
Delta and Pine Land
Denali Seed Co.
Dessert's Calseeds
Du Pont
Ed Hume Seeds
Emerald Seed Co.
Express Seed Co.
Ferry-Morse Seed Co.
Garst Seed Co.
Germania Seed Co.
Geo. W. Park Seed Co.
Global Seed
Golden Harvest Seed
Golden Valley Seed
Goldsmith
Harris Moran
Hazera Quality Seed
275
Hollar & Co.
Jelitto Perennial Seeds
Johnny's Selected Seeds
Ledden Brothers Inc.
Liberty Seed Co.
New England Seed Co.
Nicklow's Vegetable Seed
Novaflora
Novartis Seeds
Monsanto
Mycogen Seed
Orsetti Seeds
PanAmerican Seed
Park Seed
Paul Ecke Ranch
Penn State Seed Co.
Petoseed
Pinetree Garden Seeds
Pioneer Hi-Bred
Plant Sciences inc.
P & P Seed Co.
Pure Line Seeds
QualiVeg Seed
Redwood City Seed
Sakata Seeds
Seedway
Seeds Blüm
Seeds of Change
Seminis Vegetable Seeds
Shamrock Seed
Shepherd's Garden Seeds
Siegers Seed Co.
Southern Exposure Seed Exchange
Stokes Seeds
Sugar Creek Seed
Sunseeds
Syngenta
Territorial Seed Co.
United Genetics Seeds
Veseys Seed
Victory Seed Co.
Virtual Seeds
Vis Seeds
Weeks Seed Co.
Western Hybrid Seeds
Willhite Seed
World Seed

Appendix D
Additional Tables
Table 56. Key Intellectual Property for Monoclonal Antibodies
Patent Number Title
6,458,592 Production of antibodies using cre-mediated site-specific
recombination
6,420,140 Production of multimeric protein by cell fusion method
6,395,515 Directed switch-mediated DNA recombination
6,235,883 Human monoclonal antibodies to epidermal growth factor receptor
6,207,418 Production of a multimeric protein by cell fusion method
6,162,963 Generation of Xenogenetic antibodies
6,150,584 Human antibodies derived from immunized xenomice
6,130,364 Production of antibodies using Cre-mediated site-specific
recombination
6,114,598 Generation of xenogeneic antibodies
6,091,001 Production of antibodies using Cre-mediated site-specific
recombination
6,075,181 Human antibodies derived from immunized xenomice
5,998,209 Generation of large genomic DNA deletions
5,985,615 Directed switch-mediated DNA recombination
5,939,598 Method of making transgenic mice lacking endogenous heavy chains
5,916,771 Production of a multimeric protein by cell fusion method
6,350,861 Antibodies with increased binding affinity
6,329,511 Humanized antibodies to .gamma.-interferon
6,210,671 Humanized antibodies reactive with L-selectin
6,210,670 Cross-reacting monoclonal antibodies specific for E-selectin and Pselectin
6,180,370 Humanized immunoglobulins and methods of making the same
6,129,914 Bispecific antibody effective to treat B-cell lymphoma and cell line
6,051,405 Constructs encoding recombinant antibody-toxin fusion proteins
6,046,310 FAS ligand fusion proteins and their uses
6,013,256 Method of preventing acute rejection following solid organ
transplantation
5,932,448 Bispecific antibody heterodimers
5,882,644 Monoclonal antibodies specific for the platelet derived growth factor
.beta. receptor and methods of use thereof
5,834,597 Mutated nonactivating IgG2 domains and anti CD3 antibodies
incorporating the same
5,777,085 Humanized antibodies reactive with GPIIB/IIIA
5,714,350 Increasing antibody affinity by altering glycosylation in the
immunoglobulin variable region
5,693,762 Humanized immunoglobulins
5,693,761 Polynucleotides encoding improved humanized immunoglobulins
5,622,701 Cross-reacting monoclonal antibodies specific for E- and P-selectin
5,585,089 Humanized immunoglobulins
5,530,101 Humanized immunoglobulins
5,349,053 Chimeric ligand/immunoglobulin molecules and their uses
5,216,132 Soluble T-cell antigen receptor chimeric antigens
276

6,521,404 Production of anti-self antibodies from antibody segment repertoires
and displayed on phage
6,492,497 Specific binding members for TGFbeta1
6,492,160 Methods for producing members of specific binding pairs
6,489,123 Labelling and selection of molecules
6,342,588 Labelling and selection of molecules
6,291,650 Methods for producing members of specific binding pairs
6,225,447 Methods for producing members of specific binding pairs
6,180,336 Labelling and selection of molecules
6,172,197 Methods for producing members of specific binding pairs
6,140,471 Methods for producing members of specific binding pairs
5,994,519 Labelling and selection of molecules
5,977,319 Specific binding members for estradiol; materials and methods
5,969,108 Methods for producing members of specific binding pairs
5,962,255 Methods for producing recombinant vectors
5,885,793 Production of anti-self antibodies from antibody segment repertoires
and displayed on phage
5,872,215 Specific binding members, materials and methods
5,871,907 Methods for producing members of specific binding pairs
5,858,657 Methods for producing members of specific binding pairs
5,837,242 Multivalent and multispecific binding proteins, their manufacture and
use
5,733,743 Methods for producing members of specific binding pairs
5,565,332 Production of chimeric antibodies - a combinatorial approach
6,509,451 Cross-linked antibodies and processes for their preparation
6,506,881 Anti-HMFG antibodies and processes for their production
6,407,214 Antibodies against E-selectin
6,316,227 Nucleic acids encoding interleukin-5 specific recombinant antibodies
6,307,026 Humanized antibodies directed against A33 antigen
6,284,488 Protein expression system
6,204,007 Antibodies against E-selectin
6,180,377 Humanized antibodies
5,998,586 Interleukin-5 specific recombinant antibodies
5,994,510 Recombinant antibodies specific for TNF.alpha.
5,990,293 Human metalloproteinase, variants thereof and DNA sequence coding
therefor
5,965,405 Method for producing Fv fragments in eukaryotic cells
5,958,413 Use of antibodies to TNF or fragments derived thereof and xanthine
derivatives for combination therapy and compositions therefor
5,952,471 Antibody that binds to cluster w-4 polypeptide of human small cell
lung carcinoma cells
5,929,212 CD3 specific recombinant antibody
5,928,903 Method for expressing recombinant genes in bacteria in absence of
antibiotic selection
5,877,293 CDR grafted anti-CEA antibodies and their production
5,864,019 Multivalent antigen-binding proteins
5,859,205 Humanised antibodies
5,714,149 Crosslinked antibodies and processes for their preparation
5,677,425 Recombinant antibody
5,672,502 Animal cell culture
277

5,665,866 Process for obtaining antibodies utilizing heat treatment
5,565,562 Triaza macrocycles
5,484,893 Tri-aza macrocycles and metal complexes thereof
5,354,554 Crosslinked antibodies and processes for their preparation
5,271,927 Antibody conjugates with macrocyclic ligands
5,219,996 Recombinant antibodies and methods for their production in which
surface residues are altered to cysteine residues for attachment of
effector or receptor molecules
5,183,657 Antibodies for use in antilymphocyte antibody therapy
4,816,397 Multichain polypeptides or proteins and processes for their production
4,760,026 Monoclonal antibody
Source: US Patent Office (http://www.uspto.gov)
Appendix Table: Food Processor Mergers & Acquisitions: 1993-2001 (*)
Category 2001 (*) 2000 1999 1998 1997 1996 1995 1994
Baking 7 8 18 19 20 8 10 16
Brewing 3 3 5 6 5 2 6 1
Confections 5 4 4 5 7 4 2 2
Diversified 67 86 112 140 103 96 96 106
Dairy 12 19 24 27 15 4 18 17
Fruit & vegetable 38 18 32 # # # # #
Meat 4 9 18 14 12 10 10 14
Poultry 5 10 6 12 8 4 10 7
Seafood 3 9 4 3 7 4 4 3
Snacks 4 3 6 4 9 7 12 9
Food processors 148 169 229 230 186 139 168 175
Category 1993
Baking 6
Brewing 3
Confections 9
Diversified 114
Dairy 15
Fruit & vegetable #
Meat 14
Poultry 3
Seafood 2
Snacks 7
Food processors 173
Source: Food Institute Report, processor data excerpted from
industry analysis
(*)Preliminary
(#)Prior to 1999, fruit and vegetable processors were included as
"Diversified Food Processors"
Source: Food Institute Report
278

Appendix Table :Top Food Companies [$ millions]
(Source: Food Processing)
279
Food/Beverage Sales
Companies 1999 1998 % Chge.
1 Philip Morris Cos. Inc. $31,319.0 $31,416.0 -0.3%
2 ConAgra Inc. $24,594.0 $24,219.5 1.5%
3 PepsiCo Inc. $20,367.0 $22,348.0 -8.9%
4 Cargill Inc. $21,400.0 $21,400.0 0.0%
5 The Coca-Cola Co. $19,805.0 $18,813.0 5.3%
6 Mars $15,000.0 $14,500.0 3.4%
7 Archer Daniels Midland Co. $14,283.0 $16,108.6 -11.3%
8 IBP Inc. $14,075.0 $12,848.6 9.5%
9 Anheuser-Busch Inc. $11,704.0 $13,207.9 -11.4%
10 Sara Lee Corp. $10,823.0 $10,800.0 0.2%
11 H.J. Heinz Co. $9,300.0 $9,209.0 1.0%
12 Bestfoods Co. $8,637.0 $8,374.3 3.1%
13 Nabisco Holdings Corp. $8,268.0 $8,400.0 -1.6%
14 Nestle U.S.A. Inc. $7,986.0 $8,000.0 -0.2%
15 Tyson Foods Inc. $7,363.0 $7,414.1 -0.7%
16 Dairy Farmers of America $7,435.0 $7,325.0 1.5%
17 Kellogg Co. $6,984.0 $6,762.1 3.3%
18 Campbell Soup Co. $6,424.0 $6,696.0 -4.1%
19 General Mills $6,246.0 $6,033.0 3.5%
20 The Pillsbury Co. $5,920.0 $6,000.0 -1.3%
21 Dole Food Co., Inc. $5,061.0 $4,600.0 10.0%
22 The Quaker Oats Co. $4,725.1 $4,600.0 2.7%
23 Procter & Gamble Co. $4,381.0 $4,376.0 0.1%
24 Flowers Industries Inc. $4,236.0 $3,800.0 11.5%
25 Hershey Foods Co. $3,970.9 $4,400.0 -9.8%
26 Smithfield Foods Inc. $3,775.0 $3,876.4 -2.6%
27 Dean Foods Co. $3,755.1 $2,735.8 37.3%
28 Farmland Industries Inc. $3,675.3 $3,681.0 -0.2%
29 Land O'Lakes Inc. $3,564.6 $3,275.0 8.8%
30 Interstate Bakeries Corp. $3,459.4 $3,265.8 5.9%
31 Hormel Foods Corp. $3,357.8 $3,261.0 3.0%
32 Suiza Foods Corp. $2,764.0 $2,816.2 -1.9%
33 J.R. Simplot $2,730.0 $1,400.0 95.0%
34 Keebler Foods Co. $2,667.8 $2,265.0 17.8%
35 Chiquita Brands International $2,555.8 $2,720.3 -6.0%
36 Perdue Farms Inc. $2,515.0 $2,480.0 1.4%
37 International Multifoods Corp. $2,384.7 $2,611.8 -8.7%
38 Keystone Foods $2,342.0 $2,342.0 0.0%
39 Ag Processing Inc. $2,094.5 $2,615.1 -19.9%
40 Wm. Wrigley Jr. Co. $2,061.6 $2,004.7 2.8%
Total Co. Sales

Appendix Table: Food manufacturers...The top table
Sales 1999 Pre-Tax Profits Brands (Selected)
1999
$bn #bn $bn #bn
Nestle 44.4 29.5 5.3 3.52 Nescafe,Buitoni,
Maggi, Nestle
Philip Morris 34.9 23.2 5.5 3.66 Nabisco,Maxwell
House, Milka,
Toblerone, Kraft,
Ritz crackers
Unilever 31.1 3.1 3.1 2.06 Lipton's Tea, Magnum
I can't believe it's
not butter, Birds
Eye, Findus
Danone 12.06 8.0 21.2 60.84 Danone, Evian,LU,
Actimel
Heinz 9.29 6.18 0.474 0.32 Heinz, Weight
Watchers, Ross,
Hula Hoops
Kellogg's 6.98 4.64 0.828 0.55 All Kellogg's
branded cereals
convenience foods
Copyright 2000 In-Store Marketing Magazine
280

Appendix Table: 2001 Capital Spending Projections
Capital expenditures of selected publicly-held food and beverage
companies ($ millions)
Company 2000 Actual(1) 2001 Projected(2)
Coca-Cola Enterprises 1,181.0 1,100.0
Anheuser-Busch 1,074.5 950.0
PepsiCo 1,067.0 1,168.0(5)
Kraft 906.0 948.6(6)
Coca-Cola Co. 733.0 986.0(5)
ConAgra 539.0 525-550
Pepsi Bottling Group 515.0 518.4(5)
H.J.Heinz 452.4 382.8(5)
Archer-Daniels-Midland 428.7 285.1(5)
IBP 428.2 235.0
Sara Lee(3) 361.0 275.0(6)
General Mills 303.0 400.0
Quaker Oats 285.6 230-260
Proctor & Gamble(3) 235.0 235.0(6)
Kellogg 230.9 225.0
Campbell Soup 200.0 230.0
Tyson Foods 196.0 220.0(5)
Pepsiamericas 165.4 62.4(5)
Adolph Coors 154.3 220.1(5)
Dean Foods 147.5 146.6(5)
Hershey 143.0 150-170
Corn Products Int'l. 143.0 140.0(5)
Suiza Foods Corp. 136.9 149.5(5)
Wm. Wrigley Jr. 125.1 151.5(5)
Dole Food Co. 122.0 122.0
Smithfield Foods 100.4 143.1(5)
Hormel Foods 100.1 103.5(5)
The Earthgrains Co. 96.7 105-115
Interstate Bakeries 93.1 85.0
Pilgrim's Pride 92.1 100.0
Del Monte Foods 67.8 50.0
American Italian Pasta 57.7 31.0
Chiquita Brands 54.6 0
McCormick & Co. 53.6 88.4(5)
Sensient Technologies 45.2 43.2(5)
Flowers Foods 39.9 50.0(4)
International Multifoods 35.2 30.0
J. M. Smucker 32.2 25.0
Lance, Inc. 24.8 25.4(5)
Dreyer's Grand Ice Cream 24.5 40.0
Ralcorp Holdings 24.1 30.0
Tootsie Roll Industries 16.2 15.0(5)
Riviana Foods 15.1 11.2(5)
Aurora Foods 12.8 14.5(5)
Tasty Baking Co. 8.1 10.0(5)
Total: $11267.7 11056.3 - 11141.3
Company % Change
281

Appendix E
NIH List of Entities in Natural Products Research
International Cooperative Biodiversity Groups (ICBG)
Office of Communications • Fogarty International Center • National Institutes of Health Building 31,
Room B2C08 • 31 CENTER DR MSC 2220
Bethesda, MD 20892-2220
“Entities Possibly Interested in Natural Products Research” (Updated December 2002)
Table of Contents
Large Pharmaceutical Companies - U.S./Multinational
Biotech and Botanical Companies - U.S.
Biotech and Botanical Companies - International
Non-profits Fostering Public-Private Partnerships
[The above-mentioned office has] compiled this list of companies and non-profit organizations to
help potential ICBG applicants who may be seeking partnerships in the private sector for drug or
botanicals discovery collaboration. We have used a variety of sources to obtain this information. In
the past two years many companies have significantly altered their screening strategies; hence, we
cannot guarantee that all of these organizations are seeking natural products or botanical
partnerships.
Contract resources through the NIH may also be available for limited support for drug
development. If you have any knowledge pertaining to the companies and organizations below
regarding their not being involved in natural products research or drug discovery, please write an
e-mail informing us to atrir@mail.nih.gov .
Disclaimer
This list includes only a sample of companies engaged in natural products research and drug
discovery. Links to other Internet sites are only for the convenience of Word Wide Web users. FIC
is not responsible for the availability or content of these external sites, nor does FIC endorse,
warrant or guarantee the products, services or information described or offered at these other
Internet sites. For documents available from this server the U.S. Government does not warrant or
assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any
information, apparatus, product, or process disclosed.
LARGE PHARMACEUTICAL COMPANIES - U.S./MULTINATIONAL
AstraZeneca Pharmaceuticals LP
1800 Concord Pike
P.O. Box 15437
Wilmington, DE 19850-5437
Tel: 302-886-3000 and 800-456-3669
282

AstraZeneca Pharmaceuticals LP
725 Chesterbrook Blvd.
Wayne, PA 19087-5677
Tel: 610-695-1000 and 800-942-0424
AstraZeneca R&D at Griffith University (AZGU) investigates plants and marine organisms collected
from Australia's rain forests and oceans in the search for novel medicines.
Advisor: Griffith University, Brisbane, Director, Ron Quinn, r.quinn@az.gu.edu.au
Aventis Pharmaceuticals Inc.
300 Somerset Corporate Boulevard
Bridgewater, NJ 08807-2854
Tel: 1-800-981-2491
Bayer AG
Pharmaceutical Division
400 Morgan Lane
West Haven, CT 06516-4175
Tel: 203-812-2000
Thomas Henkel, Director of Wuppertaler Instituts for Naturstoffforschung (Wuppertal Institute for
Natural Product Research) of Bayer AG.
Bayer AG
Werk Elberfeld
42096 Wuppertal
Germany
Tel: +49-202-361
Bayer AG
Werk Leverkusen
51368 Leverkusen
Germany
Tel: +49-(0)214 / 30-1
Boehringer Ingelheim Pharmaceuticals, Inc.
900 Ridgebury Road
P.O. Box 368
Ridgefield, CT 06877
Tel: 203-798-9988
DOW Pharmaceutical Sciences
1330A Redwood Way
Petaluma, CA 94954-1169
Tel: 707-793-2600
Fax: 707-793-0145
283

DOW Agrosciences
Global Headquarters
Dow AgroSciences LLC
9330 Zionsville Road
Indianapolis, IN 46268
Tel: 1-317-337-3000
Fax: 1-800-905-7326
DuPont
DuPont Corporate Information Center
Chestnut Run Plaza
705/GS38
Wilmington, DE 19880-0705
E-mail: info@dupont.com
Tel: 24-hour Corporate Information Center
1-800-441-7515 (US callers only)
1-302-774-1000 (International callers)
Merck & Co., Inc.
To contact Merck with an opportunity, please provide a written non-confidential scientific overview
with sufficient data to allow a preliminary scientific review. You can write to Chief Licensing Officer
WS2A-39, 1 Merck Drive, P. O. Box 100, Merck & Co., Inc. Whitehouse Station, NJ 08889, USA
Contact person (U.S.):
Dr. Robert Borris
E-mail: bob_borris@merck.com
Contact person (Spain):
Gerald F. Bills
Senior Research Fellow
Merck Sharp & Dohme de Espana, S.A. (MSD screens mostly small microorganisms) Josefa
Valcarcel, 38 –28027 Madrid, Tel: (34) 91-321-05-04, Fax: (34) 91-321-06-14,
E-mail: Gerald_bills@merck.com
Novartis
Novartis Pharmaceuticals Corporation
One Health Plaza
East Hanover, NJ 07936-1080
Tel: 973-781-8300
Contact person: Dr. Dennis France, Unit Head, Department of Oncology, LSB3733, 556 Morris
Avenue, Summit, NJ 07901-1398, Tel: 908- 277-5328, Fax: 908- 277-4374, E-mail:
dennis.france@pharma.novartis.com
284

Pfizer
Pfizer Discovery Technology Center
620 Memorial Drive
Cambridge, MA 02139
Tel: 858- 622-3000
Fax: 858- 678-8272
Pharmacia Corporation (acquired by Pfizer)
100 Rte. 206 North
Peapack, NJ 07977
Tel: 908- 901- 8000
Tel: Toll Free: 888- 768-5501
Fax: 908- 901- 8379
E-mail: webmaster.int@am.pnu.com
Contact person: Ken Bair, Global Head of Oncology Research
Hoffman-La Roche Inc.
340 Kingsland Street
Nutley, NJ 07110
Tel: 973-235-5000
Roche Bioscience
3401 Hillview Ave.
Palo Alto, CA 94304
Tel: 650-855-5050
F. Hoffmann-La Roche Ltd
Pharmaceuticals Division
Grenzacherstrasse 124
CH-4070 Basel
Switzerland
Tel: +41-61-688 1111
Tel: +41-61-691 9391
Schering Plough
Schering-Plough Corporation
World Headquarters
2000 Galloping Hill Road
Kenilworth, NJ 07033-0530
Tel: (908) 298-4000
Contact person: Dr. Vincent Gullo, Director of Microbial Products, Schering-Plough Research
Institute (Kenilworth, NJ)
Wyeth Research Laboratories
Wyeth Worldwide Headquarters
500 Arcola Road
Collegeville, PA 19426
Tel: 610-902-1200
285

Wyeth Pharmaceuticals
555 Lancaster Avenue
St. Davids, PA 19087
Tel: 610-902-1200
Senior Contact:: Guy Carter, Ph.D., Senior Director, Natural Products and Discovery Analytical
Chemistry, Wyeth-Ayerst Research
BIOTECH AND BOTANICAL COMPANIES- U.S.
Advanced Life Sciences
1005 Internationale Parkway, Suite 200
Woodridge, Illinois 60517 U.S.A.
Tel: 630-739-6744
Fax: 630-739-6754
E-Mail: PublicRelations@advancedlifesciences.com
Anadys Pharmaceuticals
9050 Camino Santa Fe
San Diego, California 92121 U.S.A.
Tel: 858-530-3600
E-Mail: hc@anadyspharma.com
Ancile Pharmaceuticals, Inc.
Ancile Pharmaceuticals, Inc.
9381 Judicial Drive
Suite 160
San Diego, CA 92121
Tel: 858-677-2100
Fax: 858-677-2180
E-Mail: info@ancile.com
BEI Botanicals
Botanical Enterprises, Inc.
15200 Shady Grove Road, Suite 350
Rockville, MD 20850
Tel: 301-840-3930
Fax: 301-948-6563
Floyd E. Leaders, Jr., Ph.D.
Chairman and CEO
E-mail: fleaders@bei-botanicals.com
CalBioMarine
1001 Capri Road
Leucadia, California 92024 USA
Tel: 760-431-2214
Fax: 760-436-9413
E-mail: cbmt@pacbell.net
Contact: Dominick Mendola, President
286

ChemDiv (Chemical Diversity)
11558 Sorrento Valley Road, Suite 5
San Diego, CA 92121 USA
Tel.: +1-858-794-4860
Fax: +1-858-794-4931
E-mail: Chemdiv@Chemdiv.com
CETEK Corp
Cetek Corporation
260 Cedar Hill Street
Marlborough, MA 01752-3017
Tel: 508-229-8900
Fax: 508-229-2344
E-mail: Cetek@cetek.com
Cubist Pharmaceuticals
Cubist Pharmaceuticals
65 Hayden Avenue
Lexington, MA 02421
Tel: 781-860-8660
Fax: 781-861-0566
Cyanotech
Cyanotech Corporation
73-4460 Queen Kaahamanu Hwy.
Suite #102
Kailua-Kona, HI 96740
Tel: 808-326-1353 or 800- 395-1353
Fax: 808-329-4533
info@cyanotech.com
Diversa Corporation
4955 Directors Place
San Diego, CA 92121-1609
Tel: 1-858- 526-5000
Fax: 1 –858- 526-5551
Email: information@diversa.com
Contact: Dr. Martin Keller
Elitra Pharmaceuticals
3510 Dunhill Street
San Diego, CA 92121
Tel: 858-410-3030
Fax: 858-410-3090
Business Development Inquiries: Edgardo Baracchini, Jr., Ph.D., Vice President, Business
Development, Email: ebaracchini@elitra.com
287

Enanta Pharmaceuticals, Inc.
500 Arsenal Street
Watertown, MA 02472
Tel: 617- 607-0800
Fax: 617- 607-0530
Essential Therapeutics, Inc.
Headquarters
1365 Main Street
Waltham, MA, 02451
Tel: 781-647-5554
Fax: 781-647-5552
E-mail: info@essentialtherapeutics.com
West Coast
850 Maude Avenue
Mountain View, CA, 94043
Tel: 650-428-1550
Galileo Labs
5301 Patrick Henry Drive
Santa Clara, CA 95054
Tel: 408-654 -5830
Fax: 408-654 -5831
E-mail: science@GalileoLabs.com
Contact: Dr. Steve Bobzin
Genaera Corporation
5110 Campus Drive
Plymouth Meeting, Pennsylvania 19462
Tel: 610-941-4020
Fax: 610-941-5399
E-Mail: info@magainin.com
InKine Pharmaceutical Company, Inc.
1787 Sentry Parkway West
Building 18, Suite 440
Blue Bell, Pennsylvania 19422
Tel: 215.283-6850
Fax: 215.283.4600
Kosan Biosciences
3832 Bay Center Place
Hayward, CA 94545
Tel: 510-732-8400
Fax: 510-732-8401
E-mail: info@kosan.com
288

Ligand Pharmaceuticals
10275 Science Center Drive
San Diego, CA 92121
Tel: 858- 550-7500
Fax: 858- 550-7506
MicroSource Discovery Systems Inc.
21 George Washington Plaza
Gaylordsville, CT 06755 U.S.A.
Tel: 860- 350- 8078
Fax: 860-354- 5300
E-mail: compounds@aol.com
Millennium Pharmaceuticals, Inc.
Administration
75 Sidney Street
Cambridge, MA 02139
Tel: 617-679-7000
Fax: 617-374-7788
E-mail: info@mlnm.com
NaPro BioTherapeutics, Inc
6304 Spine Road, Unit A
Boulder, Colorado 80301 U.S.A.
Tel: 303-516-8500
Fax: 303-530-1296
Contact: Dr. James McChesney
Novascreen Biosciences Corporation
7170 Standard Drive
Hanover, MD 21076-1334
Tel: 800-543-4141 or 410-712-4410
Fax: 410-712-4412
Contacts: David Manyak, Ph.D., President & CEO: dmanyak@novascreen.com
Arthur Weissman, Ph.D., VP & CTO: aweissman@novascreen.com
Peter Carlson, Ph.D., VP of Research: pcarlson@novascreen.com
OmniScience Pharmaceuticals, Inc.
4665 S. Ash Avenue, Suite G-18
Tempe, Arizona 85282-6764
Tel: 480-456-0145
Fax: 480-456-0408
Pan Pacific Pharmaceuticals, Inc.
701 George Washington Highway
Lincoln, Rhode Island 02865 U.S.A.
Tel: 401-333-7900
Fax: 401-333-2945
289

Panacos Pharmaceuticals, Inc.
209 Perry Parkway
Gaithersburg, Maryland 20877
Tel: 240-631-1395
Fax: 301-208-8755
E-mail: info@panacos.com
PharmaMar USA
320 Putnam Ave.
Cambridge, MA 02139
Tel: 617-868-3797
Fax: 617-868-0109
Contact: Dr. Glynn Faircloth
PhytoCeutica Inc.
5 Science Park, Suite 13
3rd Floor
New Haven, CT
Tel: (203)-777-3462
Fax: (203)-777-3538
E-mail: info@phytoceutica.com
Phytomedics, Inc.
65 Stults Road
Dayton, NJ 08810-1523
Tel: 609-655-0715
Fax: 609-655-9291
E-mail: tolo@phytomedics.com
PhytoMyco Research Corp.
Botanical extracts and lead candidates for drug and nutraceutical product discovery
1800 North Greene Street, Suite 120
Greenville, NC 27834
Tel: 252-329-9200
Fax: 252-329-9202
E-mail: phytomyco@aol.com
Sequoia Sciences, Inc.
11199 Sorrento Valley Road, Suite H
San Diego, CA 92121
Tel: 858-623-0800
Fax: 858-623-0805
E-mail: sequoia@sequoiasciences.com
Unigen Pharmaceuticals, Inc.
Unigen Pharmaceuticals, Inc.
100 Technology Drive, Suite 160
Broomfield, CO 80021
Tel: 303-438-8666
Fax: 303-438-9483
E-mail: contact@unigenpharma.com
290

Versicor
34790 Ardentech Court
Fremont, California 94555 U.S.A.
Tel: 510-739-3000
Fax: 510-739-3003
E-Mail: info@versicor.com
XeChem
100 Jersey Ave. Bldg B - Ste 310
New Brunswick, NJ 08901
Tel: 732-247-3300
Fax: 732-247-4090
E-mail: info@xechem.com
Director: Dr. Ramesh Pandey
BIOTECH and BOTANICAL COMPANIES - INTERNATIONAL
bioLeads GmbH
Waldhofer Straße 104
D-69123 Heidelberg
Tel: +49 (6221) 82 04-0
Fax: +49 (6221) 82 04-50
E-mail: post@bioleads.de
CV Technologies Inc.
Head Office And Research Laboratories
Research Centre One
Edmonton Research Park
9411 20th Avenue
Edmonton, AB
CANADA T6N 1E5
Tel: (780) 432-0022, (780) 431-0431
Toll Free: (888) 843-7239
Fax: (780) 432-7772
E-mail: info@cvtechnologies.com
Cerylid Biosciences Ltd (Cerylid)
576 Swan Street
Richmond
Victoria 3121, Australia
Tel: +61 3 9208 4444
Fax: +61 3 9208 4104
E-mail: info@cerylid.com.au
Contact: Dr. Gino Vaira
291

Ecopia BioSciences Inc.
7290, Frederick Banting
Saint-Laurent, Québec,
Canada, H4S 2A1
Tel: 514-336-2700
Fax: 514-336-8827
E-mail: info@ecopiabio.com
GW Pharmaceuticals plc
Porton Down Science Park
Salisbury
Wilts
SP4 0JQ
United Kingdom
Tel: 01980 557000
Fax: 01980 557111
E-mail: info@gwpharm.com
Indena S.p.A.
Indena S.p.A. - Milan, Italy
20139 Milan, Italy
Viale Ortles, 12
Tel: 02 57496232
Fax: 02 57496280
Contact: Dr. Ezio Bombardelli
President of the Scientific Board
E-mail: ezio.bombardelli@indena.it
MerLion Pharmaceuticals Pte Ltd.
59A Science Park Drive
The Fleming
Singapore Science Park
Singapore 118240
Tel: (65)-67737071 or (65) 6871-9700
Fax: (65)-67737072
E-mail: enquiry@merlionpharma.com
Previously named The Centre for Natural Products Research, CEO: Dr. Tony Buss.
Novogen
140 Wicks Road
North Ryde, NSW 2113 Australia
Tel: +612 9878 0088
Fax: +612 9878 0055
Novogen Inc. (U.S.)
1 Landmark Square, Suite 240
Stamford CT 06901
USA
Tel: 203-327-1188
Fax: 203-327-0011
292

Oxford Natural Products plc
Cornbury Park
Charlbury
Oxfordshire
OX7 3EH
Tel: + 44 (0) 1608 813300
Fax: + 44 (0) 1608 813301
office@oxfordnaturalproducts.com
Phytopharm
Phytopharm plc
Corpus Christi House
9 West Street
Godmanchester Cambridgeshire PE29 2HY
Tel: 01480 437697
Contact: Dr. Richard Dixey
Schering AG
Schering Berlin Inc.
P.0. Box: 1000
Montville, NJ 07045-1000
Tel: +1 (973) 276 - 20 00
Fax: +1 (973) 276 20 05
Schering AG
13342 Berlin
Germany
Tel: +49-30-468-1111
Fax: +49-30-468-15305
Xinchem Company
401/1, 1438 Yunchuan Rd,
Shanghai 201901
China
Tel: 86 21 36020340
Fax: 86 21 56497231
E-mail: pharm_bio@finechemnet.com
NON-PROFITS FOSTERING PUBLIC-PRIVATE PARTNERSHIPS
Alliance for Microbicide Development
Polly F. Harrison, PhD
Director
Fax: 301-588-8390
E-mail: pharrison@microbicide.org
Franka des Vignes, PhD
Program Officer
Fax: 301-588-8390
E-mail: fdesvignes@microbicide.org
293

The Global Alliance for TB Drug Development
59 John Street, Suite 800
New York NY 10038
USA
Tel: +1–212- 227-7540
Fax: +1–212- 227-7541
E-mail: info@tballiance.org
Initiative on Public-Private Partnerships for Health
International Center
Cointrin
Block G, 3rd Floor
20, route de Pré-Bois
PO Box 1826
1215 Geneva 15
Switzerland
Tel: +41 (22)799 4088/4086
Fax: +41 (22)799 4089
E-mail: info@ippph.org
EXPANDED LIST OF PUBLIC-PRIVATE PARTNERSHIPS FROM IPPH WEBSITE
The Institute for OneWorld Health
155 Montgomery Street, 12th Floor
San Francisco, CA 94104
Tel: 1 -415- 379-3700
Fax: 1 -415- 759-8161
E-mail: info@oneworldhealth.org
International AIDS Vaccine Initiative (IAVI)
110 William Street
New York, NY 10038-3901
USA
Tel: 1-212-847-1111
Fax: 1-212-847-1112
Europe Office
Postbox 15788
1001 NG, Amsterdam
The Netherlands
Tel: +31 20 521 0030
Fax: +31 20 521 0039
E-mail: info@iavi.org
Contact: Wayne C. Koff, Ph.D., Senior Vice President for Research & Development, Email:
wkoff@iavi.org
Tel: 212- 847- 1060
294

Medicines for Malaria Venture (MMV)
ICC Building
Entrance G, 3rd floor
Route de Pré-Bois 20
Post Box 1826
CH-1215 Geneva 15
Switzerland
Tel: +41 22 799 4060
Fax: +41 22 799 4061
Médecins Sans Frontières/Doctors Without Borders (MSF)
12 rue du Lac
Geneva, Switzerland
E-mail: access@geneva.msf.org
Program for Appropriate Technology in Health (PATH)
1455 NW Leary Way
Seattle, WA 98107-5136
USA
Tel: 206- 285-3500
Fax: 206- 285-6619
E-mail: info@path.org
Malaria Vaccine Initiative at PATH
6290 Montrose Road, Suite 1000A
Rockville, MD 20852
Tel: 1-301-770-5377
Fax: 1-301-770-5322
E-mail: info@MalariaVaccine.org
Sequella Global Tuberculosis Foundation
9610 Medical Center Drive #220
Rockville, Maryland 20850
Tel: 301-762-3100
Fax: 301-762-2122
E-mail: Information@sequellafoundation.org
295

Appendix F
World Foundation for Environment and Develoment
Biodiversity Access & Benefit Sharing Bibliography
http://www.wfed.org/resources/bibs/
This bibliography from the WFED highlights some of the key articles
concerning biodiversity access and benefit sharing.
Abelson, P. 1990. Medicine from plants. Science 247:513.
Acharya, R. 1991. Patenting of biotechnology: GATT and the
erosion of the world's biodiversity. Journal of World Trade
25(6):71–87.
Ad hoc Working Group of Experts on Biological Diversity. 1990.
Ongoing discussions on intellectual property rights in UPOV, WIPO,
and GATT as they relate to access to genetic resources. Mimeo.
Nairobi: United Nations Environment Programme.
Adair, J. 1997. The bioprospecting question: Should the United
States charge biotechnology companies for the commercial use of
public wild genetic resources? Ecology Law Quarterly 24:131.
Adkerle, H. 1991. The Conservation of Medicinal Plants. Cambridge:
Cambridge University Press.
Albers-Schonberg, G. 1995. The pharmaceutical discovery process.
In Intellectual Property Rights and Biodiversity Conservation, ed. T.
Swanson. Cambridge: Cambridge University Press.
Aldous, P. 1991. Hunting license for drugs. Nature 353:290.
Alyward, B. et al. 1993. The Economic Value of Species Information
and Its Role in Biodiversity Conservation: Case Studies of Costa
Rica's National Biodiversity Institute and Pharmaceutical
Prospecting. London: Environmental Economics Centre.
Anderson, E. 1992. INBio/Merck Agreement: Pioneers in Sustainable
Development. Cambridge, MA: Harvard Business School.
Anderson, P. 1991. Biodiversity: Social and Ecological Perspectives.
London: Zed Books, Ltd..
Artuso, A. 1996. Economic analysis of biodiversity as a source of
pharmaceuticals. In Biodiversity, Biotechnology, and Sustainable
Development in Health and Agriculture: Emerging Connections.
Scientific publication No. 560. Washington DC: Pan American Health
Organization.
296

Asbey, E. et al. 1995. Biodiversity prospecting: fulfilling the
mandate of the biodiversity convention. Vanderbuild Journal of
TransationalLaw 28:703.
Auer, M. 1998. Access to genetic resources and benefit sharing. In
Biodiversity: A Challenge for Development Research and Policy, ed.
W. Barthlott et al. Berlin: Springer-Verlag.
Aylward, B.A.; Barbier, B.; Echeverria, J.; and Fendt, L. 1993.The
Economic Value of Pharmaceutical Prospecting and Its Role in
Biodiversity Conservation. London: International Institute for
Environment and Development (IIED). "Environmental Economics."
Balick, M. 1990. Ethnobotany and the identification of therapeutic
agents from the rainforest. In Bioactive Compounds from Plants,
ed. D. Chadwick et al. New York: John Wiley and Sons.
Balick, M., ed. 1996. Medicinal Resources of the Tropical Forest.
New York: Columbia University Press.
Balick, M. et al. 1992. Assessing the economic value of traditional
medicines from tropical rain forests. Conservation Biology
6(1):128–39.
------. 1997. Medicinal resources of the tropical forest: Biodiversity
and its importance to human health. Environmental Conservation
24(1):90.
Barbier, E. and B. Aylward. 1996. Capturing the pharmaceutical
value of biodiversity in a developing country. Environmental and
Resource Economics 8:157–81.
Barton, J. and E. Christensen. 1988. Diversity compensation
systems: Ways to compensate developing nations for providing
genetic material. In Seeds and Sovereignty: The Use and Control of
Plant Genetic Resources, ed. J.R. Kloppenburg. Durham, NC: Duke
University Press.
Beattie, A. 1991. Biodiversity and bioresources—The forgotten
connection. Search 22(2):59–61.
------. 1995. Natural history at the cutting edge. Ecological
Economics 13(2):93.
Beier, F. 1985. Biotechnology and Patent Protection: An
International Review. Paris: Organisation for Economic Co-operation
and Development.
Bering, E. 1994. Biotic exploration fund: Protecting biodiversity
through chemical prospecting. Bioscience 44:95.
297

Bhat, M. 1996. Trade-related intellectual property rights to
biological resources. Ecological Economics 19:205.
Biodiversity and Ethics Working Group of Pew Conservation Fellows.
1997. Directory of Guidance Documents Relating to Biodiversity and
Cultural Knowledge Research and Prospecting. Publication 776
Department of Geography, University of California, Berkeley.
Biodiversity the role of protected areas. 1993. Canberra: Australian
Government Publishing Service.
Birmingham, J. 1995. American Type Culture Collection safeguards
and overseas release of patented plant materials for world
community. Diversity 11:14.
Blum, E. 1993. Making biodiversity conservation profitable: Case
study of the Merck/INBio agreement. Environment 35(4):17.
Booth, W. 1987. Combing the earth for cures to cancer, AIDS.
Science 237:969.
Bowles, I. et al. 1996. Encouraging Private Sector Support for
Biodiversity Conservation. Washington, DC: Conservation
International.
Brock, T. 1997. The value of basic research: discovery of thermus
aquaticus and other extreme thermophiles. Genetics 146:1207.
------. 1998. Early days in yellowstone microbiology. ASM News
64(3):137.
Brown, A. 1989. The Use of Plant Genetic Resources. New York:
Cambridge University Press.
Brown, G. Jr. 1990. Valuation of genetic resources. In The
Preservation and Valuation of Biological Resources, eds. H. Orians
et al. Seattle: University of Washington Press.
Brush, S. 1989. Rethinking crop genetic resource conservation.
Conservation Biology 3:19.
------. 1992. Farmers' rights and genetic conservation in traditional
farming systems. World Development 20(11):1617.
Brush, S. et al. 1992. Technology adoption and biological diversity
in Andean potato agriculture. Journal of Development Economics
39(2):365.
Buffet, H. G. Securing a sustainable world - Part III: the benefits of
biotechnology can only be reaped if the "biotech bullies" work with
298

farmers and environmentalists. Diversity 15(3): 29-30.
Bull, A. 1996. Biotechnology for environmental quality: Closing the
circles. Biodiversity and Conservation 5(1):1-25.
Bull, A. et al. 1992. Biodiversity as a source of innovation in
biotechnology. Annual Review Microbiology 46:219–52.
Burton, T. 1997. Yellowstone's geysers spout valuable
micro-organisms. Wall Street Journal August 11.
Business and the Environment. 1991. Merck deal with Costa Rica's
INBio offers model for future. Business and the Environment
2(21):1.
Carr, T. 1993. Rain forest entrepreneurs. Environment 35(7):225.
Casenote. 1999. Bioprospecting on federal lands, public loss or
public gain? (Edmonds Institute v. Babbitt, 42 F. Supp. 2d 1, D.C.
Cir. 1999), 4 Great Plains Natural Resources Journal. 50-73.
Chadwick, D. et al., eds. 1990. Bioactive Compounds from Plants.
New York: John Wiley and Sons.
Chemical & Engineering News. 1997. Diversa, Yellowstone sign
bioprospecting agreement. Chemical and Engineering News, August
25:13.
Chester, C. 1993. Building Financial Resources for Biodiversity
Preservation through Industrial Use of Genetic Resources. Prepared
for Tufts University. On file with World Foundation for Environment
and Development, Washington, DC.
------. 1995. Profits for protection: industry and biodiversity in
Costa Rica. Praxis: The Fletcher Journal of Development Studies
11:19.
------. 1996. Bioprospecting Conservation Arrangements and
Institutional Capacity for the Protection of Biodiversity. Medford,
MA.: Tufts University Press.
Chichilnisky, G. 1993. Property Rights and Biodiversity and the
Pharmaceutical Industry: A Case Study. Working Paper. Columbia
University, Graduate School of Business.
Christensen, E. 1987. The genetic ark: A proposal to preserve
genetic diversity for future generations. Stanford Law Review
40(1):279.
------. 1988. Diversity Compensation Systems: Ways to
Compensate Developing Nations for Providing Genetic Materials.
299

Durham: Duke University Press.
Christensen, J. 1999. A Romance with a Rain Forest and Its Elusive
Miracles. New York Times, November 30, at D3.
Christofersen, L. 1999. Stand Up to Biopiracy. Resource Africa.
1(6):10.
Columbia University School of International and Public Affairs. 1999.
Access to Genetic Resources: An Evaluation of the Development
and Implementation of Recent Regulations and Access Agreements.
Prepared for the Biodiversity Action Network by the Environmental
Policy Studies (Working Paper #4). New York: Columbia University.
Colwell, R. R. Microbial diversity: the importance of exploration and
conservation. Journal of Industrial Microbiology and Biotechnology.
18:302-307.
Cooper, D. 1991. Biodiversity: Social and Ecological Perspectives.
London: Zed Books, Ltd.
Congressional Research Service. 1993. Biotechnology, Indigenous
Peoples, and Intellectual Property Rights. Washington, DC:
Congressional Research Service, Environment and Natural Resources
Policy Division, April 16.
Costanza, R. et al. 1997. The value of the world's ecosystem
services and natural capital. Nature 387(May 15):253.
Cragg, G. et al. 1992. The Role of Plants in the National Cancer
Institute Drug Discovery and Development Program. Bethesda, MD:
National Cancer Institute.
Crespi, R. 1982. Patenting in the Biological Sciences. New York:
John Wiley & Sons.
------. 1985. Biotechnology and Patent Protection: An International
Review. Paris: Organisation for Economic Co-operation and
Development.
Day, K. et al. 1993. Medical research and genetic resources
management: The case of Taxol. Contemporaneous Policy Issues
11:1.
Day, P. 1997. Biodiversity and the equitable use of the world's
genetic resources. In Global Genetic Resources: Access,
Ownership, and Intellectual Property Rights. eds. K.E. Hoagland and
A.Y. Rossman. Beltsville Symposia in Agricultural Research.
Washington, DC: The Association of Systematics Collections.
DiMasi, J. et al. 1991. Cost of innovation in the pharmaceutical
300

industry. Journal of Health Economics 10:107.
Doremus, H. Nature, knowledge and profit: The Yellowstone
bioprospecting controversy and the core purposes of America’s
national parks. Ecology Law Quarterly 26(3):401-488.
Downes, D. 1993. New diplomacy for the biodiversity trade:
Biodiversity, biotechnology, and intellectual property in the
Convention on Biological Diversity. Touro Journal of Transnational
Law 4:1.
Downes, D. et al. 1994. Biodiversity prospecting: Rules of the
game. BioScience 44:381.
Eisner, T. 1989. Prospecting for nature's chemical riches. Issues in
Science and Technology Winter 89–90:31.
------. 1991. Chemical prospecting: A proposal for action. In
Ecology Economics, Ethics: The Broken Circle, ed. Bormann, F.H. et
al. New Haven, CT: Yale University Press.
------. 1994. Chemical prospecting: a global imperative.
Proceedings of the American Philosophical Society 138(3):385.
Eisner, T. et al. 1994. Biotic exploration fund: Protecting
biodiversity through chemical prospecting. BioScience 44(2):95–98.
Evenson, R. et al. 1997. Genetic resources, international
organizations and improvement in rice varieties. Economic
Development and Cultural Change 45:471.
Farnsworth, N. 1985. Economic and medicinal plant research.
Orlando, FL: Academic Press.
------. 1988. Screening plants for new medicines. In Biodiversity,
ed. E.O. Wilson et al. Washington, DC: National Academy Press.
Farnsworth, N. and D. Soejarto. 1985. Potential consequences of
plant extinction in the United States on the current and future
availability of prescription drugs. Economic Botany 39:231–40.
Fish, S. 1996. Efforts to implement controversial objectives of the
Convention on Biological Diversity. Honolulu, HI: Report presented
at the International Bar Association’s 10th Biennial Seminar on
International Environmental Law.
Fish, S. et al. 1994. Biodiversity prospecting: using innovative
contractual provisions to foster ethnobotanical knowledge,
technology and conservation. Colorado Journal of International
Environmental Law and Policy 5(1):23.
301

Flam, F. 1994. Chemical prospectors scour the seas for promising
drugs. Harvard 266:1324.
Fonaroff, A. et al. 1995. Biomedicine, biotechnology, and
biodiversity—The western hemisphere experience. Interciencia
20(3):125.
Fox, J. 1995. Biodiversity promises great prospecting.
Bio/Technology 13(6):544–45.
Freese, C. H. ed. 1997. Harvesting Wild Species; Implications for
Biodiversity Conservation. Baltimore and London: The Johns Hopkins
University Press.
Frisvold, G. et al. 1994. Biodiversity conservation and biotechnology
development agreements. Contemporary Economic Policy
12(3):1–9.
Gámez, R. 1991. Biodiversity conservation through facilitation of its
sustainable use: Costa Rica's National Biodiversity Institute. Tree
6:12.
Gámez, R. et al. 1993. Costa Rica's conservation program and
National Biodiversity Institute (INBio). In Biodiversity Prospecting:
Using Genetic Resources for Sustainable Development, eds. W. Reid
et al. Washington, DC: World Resources Institute.
Gentry, A. 1993. Tropical forest biodiversity and the potential for
new medicinal plants. In Human Medicinal Agents from Plants ed. A.
Kinghorn et al. Washington, DC: American Chemical Society.
Gershon, D. 1992. If biological diversity has a price, who sets it and
who should benefit? Nature 359:65.
Glazer, A. N., Nikaido, H. 1994. Microbial Biotechnology:
Fundamentals of Applied Microbiology.
Glowka, L. 1995. Determining access to genetic resources and
ensuring benefit sharing: Legal and institutional considerations for
states providing genetic resources. Paper presented to he Global
Biodiversity Forum. Gland, Switzerland: IUCN.
------. 1997. Emerging legislative approaches to implement article
15 of the Convention on Biological Diversity. Review of European
Community and International Environmental Law 3:249.
------. 1998. A Guide to Designing Legal Frameworks to Determine
Access to Genetic Resources. Environmental Policy and Law Paper
No. 34. Gland: IUCN.
Goldberg, R. et al. 1992. INBio/Merck agreement: Pioneers in
302

sustainable development. Harvard Business School Case
N1-593-015. Cambridge MA: Harvard University.
Gollin, M. 1991. Using intellectual property to improve environmental
protection. Harvard Journal of Law & Technology 4:193.
------. 1993. An intellectual property rights framework for
biodiversity prospecting. In Biodiversity Prospecting: Using Genetic
Resources for Sustainable Development, eds. W. Reid et al.
Washington, DC: World Resources Institute.
------. 1994. Patenting recipes from nature's kitchen.
Bio/Technology12:406.
Gore, A. 1992. Essentials for economic progress: Protect
biodiversity and intellectual property rights. The Journal of NIH
Research 4:18.
Grabowski, A. et al. 1990. A new look at the returns and risks to
pharmaceutical R&D. Management Science 36:804.
Grifo, F. 1995. Biodiversity conservation: Incentives from
biomedicine and biotechnology. Interciencia 20(4):188.
Grifo, F. & Rosenthal, J., eds. Biodiversity and Human Health.
Washington, DC: Island Press. 1997, at 135-142.
Guruswany, L. et al., eds. 1998. Protection of Global Biodiversity.
Durham: Duke University Press.
Heiken, D. 1992. The Pacific Yew and Taxol: Federal management
of an emerging resource. Journal of Environmental Law and
Litigation 7:175.
Hill, A. 1999. Trends in the International Market for Genetic and
Biochemical Resources. Report presented to BIOTRADE Colombia
Initiative Workshop, March 23–25, 1999. Washington, DC: World
Foundation for Environment and Development.
Hodson, T. 1995. Rain forest preservation, markets, and medicinal
plants: Issues of property rights and present value. Conservation
Biology 9(5):1319.
Holla-Bhar, R. 1993. Intellectual piracy and the neem tree. The
Ecologist 23(6):23.
Holzman, D. 1996. Researchers debate tropical prospects for
microbial resources. ASM News 62(9):453.
Hull, W. 1998. Yellowstone signs historic bioprospecting agreement.
Biodiversity 8(1): 1-2.
303

Iwu, M. et al.1998. Drug development and biodiversity conservation
in Africa: case study of a benefit-sharing plan.
Janzen, D. 1993. A new lease on life. In Biodiversity prospecting:
Using genetic resources for sustainable development, eds. W. Reid
et al. Washington, DC: World Resources Institute
------. 1993. Taxonomy: Universal and Essential Infrastructure for
Development and Management of Tropical Wildland Biodiversity. In
Proceedings of the Norway/ UNEP Expert Conference on
Biodiversity, Tondheim, Norway, O.T. Sandlund and P.J. Schei, eds.,
NINA, Tondheim, Norway, pp. 100-113.
------. 1997. From Traditional Knowledge to Trade Secrets: Prior
Informed Consent in Bioprospecting. Washington, DC:
InterAmerican Development Bank.
Janzen, D. et al. 1992. A north-south perspective on science in the
management, use, and economic development of biodiversity. In
Conservation of Biodiversity for Sustainable Development, ed. O.
Sandlund et al. Oslo, Norway: Scandanavian University Press.
------. 1998. Bioprospecting and public-private benefit sharing in
the U.S. national parks. The Environmental Forum. 15(4):38–45.
Joffe, S. et al. 1989. Phytochemicals: A renewable global resource.
AgBiotech News and Information 1:697.
Johnson, J. 1992. Tropical forest biodiversity and its value to the
pharmaceutical industry. Scottish Forestry 46(3):189.
Joyce, C. 1993. Taxol: Search for a cancer drug. BioScience
43:133–36.
Juma, C. 1989. The Gene Hunters. Princeton, NJ: Princeton
University Press.
------. 1992. Property rights, biotechnology and genetic resources.
Biopolicy International 7.
------. 1993. Policy options for scientific and technological
capacity building. In Biodiversity Prospecting: Using Genetic
Resources for Sustainable Development, eds. W. Reid et al.
Washington, DC: World Resources Institute.
Karp, A. et al. 1995. Biotechnology, biodiversity, and conservation.
Bio/Technology 13(5):522.
Kate, K.T. 1997. The undertaking revisited: A commentary on the
revision of the international undertaking on plant genetic resources
304

for food and agriculture. Review of European Community and
International Environmental Law 6(3):284.
------. 1998. The access and benefit-sharing policies of the United
States National Cancer Institute; a comparative account of the
discovery and development of the drugs Calanolide and Topotecan.
Benefit-sharing case study submitted to the Executive Secretary of
the U.N. Convention on Biological Diversity by the Royal Botanical
Gardens, Kew.
Khalil, H. K.; Reid, W.W.; and Juma, C. 1992. Property rights,
biotechnology and genetic resources. ACTS Biopolicy International
7series no. 7. Nairobi : ACTS Press.
King, J. et al. 1998. Bioprospecting and Public-Private Benefit
Sharing in the U.S. National Parks. The Environmental Forum
15(4):38.
Laird, S. 1993. Contracts for biodiversity prospecting. In
Biodiversity Prospecting: Using Genetic Resources for Sustainable
Development, eds. W. Reid et al. Washington, DC: World Resources
Institute.
Lesser, W. 1998. Sustainable Use of Genetic Resources under the
Convention on Biological Diversity: Exploring Access and Benefit
Sharing Issues. New York: CAB International.
Lovejoy, A. 1994. Biodiversity prospecting. Our Planet. 6(4):20.
Macilwain, C. 1998. When rhetoric hits reality in debate on
bioprospecting. Nature 392:535.
Madigan, M. & Marrs, B. 1997. "Extremophiles," Scientific American.
April, 1997, at pages 82-87.
Madigan, M., Martinko, J. M., Parker, J. 1997. Brock Biology of
Microorganisms. 8th ed., ed. P. F. Corey.
Mannion, A. 1995. Biodiversity, biotechnology, and business.
Environmental Conservation 22(3):201.
McAllister, D. 1991. Estimating the pharmaceutical value of forests,
Canadian and tropical. Canadian Biodiversity 1:16–25.
Mendelsohn, R. et al. 1994. Valuation of extractive medicines in
tropical forests: Exploring the linkage to conservation. In Principles
of Conservation Biology, ed. G. Meffe et al. Sunderland, MA:
Sinauer Associates.
------. 1995. The value of undiscovered pharmaceuticals in tropical
forests. Economic Botany 49(2):223–28.
305

Miller, J. et al. 1992. The discovery of medicines and forest
conservation. In Conservation of Plant Genes, ed. P. Adams et al.
Academic Press, London.
Mugabe, J. et al., eds. 1997. Access to Genetic Resources:
Strategies for Sharing Benefits. Nairobi, Kenya: African Center for
Technology Studies Press.
Myers, N. 1997. Biodiversity's genetic library. In Nature’s Services,
ed. G. Daily. Washington, DC: Island Press.
National Research Council. 1991. Managing Global Genetic
Resources: The US National Plant Germplasm System. Washington,
DC: National Academy Press.
Nature. 1998. The complex realities of sharing genetic assets.
Nature 392:525.
Oldfield, M. 1984. The Value of Conserving Genetic Resources.
Sunderland, MA: Sinauer Associates, Inc.
Olembo, R. 1995. Biodiversity and its importance to the
biotechnology industry. Speech delivered to the Second
Asia-Pacific Conference on Agriculture Biotechnology held March
6-10, 1994, in Madras, India. Biotechnology and Applied
Biochemistry 21:1.
Pan American Health Organization. 1996. Biodiversity,
Biotechnology, and Sustainable Development in Health and
Agriculture: Emerging Connections. PAHO Scientific Publication No.
560. Washington DC: PAHO.
Pearce, D. et al. 1992. Preserving Biological Diversity: The
Economic Value of Pharmaceutical Plants. Discussion Paper 92–27.
London: CSERGE.
------. 1995. The economic value of plant based pharmaceuticals.
In Intellectual Property Rights and Biodiversity Conservation: An
Interdisciplinary Analysis of the Values of Medicinal Plants, ed. T.
Swanson. Cambridge: Cambridge University Press.
Peritore, N. et al., eds. 1995. Biotechnology in Latin America.
Wilmington, DE: SR Books.
Plotkin, M. 1988. The outlook for new agricultural and industrial
products from the tropics. In Biodiversity, ed. E.O. Wilson.
Washington, DC: National Academy Press.
Plucknett, D. et al. 1987. Gene Banks and the World's Food.
Princeton, NJ: Princeton University Press.
306

Polasky, S. et al. 1993. Searching for uncertain benefits and the
conservation of biological diversity. Environmental and Resource
Economics 3:171.
------. 1995. On the value of a collection of species. Journal of
Environmental Economics and Management 29(2):298.
Pollack, A. 1999. Biological products raise genetic ownership issues.
New York Times, November 26, at A1, C4.
Posey, D. 1990. Intellectual property rights and just compensation
for indigenous knowledge. Anhropology Today 6(4):13.
-----. 1996. Protecting indigenous peoples' rights to biodiversity.
Environment 38(8):6.
Posey, D. et al. 1995. Collaborative research and intellectual
property rights. Biodiversity and Conservation 4:892.
Postgate, J. 1992. Microbes and Man. New York: Cambridge
University Press.
Prescott-Allen, R. and C. Prescott-Allen. 1983. Genes from the
Wild. London: Earthscan.
Principe, P. 1989. The economic significance of plants and their
constituents as drugs. In Economic and Medicinal Plant Research,
3, eds. H. Wagner, H. Hikino, and N. Farnsworth. London: Academic
Press.
------. 1989. The Economic Value of Biodiversity Among Medicinal
Plants. Paris: Organisation for Economic Co-operation and
Development.
------. 1991. Valuing the biodiversity of medicinal plants. In The
Conservation of Medicinal Plants. ed. Akerete et al. Cambridge
University Press, Great Britain. 79–124.
------. 1996. Monetizing the Pharmacological Benefits of Plants.
New York: Columbia University Press.
Putterman, D. 1994. Trade and the Biodiversity Convention. Nature
371(13 October):553–54.
------. 1994. Compromise Sought Over Germplasm Access. Nature
372:554.
Querol, D. 1992. Genetic Resources: Our Forgotten Treasure. Third
World Network, Penang, Malaysia.
Ralls, K. et al. 1989. Protected species: Research permits and the
307

value of basic research. BioScience 39:394–96.
Rausser, G., et al. 1997. Bioprospecting with Prior Ecological
Information. Giannini Foundation Working Paper No. 819. University
of California.
Reaka-Kudla, M. et al. 1997. Biodiversity II: Understanding and
Protecting Our Biological Resources. Joseph Henry Press,
Washington, DC.
Regal, P. A brief history of biotechnology risk debates and policies
in the United States. Occasional paper of the Edmonds Institute,
Edmonds, WA. Available at : www.edmonds-institute.org/regal.html.
Reid, W. 1992. Genetic Resources and Sustainable Agriculture:
Creating Incentives for Local Innovation and Adaptation. Biopolicy
International Series (Vol. 2). Nairobi, Kenya: African Center for
Technology Studies Press.
Reid, W. et al. eds. 1993. Biodiversity Prospecting: Using Genetic
Resources for Sustainable Development. Washington, DC: World
Resources Institute.
Rhouhi, A. 1997. Seeking drugs in natural products. Chemical and
Engineering News April 7:14-29.
Roberts, L. 1992. Chemical prospecting: Hope for vanishing
ecosystems? Science 256:1142–43.
Rosenthal, J. 1997. Integrating drug discovery, biodiversity
conservation, and economic development: Early lessons from the
International Cooperative Biodiversity Groups. In Biodiversity and
Human Health, ed. F. Grifo et al. Washington, DC: Island Press.
Rubin, S. et al. 1994. Biodiversity prospecting: Using innovative
contractual provisions to foster ethnobotanical knowledge,
technology, and conservation. Colorado Journal of International
Environmental Law and Policy 5(1):23–58.
Ruiz-Miller, M. 1998. The Legal Framework on Access to Genetic
Resources in the Americas. Available at
http://www.bdt.org.br/bdt/oeaproj/manolo.
Sanchez, V. et al., eds. 1994. Biodiplomacy: Genetic Resources
and International Relations. Nairobi, Kenya: African Center for
Technology Studies Press.
Sasson, A. 1992. Biotechnology and Natural Products: Prospects
for Commercial Production. Nairobi, Kenya: African Centre for
Technology Studies Press.
308

Scott, P.T. 1999. Unlocking Nature’s Secrets. In National Parks
73(7-8): 42-43.
Sedjo, R. 1988. Property rights and the protection of plant genetic
resources. In Seeds and Sovereignty: The Use and Control of Plant
Genetic Resources, ed. J.R. Kloppenburg Jr., Duke University Press,
1988. Also Published as RFF Reprint 242.
------. 1992. Property rights, genetic resources, and
biotechnological change. Journal of Law and Economics
35:199–213.
------. 1994. Contractual agreements for genetic resources.
Scoping papers on national issues in the use of economic incentives
for conservation of biodiversity. Paris: Organisation for Economic
Co-operation and Development.
Sedjo, R. et al. 1994. Contracting for genetic resources. Submission
to OECD expert group on economic aspects of biodiversity. Paris:
Organisation for Economic Co-operation and Development.
-----. 1995. Property rights contracting and the commercialization
of biodiversity. In Wildlife in the Market Place, eds. T. Anderson et
al. Totowa, NJ: Rowman and Littlefield.
Shands, H. 1994. Some potential impacts of the Convention on
Biological Diversity on the international system of exchange of food
crop germplasm. In Conservation of Plant Genetic Resources and
the U.N. Convention on Biological Diversity, eds. D. Witmeyer et al.
Washington, DC: American Association for the Advancement of
Science.
Shands, H. et al. 1997. Agricultural germplasm and global
contributions. In Global Genetic Resources: Access, Ownership and
Intellectual Property, eds. K.E. Hoagland and A.Y. Rossman.
Beltsville Symposia in Agricultural Research. Washington, DC: The
Association of Systematics Collections.
Shiva, V. 1997. Biopiracy: The Plunder of Nature and Knowledge.
Boston, MA: South End Press.
Simpson, D. et al. 1996. Valuing biodiversity for use in
pharmaceutical research. Journal of Political Economy 104:163–85.
Simpson, R. 1992. Transactional arrangements and the
commercialization of tropical biodiversity. Resources for the Future,
Energy and Natural Resources Division Discussion Paper: ENR92-11,
May, Washington, DC.
Simpson, R. and R. Sedjo. 1992. Contracts for transferring rights to
indigenous genetic resources. Resources (Fall):1–6, Washington,
309

DC: Resources for the Future.
------. 1994. Commercialization of indigenous genetic resources.
Contemporary Economic Policy 12(4):34–44.
Sittenfeld, A. and R. Gamez. 1993. Biodiversity prospecting by
INBio. In Biodiversity Prospecting: Using Genetic Resources for
Sustainable Development, eds. W. Reid et al. Washington, DC:
World Resources Institute.
Sittenfeld, A. et al. 1995. A framework for prospecting: the INBio
experience. The Arid Lands Newsletter 37:8–11.
Soejarto, D. et al. 1989. Tropical rain forests: Potential source of
new drugs? Perspectives in Biology and Medicine 32:244–56.
Solow, A. et al. 1994. Measuring biological diversity. Environmental
and Ecological Statistics 1(2):95–107.
Stähler, F. 1994. Biological diversity: The international management
of genetic resources and its impact on biotechnology. Ecological
Economics 11(3):227–36.
Stix, G. 1993. Back to roots: drug companies forage for new
treatments. Scientific American 268:142–43.
Subramanian, A. 1992. Genetic resources, biodiversity and
environmental protection—an analysis and proposal towards a
solution. Journal of World Trade 26(5):105–10.
Sun, M. 1985. Plants can be patented now. Science 230:303.
Svarstad, H. et al. 1998. From Norway to Novartis: A source
country experience with bioprospecting. Workshop: Sharing of
Benefits Arising from the Utilization of Genetic Resources, 1-3 May
1998.
Swanson, T. 1996. The reliance of northern economies on southern
biodiversity: Biodiversity as information. Ecological Economics
17(1):1–8.
Swanson, T. ed. 1995. Intellectual Property Rights and Biodiversity
Conservation: An Interdisciplinary Analysis of the Values of
Medicinal Plants. Cambridge: Cambridge University Press.
Swerdlow, J. L. Biodiversity: Taking Stock of Life. National
Geographic. 195(2): 2-5.
United Nations Convention on Biological Diversity. June 5, 1992.
International Legal Materials 31:818.
310

Vallejo, N. et al., eds. Measures to Control Access and Promote
Benefit Sharing: A Selection of Case Studies. Gland, Switzerland:
World Wildlife Fund.
Varley, J. D. and P.T. Scott. 1998. Conservation of Microbial
Diversity a Yellowstone Priority. ASM News 64(3): 147-151.
Vandermeer, J. and I. Perfecto. 1995. Breakfast and Biodiversity;
The Truth About Rain Forest Destruction. Oakland, California: The
Institute for Food and Development Policy.
Vaughan, D. and L. Sitch. 1991. Gene flow from the jungle to
farmers. BioScience 41:22–28.
Vogel, J. 1994. Genes for Sale: Privatization as a Conservation
Policy. New York: Oxford University Press.
Ward, D. M. 1998. Microbiology in Yellowstone National Park. ASM
News 64(3):141-146.
Wells, M. et. al. 1992. People and Parks; Linking Protected Area
management with Local Communities. Washington D.C.: The
International Bank for Reconstruction and Development/ The World
Bank.
Werth, B. 1994. The Billion Dollar Molecule. New York: Simon &
Schuster.
Wilkes, G. 1987. Plant genetic resources: why privatize a public
good? BioScience 37:215–17.
Wilson, E.O. 1984. Biophilia. Cambridge, MA: Harvard University
Press.
------. 1992. The Diversity of Life. Cambridge, MA: Harvard Press.
Wilson, E.O. ed. 1988. Biodiversity. Washington, DC: National
Academy Press.
Williams, S. 1984. Protection of plant varieties and parts as
intellectual property. Science 225:18–23.
Witt, S. 1985. Briefbook: Biotechnology and Genetic Diversity. San
Francisco, CA: CSI.
World Resources Institute et al. 1992. Global Biodiversity Strategy.
Washington, DC: World Resources Institute, World Conservation
Union–IUCN, and United Nations Environment Programme.
------. 1993. Biodiversity Prospecting: Using Genetic Resources for
311

Sustainable Development. Washington, DC: World Resources
Institute.
312

Appendix G
Notes on the discussions with CAF representatives on February 25, 2003
Introductory presentations
Professor Fiona Murray of the MIT Sloan School of Management spoke about the comparative
research she is doing with a focus on life science investments and start-up biotechnology
companies in Cambridge, Massachusetts and Cambridge, England. Her research also looks at the
particular policies or behaviors associated with the respective higher education institutions which
foster the entrepreneurial efforts. She also referenced a paper she has written on the successes
and challenges of companies that are mining population genetics. On another topic, she
mentioned that the collaborative program between MIT and Dupont Biomaterials reflects a growing
interest on the part of the chemical industry in new biotechnology-based approaches.
Turning to the General Analysis report, Fernando Quezada asked Dr. Pedro Huertas to begin the
discussion by highlighting some of the aspects relating to biopharmaceuticals, nutraceuticals and
herbal medicines. Pedro mentioned that with the state of maturity which has been reached, there
is a great deal of industry consolidation in biopharmaceuticals. He mentioned that there are many
products in the pipeline, but that the industry patterns are reflecting the high cost of capital. He
discussed the area of nutraceuticals which has enjoyed favorable growth in Europe and
increasingly in the US. Dr. Rollin Johnson addressed some of the trends in agriculture, citing some
of the low tech applications and how these could be developed in parallel with biotechnology
enhancements so that the Andes region could benefit in the marketplace from the value-added. He
also mentioned the importance of ocean bioresources as well as the forests for bioprospecting,
with more opportunities for value-added, and that aquaculture is a promising new area. Dr.
Johnson also briefly discussed innovations in biochips and microarrays and their applications in
genomics and other areas. Dr. Marco Baez offered remarks on the use of enzymes in industry,
citing the importance of microbial biodiversity for sourcing of novel enzymes. He pointed out the
growing importance of new green tech approaches to reducing use of energy and other industrial
inputs.
CAF observations on General Analysis report
CAF has reviewed the report and found it to be informative and useful. The report seemed to have
covered all of the main trends in the biotechnology industry in the major markets of the world
pertaining to the selected product areas.
Maria Teresa pointed out that the objective of the study is to provide guidelines to CAF on how to
view the various market options. She mentioned that what would be most useful for CAF would be
to have criteria for interpretation of the findings of the General Analysis. CAF would benefit from
having a matrix comparing the various market areas in terms of the variables used in the analysis.
Aurelio provided some background on the various economic and technological levels at which CAF
is dealing with biodiversity issues. CAF is working with low and medium technology sectors in the
area of traditional extractive industries. It was mentioned that not all countries in the region have
local business incubators. Colombia is the most advanced in this regard and Bolivia is the least
advanced.
313

CAF has already been involved in intellectual property rights negotiations pertaining to indigenous
populations as well as free trade arrangements and related issues. CAF has generated a series of
concept papers, some of which are available on the web.
As CAF moves into high technology and emerging technology sectors, it has become clear that the
“rules of the game” are different and require special attention. Biotechnology development itself
has not yet taken place. For this reason that CAF is interested in getting a good but profound look
at what the opportunities are for the region.
CAF has continued to work with UNCTAD, Biotrade, CAN and others to generate an information
system. Each country will be developing its own web site, which will include the relevant
information for simulating new entrepreneurial activity. In addition to the information system, the
strategy involves activities for building an entrepreneurial base, market research capability, and
financial support. This system is intended to offer a region-wide view of financial needs,
certification frameworks, and other information as well as a notion of who is working on what areas
of value-added activities and where there may be ways to facilitate matching of suppliers with
outside markets. CAF is interested in identifying market opportunities to match the Andean region
capabilities. The example was given of Rotterdam companies that need natural ingredients
generated in the region. Additionally, there are industry associations specialized in specific
commodities (coffee and bananas, for example), that carry out research and development
activities.
Maria Teresa mentioned that CAF has been considering the area of bioinformatics as an area
where the availability of diverse genetic information is of interest. Information on the biodiversity of
the Andean natural resources can make a contribution to this field. It was observed that there
would be a need to build the necessary infrastructure to enter this field. Governments in the
Andean region are aware that they need to invest in this area. Currently no serious program
exists for biotechnology development at the regional level.
It was mentioned that Dr. Ricardo Torres has encouraged CAF to consider all of the opportunities
corresponding to the “value chain” for certain product areas. In this regard, he has mentioned that
the area of biopharmaceuticals should not be ruled out simply because of the high capital
requirements, given that there are several intermediate value-added stages that may be accessible
to the entities in the Andean region. The CAF representatives stressed that it is important that the
bioprospecting market in each of the sectors studied be taken into account in the study.
CAF would like guidance on how to evaluate the various market opportunities and encouraged
BCEC to advocate for certain areas. It will be helpful to have a comparative matrix with
homogenous variables. It was pointed out that some of these variables are suggested in the
original Terms of Reference. However, BCEC is encouraged to propose alternative variables.
Next steps
Aurelio will confirm April 11, 2003 as the date for the Caracas meeting. (This has now been
confirmed.)
CAF requests that BCEC provide a short list of criteria for use in selecting which product areas in
the General Analysis will be emphasized in the Detailed Analysis. These criteria may be presented
in a matrix format for illustrative purposes.
314

Aurelio will send BCEC the information received from Dr. William Roca relating to some
products/areas of interest of the Andean region (this has already been sent). BCEC will consider
the possibility of suggesting other information for Dr. Roca to add to his survey.
BCEC will consult with CAF to recommend product areas to be studied in the Detailed Analysis
based on the information above and in consultation with CAF. BCEC will proceed with the
Detailed Analysis, after consultation with CAF in terms of the areas to be emphasized.
315