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Prepared for August 23, 2000 edition of U.S. 1 Newspaper. All
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Probing the Genomic Frontier: Orchid BioSciences
Some call this Pharm Country, some call it Silicon
Garden. Whatever names you use for the central New Jersey research
corridor, all of them allude to the academic and corporate research
engines that power so many of the area’s small to medium-sized high
tech companies.
One of those powerful R&D engines, the Sarnoff Corporation, is
perfecting
its "spin-off" strategy. Take a basic Sarnoff resource —
say, a computer chip with its roots in color television or
supercomputer
research — and find a new use for it. Form a company, incubate
it, spin it off, move it out, and hope it will go public and offer
a good payback. Orchid BioSciences Inc., one of Sarnoff’s initial
spinoffs, is the first to go public — and what a success it is.
Just as Sarnoff’s grandfather, RCA, explored the television frontier,
Orchid is exploring the genomic frontier. In true Silicon Valley
fashion,
it is making its employees wealthy. After its IPO last May, stock
went from $8 to $57 and is riding out the Nasdaq turndown at about
$40. Of its 250 employees, 110 of them are in 44,000 square feet in
Princeton in three buildings on College Road. Orchid seems to have
the golden touch needed to acquire the genomic technologies that could
propel it into the bigtime.
Elements of Orchid’s success come from both Sarnoff and from the
companies
that Orchid acquired. On several fronts, Orchid is ready to take
advantage
of the advances being made in genomics. Now that a rough sketch of
the human genome has been drawn, Orchid can help refine the genomic
picture. "We see the company as very valuable for providing tools
in the field of genetic diversity, drug discovery, even
agriculture,"
says Dale R. Pfost, president and CEO. "It could literally change
the way medicine is practiced."
"Pfost (pronounced "post") will speak on "the Big
Breakthrough in Genomics — What it Means to Princeton" at
U.S. 1’s Technology Forum on Thursday, August 31, at 4 p.m. at the
Doral Forrestal. The forum is part of U.S. 1’s Technology Showcase
and the Princeton Chamber’s trade fair, which is open from 11 a.m.
to 5 p.m. Admission is free.
Top Of Page
Orchid’s New Business Model
When it was incubated at Sarnoff as Orchid BioComputer,
the firm was working on high throughput lab work for any tests, not
just for genes. Using Sarnoff’s semiconductor expertise, Orchid
Biocomputer
developed "miniaturized" microfluidic lab processes for what
has affectionately been known as the "lab in the palm of your
hand." Orchid has not sold or licensed this technology. If fully
developed, this high-powered lab could give Orchid a stunning
competitive
advantage in several areas of high throughput screening, including
the genomic screening.
"Automation is what Orchid is all about," says Pfost,
explaining
why he is not emphasizing the miniaturizing technology. "The
reason
why I came to Orchid is that we have the technology to industrialize
drug discovery and development, to automate in an intelligent fashion
the processes and the data collection that you find in research
laboratories."
Soon after he came to Orchid came the big breakthrough in genomics,
when companies and governments on two continents marshaled their
forces
to come up with the first rough sketch of the human genome. Pfost
used Orchid’s miniaturized lab technology as a trump card to help
him acquire two leading companies in the genome typing field —
first, Molecular Tool, and then its parent, GeneScreen. "We were
very fortunate to review a few dozen different opportunities. We
looked
at gene expression, proteomics, high throughput screening, and
synthesis.
SNP scoring, genomics, and pharmacogenetics were what we chose."
To Orchid’s special chips (the "hardware"), Pfost added the
proprietary SNP scoring technology of Molecular Tools called SNPware.
SNP scoring refers to single nucleotide polymorphisms, pronounced
"snips," the most common variations in genes from individual
to individual. SNP scoring uses an automated computer chip-like device
called a SNPstream that can identify the transposed digits quickly,
accurately, and cheaply (www.snps.com).
One automated SNP scoring system (made by Beckman Coulter and
customized
to run on SNPware) can do 25,000 scoring operations in one day. After
the plates are formatted and loaded into a carousel, the system takes
over; robotic arms insert and remove the plates through the various
processes.
Orchid now has four of these systems in operation on College Road,
doing fee-for-service work for pharmaceutical and agricultural firms,
and it is installing a fifth. Two 6 to 12-person shifts produce
100,000
operations daily, and Pfost predicts this figure will double every
couple of months. "We will be doing a million by the middle of
next year," he says.
The firm also licenses an impressive assortment of its SNP technology
to the big pharmas. The pharmas like the high throughput SNP scoring
because each useful SNP combination they discover can generate a
patent.
Orchid has 230 patents allowed and pending, counting both
international
and United States filings.
"Licensing has been going very well," says Pfost. "We
have a strategy of licensing that we call platform propagation. We
are enabling scientists, our customers, to do SNP scoring with their
existing instruments by selling them SNPware, the trade name for our
kits."
Pfost says he has been pleasantly surprised at how flexible the
SNPware
can be; it will adapt to nine technology platforms that represent
more than 100,000 instruments now doing scoring in life science
research
labs across the nation. Having made five platform propagation deals
over the last year, Orchid is way ahead of its predicted schedule.
Bristol-Myers Squibb bought the largest system as a turnkey operation,
as have Monsanto and SmithKline Beecham. For other companies, such
as Applied Biosystems, Amersham Pharmacia Biotech, Luminex, and
Beckman
Coulter, Orchid works under various customizing and marketing
contracts.
Even Orchid’s competitor, Affymetrix, bought into the system.
"They
wanted to get the best tech for SNP scoring and came to us to get
our SNPware," says Pfost. All the companies using this system
must purchase Orchid’s SNPware kits, and this in itself is a
significant
revenue source.
A third part of the business plan is to use the technology in clinical
testing through what is called the Clinical Genetics Network. Through
its latest acquisition, GeneScreen, Orchid Biosciences owns three
laboratories that are federally approved for clinical testing. These
labs are in Dallas, Sacramento, and Dayton, Ohio, and have a total
of 140 employees. They provide cash flow now and stand ready for the
time when Orchid can do its own patient testing.
One potential testing product that Pfost was enthusiastic about
earlier,
GeneShield, has taken a back seat to other efforts. GeneShield would
produce drugstore gene testing kits so consumers could find out their
tendencies for various diseases. Pfost says that such "direct
to patient" testing will take a few more years to develop. "We
want to make sure that we have a strong medical basis for what we
are offering," he says. "The best thing to do is get the
strong
base of support with the physicians first."
"For the very first applications for clinical practice, we are
doing a very targeted introduction to physicians with specializations
in a particular disease. We are using the web as a means of
communication
to provide information about pharmacogenetics and to do
physician-centric
marketing for the SNP scoring."
Working with scientists in Cincinnati, Hackensack, and Philadelphia,
and with LeRoy Hood at the Institute for Systems Biology, Orchid is
testing the genetic makeup of two kinds of patients, those with heart
disease and those with childhood leukemia, to determine effective
drug therapies and predisposition to disease.
In spite of public excitement about the progress made, Pfost says
the work has just begun. William Haseltine, chairman of Human Genome
Sciences, one of the companies that did the mapping, termed the first
mapping of the human genome a non-event, and Pfost agrees.
"It is a success to have all the DNA data available," he says,
"but the job is not done, and not done on many, many levels. It
is not the case that we have a contiguous sequence of the human
genome,
and we do not understand the diversity of the individual. That is
the area that Orchid is working on — how genetic variability and
variations from individual to individual form the genetic basis of
life." Pfost compares the task to climbing Mt. Everest. "You
may reach a particular summit, but you haven’t reached the top."
Top Of Page
Dale Pfost’s Bio
Still, the May IPO fulfilled a lifelong dream for Pfost. "I have
been around high technology and start-up companies all my life,"
says Pfost. Taking a company public, "is a personal goal that
I had for my entire career."
Pfost grew up in the Silicon Valley, where his father (a prolific
inventor who now holds 60 patents) worked on the early video tape
recorders with a five-man team at Ampex that included R.M. Dolby
(later
known for improving fidelity by reducing background noise).
His father’s inventions were often part of the dinner table talk,
and he and his brother and sister were often brought down to the lab
and given technological problems to solve. His brother now has a
semiconductor
sales business in the Pacific Northwest and his sister is a validation
manager for VeriSign, which went public last year.
After majoring in physics at the University of California at Santa
Barbara (Class of 1980), Pfost went to graduate school at Brown, where
he started his first company with a product that, like Orchid’s, does
robotics for the laboratory — biological mechanization to perform
many experiments quickly. He sold that company, Biomek, to SmithKline
and moved to Great Britain to be CEO of Oxford Glyco Sciences, where
he repositioned the company as an emerging pharmaceutical.
Top Of Page
Orchid’s IPO
But he did not have a chance to take Oxford public.
Before it was ready for the IPO, Pfost was tapped by Sarnoff in
December,
1996, to take the Orchid CEO’s post. Now 43, he lives in Pennington
with his wife, Gertrude, and their 10-year-old son and tries to
mitigate
his 80-hour weeks with a commitment to jogging.
The Orchid BioSciences offering was, indeed, good for the company,
he says. "It allowed us to focus on operations and keep us
going,"
says Pfost. "We’re building value for the long run. In my opinion,
there is no company better positioned to prosper in the post genomics
era."
The stock has a paper value of more than $60 million for Sarnoff,
which owns about four percent of Orchid, or about 1.6 million shares,
selling at about $40 now. Nobody at Sarnoff would confirm these
figures, but Sarnoff generally offers 20 percent of its holdings to
those who worked directly for a spin-off firm, or about $15,000, and
the remainder of the 800 employees generally get five percent, which
would amount to about $3,750. ** (this paragraph has been changed from
the print version, which uses a different example).
Among Pfost’s management challenges: to rally teams in a coordinated
fashion. "We have gotten much better at adding key people to have
teams aligned and well-focused," he says.
"One of the management adages I like, is that you celebrate that
which you want to see more of, so we recognize employee achievement
at the individual as well as the team level. We have a recognition
award every month. The employee may get a bonus check or a plaque
with an Orchid on it, plus the recognition of their peers."
He does not deny that some of his Orchid employees are probably paper
millionaires. "It is an element our employees are well aware of,
but we like them to take a more relaxed view. We have a package that
is a fantastic environment for our employees and among the things
in it are the share options."
The personal financial rewards, he says, are not as important as the
overall picture. "In Silicon Valley where I come from, people
talk about MOPs — millionaires on paper. We want to focus our
employees on the fact that they shouldn’t worry so much about the
share price and feeling good or down when the stock is up or down.
We are building this for the long haul, and that it is the stuff that
a career is built around."
— Barbara Fox
East, Box 2197, Princeton 08540-2197. Dale R. Pfost Ph.D, chairman,
president and CEO. 609-750-2200; fax, 609-750-2250. Home page:
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