Biotech Companies Trying to Milk Cloning for Profit

Denise Gellene
Los Angeles Times
December 16, 2001

First came Dolly, the cloned Scottish sheep that stirred debate in 1997. Then came Second Chance, a Texas-born cloned Brahman bull.

Now a small herd of cloned livestock is moving from laboratories to farms--and closer to American dinner tables. Cloning is becoming a business, though it has generated few, if any, profits.

At least three biotechnology companies are pitching their services to ranchers and dairy farmers. One firm has shipped at least 20 cloned animals this year. Three of the clones, copies of a famous Holstein named Black Rose, live on farms in Wisconsin dairy country. The companies want to change the way farm animals are bred, helping farmers produce meatier steaks or more milk. Farmers already select the biggest bulls or best milk cows for breeding. By cloning these animals, the companies say, farmers can quickly improve the genetics of entire herds.

Among the companies promoting its cloning service is Advanced Cell Technology Inc., the Massachusetts firm that created a furor several weeks ago with its attempt to clone a human embryo. Congress is debating a proposed ban on human cloning and President Bush has condemned the experiment. Advanced Cell wants to use cloned human embryos as raw material from which to develop therapies for disease.

There has been no outcry over cloned livestock since Dolly's arrival, which spurred debate over where the technology might lead. At least one large meat processor has invested in animal-cloning technology, and Advanced Cell predicts sales of cloned dairy cows and beef cattle eventually could reach $1 billion.

But first the business must overcome a regulatory hurdle, among others. The Food and Drug Administration has asked farmers to withhold cloned animals and their offspring from the food supply until their safety can be assessed.

Livestock producers don't expect the FDA to ban clones, which they liken to twins because genes from the parent are copied but not altered. But the agency could require information about clones on food labels. A preliminary report from the FDA is due in March.

Price is another obstacle. The technology is expensive, so it appeals mostly to owners of elite animals, the top 1% of livestock. A cloned calf costs $20,000 to $25,000, company executives say. A unit of bull semen for artificial insemination, the most common technique for breeding dairy cows, costs no more than $50.

"It's quite a bit of money," Sara Brantmeier, associate editor of the trade publication Hoard's Dairyman, said. "This is not something that will become mainstream."

The chief executive of the company that cloned Black Rose agrees. Michael D. Bishop of Wisconsin-based Infigen said it would take a disaster--"a wipeout of animals, a bioterrorist attack"--to drive widespread use of cloning.

Cloning will remain a niche business, he said, with industry revenue below the $100-million mark. That still leaves plenty of room for growth. Industry revenue is unlikely to exceed $2 million this year, based on sales information provided by cloning companies.

Racing to Be First to Clone Chickens

So far, the business has focused on cloned cattle and dairy cows. But three companies, including Advanced Cell, are racing to be the first to commercially clone chickens. Georgia-based ProLinia Inc. wants to make genetic copies of pigs. 2002 could be a banner year for cloning in terms of production, based on preliminary estimates. Advanced Cell alone has 50 clones on order for next year, thanks in part to a $12,500 promotion offered last fall.

To some livestock owners, clones are an "insurance policy," a way to preserve the genetics of an elite animal that has become too old or sick to breed. The original Black Rose, admired as a great milk producer, died last year within months of her clones' births to surrogate mothers.

Infigen used cells scraped from the inside of one of Black Rose's ears to produce bovine embryos with identical genes. Dairy farmer Bob Schauf said it is too soon to know whether young Black Rose 1, 2 and 3 are their parent's true equals.

Evidently, some dairy farmers think clones are as good as the original. In October, a syndicate of dairy farmers paid $82,000 for a clone of Mandy, a prize Illinois Holstein. That price was more than four times the $20,000 owner Ron Bader typically collects for Mandy's offspring. People in the industry attribute Mandy 2's price to her novelty; as for Bader, he's ready to clone two other elite Holsteins.

Even if the government OKs clones for consumption, the business won't take off unless the technology improves and prices fall. Just 3% to 5% of cloned cattle embryos survive to birth. With those survival rates, it is a struggle for cloning companies to break even, industry sources said, even at $25,000 a calf.

For cloned pig embryos, which are more fragile than those of cows, the survival rate is even lower. ProLinia, backed with $1 million from pork producer Smithfield Farms, hasn't yet cloned a pig for a commercial customer, said President Michael E. Wanner. ProLinia, a spinoff of the University of Georgia, has produced 11 cattle clones, all for a single Midwestern rancher who paid about $20,000 each, Wanner said.

Sales of cloned pigs, cows and beef cattle could reach $750 million in seven to 10 years, Wanner said. But ProLinia's scientific boss, Steven Stice, said, "This business won't take off until we are able to produce hundreds of cloned pigs and cattle."

The bottom line is whether consumers will buy meat or milk from cloned animals and their offspring. Industry executives said an important factor is whether the FDA requires disclosure about cloning on food labels. In any case, they say, cloned animals used for breeding won't end up on Americans' dinner plates, at least right away.

Whether the small, privately held cloning companies have the financial strength to bring about the revolution is another matter. Only Infigen claims to make a profit in livestock cloning, which it uses to support research into human cell-based therapies.

Big Challenges Ahead for Small Companies

What little is known about Advanced Cell's finances hints at the challenges small companies face. The company will post revenue of $2 million this year, nearly two-thirds of it from a conventional cattle-breeding service, Chief Financial Officer Gunnar L. Engstrom said. Profit in its cloning business is two to three years away, he said.

Meanwhile, the company is preparing to raise $15 million to $20 million from an investment community that, in general, shuns cloning. ATP Capital, a venture firm launched by late cottonseed magnate Roger Malkin, has seen little, if any, appreciation in a $5-million investment made about 18 months ago, according to figures provided by Engstrom. To be sure, the investment climate in general is difficult.

Bishop, CEO of rival Infigen, said Advanced Cell's cut-rate price promotion could boost revenue but still backfire. "You can clone 100 cows at that price, but if you do, you'll go bankrupt," he said.

Another potential drain is patent litigation. Infigen prevailed in a 1999 patent infringement suit against Advanced Cell over bovine-cloning technology. Now Infigen and Advanced Cell are suing each other over the confidential terms of the patent settlement, according to representatives of both companies.

As cloning companies hawk their services across America's heartland, they face not only each other, but also long-standing traditions that make the technology impractical and, for some, unthinkable.

Beef cattle are bred the old-fashioned way, with prize bulls freely roaming the range in search of mates. Because cattle graze over hundreds of acres, it is inefficient to round them up for breeding purposes, said Craig Huffhines, executive vice president of the American Hereford Assn.

Some livestock owners are deeply conservative and uncomfortable with cloning on moral grounds. "There are people who think that is something you don't mess with," Huffhines said.

Indeed, Schauf said he wrestled with the ethics of cloning before deciding to proceed with Black Rose 1, 2 and 3. But he found support in the Bible. "God gave man dominion over the animals, and God gave people the ability to figure this [cloning] out," Schauf said. "That's my feeling."

What's more, farmers aren't convinced that cloning leads to improved herds, said John Meyer, chief executive of Holstein Assn. USA. Dairy farmers want technology that produces better animals, he said, not mere copies of good ones.

"Farmers are looking for advancement," Meyer said, adding that improved animals result from pairing the best bulls and heifers, usually through artificial means. "The nature of cloning is that it gives you the same old genetics," he said.

Cloning companies believe economics will win the day. ProLinia's Stice said an internal study showed cloning can add $5 to $15 to the value of a pig. Terry Coffey, president of Smithfield unit Murphy Farms, said cloning promises to speed genetic improvements through generations of pigs.

Cloning "is not a way to find a new pig or a super pig," said Coffey, who sits on the board of ProLinia. "It is an efficiency opportunity." But Coffey quickly added he can't predict whether cloning will work.

"We want to stay in touch with emerging technology," he said. "In the end, we don't know what it is going to do for us."