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Pulled it off the Yahoo Board.

Incyte is especially far ahead in decoding the most commercially promising genes, the 15,000 to 20,000 that are thought most likely to be medically relevant. Unlike full-scale gene mappers, the company doesn't spend any time on the rest, nor on the vast reaches of barren DNA between genes. Now, says the research chief at drug maker Pfizer Inc., George Milne, "Incyte has built itself a privileged position. It will be one of a very small group with very large patent resources."

Celera is expected to be first to decipher the chemical structure that makes up the entire human genome, beating out a government consortium called the Human Genome Project. Its stock, like Incyte's, has soared in recent weeks. Yet Celera's business prospects are murkier. The company has applied for patents on gene fragments but not yet on a full-length gene.

The companies, however, weren't interested. Once again, Dr. Scott was in the shadow of the prominent Dr. Venter. But Dr. Venter's backer, Human Genome Sciences, was watching Incyte closely. One day in 1993 its chief executive, William Haseltine, came by Incyte's headquarters building in Palo Alto -- without invitation, according to the Incyte's top executives. An Incyte scientist, Jeffrey Seilhamer, says he saw Dr. Haseltine at the window and motioned him in, but declined to answer his questions about how many sequencers Incyte had.

Dr. Haseltine, who contends that he did have an invitation, says it's normal to check out the competition, adding that "what I saw was a poorly organized, messy facility that was pathetic compared to what we had put together."

They wanted sole access, of course. Drug companies don't cooperate much. But unlike Human Genome Sciences, Dr. Scott refused to sell any company exclusive rights. Better, he argued, that drug makers share the costs of Incyte's enterprise, so Incyte could build a definitive database far more quickly and they could have equal access to it.

And there would be another benefit: Incyte's catalog could grow into a kind of intellectual-property trust, and if drug companies wanted to develop a gene-based medicine, they wouldn't have to get licenses from numerous patent owners scattered hither and yon. Subscribers would have added protection because they had to agree not to sue each other over data they used or contributed.

Incyte, meanwhile, would profit by making paying subscribers out of as many companies and researchers as wanted access to its data. Then it would issue a license-gaining the potential for royalties -- whenever a subscriber asked for a physical copy of a gene to use in experiments.

In 1994, Pfizer agreed to pay $25 million over three years to subscribe, nonexclusively, to the company's gene catalog. Another drug company soon followed.

To expand that catalog faster, Incyte hired some engineers from PE Corp., the Norwalk, Conn., maker of the DNA-sequencing machines. The engineers installed laser scanners and customized software, boosting the machines' output threefold. They also began helping another manufacturer design a faster sequencer. And they built a robot, nicknamed Zippy, to purify samples, replacing 30 technicians and slashing costs.

More drug companies signed up. (Incyte became profitable in 1997 and 1998, though it lost money again last year, on revenue of $157 million, as it spent heavily to ramp up its gene-hunting effort.) The drug companies brought in more than money. They also provided advice about priorities and contributions of raw data.

Incyte took special requests. AstraZeneca PLC wanted a library of bacterial genes, so Incyte built one. A former head of biological science at AstraZeneca says half of the drugs in its research pipeline now trace, at least indirectly, to Incyte's data.

Then came another threat from the Venter camp. PE Corp. in 1998 unveiled a faster sequencing machine -- and decided it wanted a piece of the action itself. PE formed a gene-hunting subsidiary, Celera Genomics, and lured none other than Dr. Venter to run it. Celera would get the first 230 of the new machines. Other customers would have to wait. A PE executive told analysts Celera would put Incyte out of business.

Dr. Scott, stunned, responded by throwing his patent operation into overdrive. Three teams, including 60 Ph.D.s, sifted and categorized the genes as best they could. One team ranked them according to probable medical value, one scoured the literature for clues about their functions, and one wrote the patent applications, complete with computer-generated comparisons of the genes with others in the database. In a sprawling basement office, computer printers spewed out paper; some patent filings were 12,000 pages long.

The results are that Incyte has nearly twice as many U.S. gene patents as the No. 2 company, SmithKline Beecham, according to a PricewaterhouseCoopers analysis through year-end 1999. It is exceeded only by the U.S. government, whose Human Genome Project has been working on a full gene map for a decade. And in November, Pfizer gave Incyte more than $50 million -- an advance on license fees it eventually expects to pay -- plus the support of 7,000 Pfizer scientists to try to complete the patenting of the most promising genes within a year.

For Incyte, the eventual payoff could be large. Each time a subscriber to its gene database finds something it wants to study further, it orders a physical copy of a gene. An Incyte "clone-by-phone" factory in St. Louis ships it overnight, and the order triggers a license.

If the customer makes nothing out of it, Incyte gets nothing. But if a company ends up turning that gene into a drug or diagnostic product, it will owe Incyte a royalty of 1% to 5% of sales. If just a small percentage of the 30,000 licenses Incyte has granted so far bear fruit, it could collect many millions of dollars in royalties.

In any case, drug makers won't find all the genes they need in Incyte's library. They will also
look to other gene-hunters such as Human Genome Sciences. Some are already using data
from Celera. Its data will be especially valuable, Dr. Venter says, because its complete genetic
code will enable researchers to compare one individual's makeup with another's to help expose
the underlying causes of diseases. Though Celera intends to make its full gene map available
free, it plans to charge clients for data interpreting the map and eventually even to sell to
individuals data on their own genetic peculiarities.

The 53-year-old Dr. Venter, far from conceding that Incyte has an edge in the commercial
exploitation of gene data, says he doesn't even consider the company serious competition. "As
the real scientific data comes out, Incyte's stories will be exposed for what they are," Dr. Venter
says. "It's like saying a jar full of pennies is equivalent to the Bank of America."
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