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~.-,~.-.~,f.~•; ~..,~~.,~ The Cetus Story (As Presented to Potential Clients) Cetus Corporation is the leading exemplification of a dramatic techno- logical innovation - the commercial exploitation of molecular biology. Cetus Corporation was founded in 1971 to bring a new level of scientific ~ tive. Cetus has built a solid record of accomplishments of immediate ;~~ .'~r ~1•~~ 3 economic impact. Beginning with programs of massive screening for drug companies, Cetus today serves several large clients in diverse major tk S industries, and simultaneously carries out internal programs building proprietary technology for its own account. '~~r C:id `5 ti r t - - .i'' v" a •~ ..i y^«~:~a y r ~~''k~`~t',~, M _ . . _ - . . . . . . ... .-"! L'rt.~.. Most important, the Cetus team is multi-disciplinary and'experienced • Using incomparable facilities, Cetus scientists are well-qualified to p-, address the broad challenge - the industrial application of all develo~~st . ri'. our investment must not be compromised by questionable "deals." We t° eschew paper or phantom financial arrangements clearly designed for grandstanding and quick profit, and fraught with ethical questions Al . ~T 4h 1 • ro~ .5 i t fi B k d S c en i ac groun c 2~..~..• - .- . .. rtw~. 4I • ~ .~.,~ ~ .. intensity to industrial microbiology. Its very creation was a harbinger. In the years since then, many of our.predictions have proven conserva "~ ments in molecular biology. This includes, but is not in any way "i 2y~ qt,~a•,+-~i•.; , . rv limitea to an unmatcnea investment in ana capaoility LD 1II1P.LeiSleilL dll developments in recombinant DNA technology. All Cetus work in this, as in all other fields, is carried out solely in Cetus facilities and totally financed by Cetus. This reflects our corporate philosophy that The purpose of all programs in industrial microbiology is to harness the metabolic machinery of microorganisms. There are innumerable different kinds of microorganisms; there may be as much variety in the microbial world as in all other forms of life combined. only a very few specific members of this enormous group have been harnessed by man, starting in prehistoric times: the fermentation of cheeses, beer and wines and the leavening of bread are microbial processes. So are the ravages of infection, unfortunately the•most familiar manifestations of microbial activity. Ironically, the epidemics which decimated mankind until this generation are now largely controlled by another family of microbial products: a'ntibiotics. .. .. . . _ . _ _. ,, : .. . Exploiting microbial processes for the benefit of man has been more an art than a science; only in~recent years have we seen the beginnings of serious attempts to mount truly scientific efforts in this area. By comparison with the enormity of the problem, these efforts are typically small in scope and maddeningly inefficient in execution.' z.•ti • ... .. ,.,... ...:; .... c :- ~,i; To enumerate those few familiar examples of successful industrial ... utilization of microorganisms rung the risk of short-changing the real,;< potential of the concept in its broadest sense. ~::,~• ~s{'` ~..::YBFftirU~r T ~~. k ~ y^ .~ ;.qy .~'~"~+•-?'bi s ^`J'ST1~.i4

slow in coming. When we exploit a particular microorganism, it is because we have dis- covered that as that organism carries out the intricate metabolic pro- cesses which comprise its finely-tuned life mechanisms, one or more of these metabolic processes accomplish something useful to man as well. As is true for all living things, the "blueprint" for these complex metabolic processes resides in the genetic molecule DNA. Each indi- vidual biochemical reaction is facilitated by a biochemical catalyst - protein molecule called an enzyme. Typically, each gene (a certain portion of the DNA molecule) contains the "instructions" causing the cell to make a particular enzyme. In turn, each enzyme facilitates a particular reaction, i. e. , produces a particular product. A microor ~.,_ganism becomes useful to man when a particular gene becomes useful, 'il•~ ful reaction '` . ~-• ~> . ~~~ .r. ` Cetus has developed and utilizes a unique combination of technological capabilities. Cetus' first contribution to industrial microbiology involved massive screening of microorganisms. This work arose.out_of Nobel laureate Professor Donald Glaser's inspiration and insight re-ZV~~ garding detection of rare events. This permits us to efficiently manag~ the genetic development of microorganisms with precisely those charac_ teristics which are suited to an important task, whether that be the conversion of wood into sugar, or the production by fermentation of chemicals to replace scarce petrochemical feedstocks - • Sj:~ ':'.. .. ... : .. i. ,..... •~..:. . .... .... . . , ._. , :., i. . • i. To put this in perspective, we should ask - how do new useful genes '`., . ,"Rik appear, and how are they discovered? rt! ~ J ,2 ' . ; L.; . . .- i -,. .,.:,.... , ..... : : ,` . ..~- ' .i+ . .,• 4 ., . :: ?~ ~ ` ~f~' ~~~ _ , 7 iS.+ ... .. "r:- 2.~- , . , r . , • . ... a f ,. . ~ t ~~ aA~ From time to time, and especially during the process of reproduction, wt~~, when DNA molecules undergo duplication, minute changes occur in the DNA ~'~~ Y{ ;;~~• These changes have the effect of changing the instructions, thus af- fecting the enzymes and the corresponding metabolic reactions. Most ~" E t`'*.•z '~: ,'~~~~ :•bt, such changes (mutations) are deleterious and many are fatal to the ° microorganism. Only rarely, perhaps once in 10,000 surviving mutants, is an improvement observed. But another factor makes it even more difficult to discover these "improvements." They may be enhanced for. properties which are useful to man, but they turn out not to be the °fittest" in the Darwinian sense: they lose out in subsequent compe- tition tition with'their non-mutant,cousins, and are eliminated by "natural selection." Small wonder that such a small number of truly useful microorganisms have come to man's attention in all the years in which he ~ . ' has been looking! In a few selected instances, industry has embarked on systematic genetic 'improvement programs. A useful example: the so-called strain improve ment programs undertaken by drug companies manufacturing antibiotics. Laborious techniques are necessary; a typical company may screen as many ,•^ ~ 4 , _., - a~ 4,} as 100 organisms daily. If a desired improvement occurs once in 10,000 T* ~',d F t,_ progeny, the lesson is clear: an improvement will be seen once every lD0 working days. Since each improvement may represent only a slight. increment, and several must be parlayed to achieve economically in- enhancement, say, of antibiotic yield, the rewards are indeed teresting -x. ii'- ~: r~.z•

Tr ~ ~~~ ~ ~k, . .. . . - , . r' - ?' r";• x _ e~3'--ac r~ . -- .- - ~ . .. _ Ji - . 6 - r-.•`h+.-•-•^-- • . .. .. .: da.~'.S:':. =-:~•s_ • `J ~ At Cetus, by contrast, via a combination of new procedures, detection systems and a massive materials-handling capability, it is feasible to screen thousands of microorganisms daily. If searching for desirable mutants can'be likened to looking for needles in haystacks, we can scan many more haystacks than anyone else. Even with average ingenuity we are sure to find many more needles. The coupling of this unprecedented mass screening capability with the biological insights of Cetus' scien- tific team creates an exceptionally powerful combination. ; ° ~, , . , • ;. , ` i , , r rt ;: . :. . ,~ :::y , _: . • . .;:-a~t f .,,' t. ,- ~ .- Our first thrust was to assistthe pharmaceutical industry in improving ~;Wr1i.. k 5cx . the yields of existing commercial antibiotic cultures. Cetus developed~ 4h the capacity to effectively create new strains by mutation and other newer techniques, then to clone and grow large numbers of microorganisms ~cas. simultaneously; to screen them swiftly for the potentially most valuable •' t~~• strains as they occur; and then=to select the most significantly im f roved strains for still further P genetic improvement in environments controlled for optimal growth. Applying this capability for clients has : rY resulted in significant yield improvements in the production of majorr ~`r' antibiotics i Y + Y fl ~ ~ _ f _ /~ ~ 5 " ~ v'!~ y " v.. ~~3~~k~~~• . •... -. . , !~.. ~ ~'~(~~' ~:fx _ From the outset, Cetus has avoided "contract research"relationships. ti;,~ Our purpose has been to build for the future, so we have insisted on a v ~ .-. ff~ ;y E 1 " iece of the action" in all our client-related ` ~ P programs. Typically, k~f ,-: ~~.:. F, our relationship with client companies has involved two kinds of pay a~4 i `°y e: ~`•sI~Y~, ~~e ~~''ti'~`~~t,•' cessfully completed . . ~ . . . . ~ . . ~ .. ,_. . ..... a:Ei:a.3~n.e+~•.•, B d i ut pro uct ve as our improvementbymutation program has been it has --, r had limitations - limitations which no longer need exist. The DNA of industrial microorganisms codes for a relatively limited number of different protein products. Random changes in these organisms while , l bl l fi h h va ua e, pa e in signi cance w en compared to what as suddenly been made possible. Why is the time now so ripe for a breakthrough in exploiting this kind of knowledge? Most important, because during the past several years science has progressed dramatically in the ability to manipulate the Iy cx; 4ment: a front-end fee to assure continuity of effort and a reward or } "royalty" on the sales arising from new and useful microorganisms discovered. Currently, reward credits are accumulating for work suc i~. genetic material of microbes - . .r s ~ . _ . . ._ . . ~ . ... . . .- e . .._ . .,_ y ,~ ~'..,.G..i-...... ~ .. . ._ . . -. _ . .. .. _. . .- , ~ ?r In 1973 Dr. Stanley N. CoF~ien at Stanford and others began developing tt~r~4fi~ techniques for taking DNA from one-species of bacteria and-inserting-it into the DNA of an entirely different species. This produces a hybrid ~>~~ '~,~r• ,:,.. : DNA containing genes of two entirely different species. This has been done with bacterial plasmid DNA (which also permits the amplification as well as the heredity transmission of the inserted DNA). In a somewhat ~<h Sr,: fi~ similar manner, biologists can also take certain viruses--that,'infeoVr .~,. onl bacteri i t t f f i i i then infect the bacteria with the new recombinant DNA. i^? it . . _ . . . , .:5sk >., y a nser a se nto the v ,, t, o ore gn genes ral DNA and ~* LZI Mi t ~a

,aR,,, z+:;:.- - va~w~~.r" ~ ,i .+•- ~ t...._ :'i .t~ v ~~"5 c ' v -~'T ~t '~j~t~~~.~ i ~'~ . ~ ~_~'1 .w4SE~~,~C .. ._., - _i .. . ~. -. ~ ~ ~..~ .- R..~~~5.~ . . . .. __ _ . . -• _ ,~>w~~ ,. ~loeeG.:n. _a. . ~~~~ ~..- . sr .~: J .l~?•: This technique, familiarly known as recombinant DNA or "gene stitching," has reached the point where it isn't limited to grafting DNA's just between bacteria. Several laboratories have made recent headlines by reporting the successful insertion of genes coding for mammalian hor- mones into bacteria. This breakthrough means that no longer will the industrial exploitation of microorganisms be limited to getting them~to do better something they already, or almost already do. The Future . . _ _ . . . . . The future clearly will see many projects in which non-microbial products ~ 3~y~~•, are produced using industrial microorganisms. In the most challenging examples, this means nothing less than producing vast quantities of human proteins in microorganisms by "stitching" human DNA into the DNA Y} r, r5 yR~k~i`~ i of an appropriate microbe. Only recently considered a distant dream, ~ this is now within our grasp ~ ' ' • , ~ , ~ ,. . But in the "real world," other simultaneous developments, less romantic ,.~:•`,e perhaps, but just as important, will be necessary to make possible true; ft "return on investment.". For many industrial projects Cetus anticipatesk ~. the need of producing an "ideal" industrial microorganism - something which does not yet exist. Where previously the microorganisms, or "bugs" used to produce useful products, were the natural bugs in which . these capabilities were first discovered, the new technologies relieve this limitation. The genes for the desirable functions should be trans- ferable ' to the host organism~best suited to industrial utilization, ± which host may bear no relation to the original organism. This is obvious where the original organism is Homo sapiensl 3I-M The challenge is to create the ideal recipient organism - optimized from many economic and safety points of view. Such an organism, or "biophore," ,•,~~~.>. = would have great economic utility. (At present, E. coli is widely used in i basic laboratory research as such a recipient. Indeed, it does have the advantage of a great backlog of knowledge about its genetics. Unfortunately, that does not necessarily coincide with economic utility [e.g., the cost of nutrients it requires] nor with other production ~~ .. +~. characteristics.) ,I ~n :,, ...- .. . .. ... .. . ':. „;- ..._. . . . . . .. . .. -. ,..•. ., :~: .... Currently, Cetus is deeply involved in this field, finding and improving organisms that have the unique combination of genetic utility and ease of handling in large-scale.fermentation and of producing their gene products in readily extractable form. I? •_~~ It is reasonable to expect proprietary rights to attach to any new organisms in such a program. There remain many fields to conquer, and Cetus intends to become a major factor in each. In the field of antibiotics we have so far opted for a 'sservice to client" relationship, but we may not persist in this pattern for other projects. With sufficient financing, it might be more appro- priate to carry the autonomous development of a new strain of microor- ganism to the point where it could be auctioned in a free market for the most advantageous long-range returns. Ivar Mr#~ ~ , oQ~i~66'r4 o .`,e~~.. - . .... . . .2ti~ .. , . . . . . _ r.~xV. ,c, ... t• . -u. ~ ~~[4,.~ -. .., .

r~ New industrial processes for the manufacture of commodity and specialty chemicals, foodstuffs, and other products could be licensed. This is the world of biosynthesis: many thoughtful scientists feel that microbes can tackle virtually any task which can be accomplished by synthetic ..,.-,- a,'" organic chemistry. On more than one occasion the production of a spe- cific organic chemical by microbial fermentation has eclipsed tradi- chemical synthesis on economic grounds. Many advocates believe tional K; w that the scope of biosynthesis actually dwarfs non-biotic chemical synthesis, and they are hopeful that specific applications, such as the " use of microorganisms to provide vast amounts of food ("single-cell protein"), will in the not-too-distant future prove them right. The ~.. entire field of microbial-produced insecticides looms as another in , , triguing possibility. _4q a~ ~J would not represent an overwhelming. In certainmarkets, where marketin investment, Cetus might opt to "go it alone," for example, selling and licensing microorganisms, processes and/or products outright to various industries. . .. = ' • ', , A tremendous accumulation of scientific knowledge is waiting for the ^ ~. final touches needed for commercial utility. It is obvious that Cetus, which has pioneered in the application of sophisticated genetic and engineering methods for the improvement of microbes for antibiotic production, will be a prime mover at this new frontier. The challenge, both scientific and economic, is to identify those programs whose ~~•' feasibility and utility will combine to provide the greatest rewards. Each such program will result in an accumulation of know-how and pro x;~= prietary advantage which promises - to us who commit now - a commandinq`? position in inaustrial applications in tne lire sciences ror many years r b t r} to come. These are generalizations and those interested in major participation with Cetus in future projects will want to hear specifics. Some of the most exciting prospects are in fields that are moving so rapidly, and, have such large potential markets, that they require detailed, up-to- the-minute personal presentations by Cetus scientific and management teams. Such presentations will be arranged when appropriate. . . _ ~ _ . . . .. . E.~•~ . , . swi tij•• VA, a ~ ,. c .~..> r~ .. . , ~ . .. , ~4... , b .. e.,.':