(FORTUNE Magazine) – A SMALL COMPANY called Biotherapeutics Inc., in Franklin, Tennessee, opened a private front in the war against cancer three years ago. At that point the new cancer-killing wonder drug Interleukin-2 was in use in the U.S. only at the National Cancer Institute (NCI) and only on a few handpicked patients. By devising an experimental approach under Food and Drug Administration supervision, Bio-therapeutics was able to set itself up in business treating anyone who qualified medically -- and financially. While the company insists that it never turned down a patient unable to pay, medical insurance rarely covered the fees, which run as high as $35,000. Today the good news from Biotherapeutics is threefold. First, it has greatly simplified the treatment and won FDA blessing for its approach to treating two recalcitrant varieties of cancer -- kidney tumors and melanoma, a particularly virulent form that starts in the skin and usually spreads through the body. Second, FDA action has meant that Blue Cross and other insurers are beginning to pay the bills for the expensive laboratory procedures Biotherapeutics uses to tailor treatment to individual patients. Finally, Biotherapeutics has launched a licensing program that will make its treatments widely available around the U.S. and overseas. So far Biotherapeutics is the only private company providing such advanced cancer treatment. It became a pioneer by rapidly building up a large staff of researchers. It deploys a number of new drugs under FDA-monitored protocols that allow their experimental use without full approval. Take the case of IL-2. Its principal manufacturer, Cetus Corp. of Emeryville, California, supplies the drug free in return for clinical data that it hopes will support its application for full approval of IL-2, which it expects in 1989. Biotherapeutics charges only for the treatment, which combines IL-2 with the patient's white blood cells.

The scientists who run Biotherapeutics are convinced that sophisticated laboratories that prepare customized treatments will soon become an essential part of cancer therapy everywhere. It is these service labs, which it calls Biological Therapy Facilities, that Biotherapeutics is licensing to hospitals. As Robert K. Oldham, the company's chairman and chief scientific officer, recently told doctors and administrators at the Mount Carmel Medical Center in Columbus, Ohio, ''If you're part of us, you could be treating patients with IL-2. If you're not part of us, it will take two to three years.'' His associates told the Ohioans how they could be ''capturing'' new cancer patients, an important source of income for hospitals. As an example of a fairly typical licensed lab, Biotherapeutics likes to cite one in Newport Beach, California, that services nearby Hoag Memorial Hospital. Biotherapeutics sold a 20% share in the lab to the hospital for $300,000 and a 15% stake to local physicians for $240,000 -- a way to get the doctors involved and provide a financial incentive for them to use the facility. Biotherapeutics controls the lab and gets a 5% management fee. The company has also set up laboratories that service hospitals in La Jolla and Los Angeles, California; Plantation, Florida; and Memphis and Franklin, Tennesee. It is expanding into ten other locations by year's end. By 1992 the company hopes to have 48 labs in the U.S., Western Europe, and Japan. Biotherapeutics has lost money -- $8 million since it began. But its managers look for profitability in early 1990. The company will serve about 800 patients this year and aims for 80,000 in 1995. Stuart Weisbrod, an analyst with Prudential-Bache Securities, says that if it succeeds, revenues could reach $200 million in 1992, up from $2.1 million in fiscal 1987. Analysts Bama B. Rucker and Susan T. Witter of Hambrecht & Quist project 1992 sales of $385 million. By structuring its licensed labs as joint ventures with both hospitals and doctors, Weisbrod adds, Biotherapeutics could lock up a large portion of the nation's 3,500 registered oncologists and have a proprietary product. Biotherapeutics has no large competitors, although some hospital service companies such as Humana and even universities and private clinics are beginning to look at the field. At least one private physician, Kenneth Alonso of Atlanta, offers small-scale treatment with natural IL-2. BIOTHERAPEUTICS was started in 1984 by two prominent cancer researchers who had laid the groundwork for the use of the new biological agents while at NCI (FORTUNE, February 17, 1986). In 1980 Chairman Oldham, now 46, set up and directed NCI's $20-million-a-year program for what have become known as biological response modifiers. William H. West, 40, the company's medical director, worked at NCI when IL-2 was discovered there in 1977. IL-2 is one of the signaling substances that mobilize the immune system against disease. Unlike conventional chemotherapy and radiation, which suppress the body's defensive immune system by killing white blood cells, natural substances such as IL-2 bolster the immune system by expanding the population of white blood cells and turning some of them into active cancer killers. In starting Biotherapeutics, both Oldham and West insist, their idea was not to get rich but to bring promising new biological cancer treatments to the public as fast as possible. Their experience with the agonizingly slow transfer of government research to ordinary patients told them there had to be a better way. Biotherapeutics went public last year and has raised $40 million in the stock market. The shares, which trade over the counter, were recently down to $6.75 from a 12-month high of $24.75. The company has used some of that money to achieve a remarkable technical advance in treating patients with a combination of IL-2 and so-called lymphokine activated killer cells (LAK). This approach, initially developed by Steven Rosenberg of NCI, involves removing the patient's white blood cells known as lymphocytes and incubating them with IL-2. That transforms the white cells into cancer killers. They are then injected back into the patients along with additional IL-2, which stimulates the immune system to produce still more killer cells. Rosenberg's procedure was highly toxic to the patient, cumbersome, and generally had to be performed in an intensive-care unit, with a patient's heartbeat and other vital signs closely monitored. Patients often experienced psychological side effects, such as severe disorientation. Even so, Rosenberg got some promising results, especially with kidney cancer, which is not treatable with conventional drugs, and with melanoma. Some 10% of Rosenberg's original patients are free of cancer two years after initial treatment. Biotherapeutics' Bill West greatly simplified the administration of IL-2/LAK so that it can be given more safely and efficiently and in a regular hospital room. Instead of massive doses of IL-2 at eight-hour intervals over a five-day period, West's approach involves slow infusion. For most patients who get the Biotherapeutics treatment, side effects are limited to fever, chills, and itching skin. None have experienced the severe psychological discomfort reported by Rosenberg. Nothing ties them to their beds, and they are free to walk the hospital halls. Patients are selected by NCI or Biotherapeutics only if they have failed to respond to conventional therapy, so many are in bad shape to start with. West and other doctors in the Biotherapeutics program have treated more than 100 patients. So far only two have died during treatment. The autopsy on one of them showed that she had essentially lost her liver to cancer, so it was too late for IL-2 to do any good. The other had acquired a blood infection unrelated to the treatment. One survivor, Benny Kirkland, 53, a stocky Jackson, Mississippi, real estate developer who paid his $19,400 lab fee himself, says of his treatment: ''This was a godsend. We didn't know where to turn.'' Kirkland now hopes that the IL-2/LAK infusions will retard the growth of a small tumor in his lungs. Already there have been signs of shrinkage. As in Rosenberg's trials at NCI, kidney tumors and melanoma have shrunk in about one-third of West's patients; a smaller percentage showed some improvement in other types of cancer. Kidney cancers in a California telephone company employee and a New York City travel agency owner, both in their 40s, have completely disappeared. Both men are back at work. Without the treatment they probably would have died within a few months. As in any new venture, there are risks and uncertainties. One cancer specialist who says he is willing to bet on Oldham wonders nonetheless how many of the lab services Biotherapeutics markets will be in demand five years from now. West replies that Bio-therapeutics is flexible enough to change its approach to suit changing scientific findings. Because the chance of finding a simple, off-the-shelf cancer cure is very small, he says, ''some laboratory support will be needed to deliver tomorrow's cancer treatment.''

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