(FORTUNE Magazine) – Idec Pharmaceuticals, a San Diego biotech company, is hardly a household name. But that's not stopping investors. Its new drug, Rituxan, is rapidly becoming a key weapon in the war against lymphoma. Though the medicine doesn't cure the cancer, it has proved effective for treating relapsed patients who previously had few options, shrinking tumors more than 50% in about half of them. As word of Rituxan has spread, Idec's stock has soared. It traded at a scant $2 in 1995; recently it shot to $125.

Idec isn't unique; it belongs to a brood of biotech companies developing a class of drugs known as monoclonal antibodies-- Y-shaped proteins designed to help ward off disease. In recent months the stocks of these companies have turned as hot as the stocks of many dot-coms. Genentech, which makes a cutting-edge breast-cancer antibody, has more than doubled in price since its IPO this summer; MedImmune, which makes a drug to treat respiratory infections in newborns, has seen its stock triple this year.

Despite the fact that monoclonal antibodies ("mabs" in biotech-speak) have a troubled past--they played a pivotal role in biotech's legendary boom and bust in the late 1980s and early 1990s--Wall Street is again placing big bets on unproven antibody ideas. The stock of Abgenix, a development-stage company whose flagship product is a perfectly normal-looking mouse, has roared some 500% this year. (Of course, Xenomouse isn't just a mouse: It's genetically engineered to serve as an antibody factory. More on that later.)

The birth, death, and remarkable reincarnation of mabs spans two decades and is a tribute to persistence in the face of heartbreaking and wallet-draining failure. "It's a story of science and commitment," says Steven Shak, a staff scientist at Genentech. It's also a story of mice and men--one that takes a very different path from anything Steinbeck imagined. From a dollars-and-cents standpoint, it's a story about the difficulty the stock market has in placing a value on breakthrough medical technology where there are no numbers or hard proof, only tantalizing glimmers of drugs that could change lives.

The evidence points to a real antibody renaissance. In the past three years the FDA has approved six mabs. Sales could top $1.3 billion in 1999, up over 60% from 1998, according to Hambrecht & Quist analyst Richard van den Broek. He says sales could reach $3.1 billion in 2002--making mabs the fastest-growing therapeutic drug class. (Even at that level, they would make up just a sliver of total pharmaceuticals sales, which IMS Health predicts will hit $406 billion.) Big drugmakers are striking alliances with all sorts of mab companies. "The stars are aligned for antibodies," says Scott Greer, CEO of Abgenix, which is in Fremont, Calif.

Mabs can't help arousing great expectations. They have the potential to treat an astounding range of diseases, from cancer to cardiovascular disease to cataracts, with fewer side effects than traditional therapies. Each antibody--the immune system generates millions--has the uncanny ability to single out a specific target, called an antigen, which juts from a problem-causing cell or substance. The antibody glues itself to this antigen, acting as a little flag waving KILL THIS NOW! at other elements of the immune system. Because each antibody fits only the antigen, it brings no harm to healthy neighboring cells.

What got people most excited during the first mabs boom was the prospect of a cancer cure. Antibodies don't naturally attack cancer; for the immune system to produce them, it must detect a foreign invader, whereas cancer is more an internal rebellion. But thanks to genetic engineering--including help from mice--using mabs to fight cancer became a possibility.

When it comes to mabs, it seems, mice are man's best friend. The genetic structure of mouse and human antibodies is similar. Yet a mouse's immune system will recognize human cells--including cancerous ones--as foreign substances. Lab mice respond to injections of human antigens by producing very specific antibodies that in theory can be used to treat human disease. This became reality in 1975, when Cambridge University scientists Georges Kohler and Cesar Milstein generated mabs by genetically manipulating mouse cells into antibody "factories," a feat for which they shared a 1984 Nobel Prize.

Kohler and Milstein's work sparked a mad rush to commercialize mabs. By the mid-1980s, some 1,000 startups and other companies were working on them. The investors included some of the same venture capitalists that are pouring money into the Internet, such as Kleiner Perkins, which funded Idec and a startup named Hybritech. In 1986, Eli Lilly snapped up Hybritech for about $350 million. By late 1991 the mania was so extreme that Centocor, a development-stage company, was valued at about $2 billion. (In those days that was big bucks.)

Mabs mania died a slow death. One antibody after another failed its human trials, and one company after another bombed. (Before 1994, only one mab made it to market, a Johnson & Johnson drug for desperately ill patients undergoing kidney transplants.) Panicked investors fled. By the mid-1990s, Centocor's value had shrunk to just $300 million; Lilly dumped Hybritech for a fire-sale $10 million; Idec, which had only $12 million in the bank and needed $100 million to get Rituxan to market, was staring at bankruptcy. No one wanted to hear about mabs ever again.

But behind the scenes, scientists were fixing a big part of the problem: the fact that the human immune system doesn't like mouse antibodies. Perceiving them as foreign invaders, it purges them as quickly as possible by unleashing--in one of life's little ironies--antibodies. That reaction, known as the human anti-mouse antibody response, or HAMA, not only blocked mouse antibodies from reaching their targets but also sometimes caused fever, rash, and even death. "Humans are built to eat foreign proteins, not inject them," says Genentech's Shak.

The solution lay in reengineering antibodies in a test tube to make them part mouse, part human. An antibody needs only a tiny bit of mouse to be able to recognize its antigen. By replacing unneeded parts of the mouse antibody protein with human parts, scientists were able to make mabs that stuck to their targets yet didn't alarm the immune system. By the late '80s, scientists had figured out how to build mabs that were as much as 95% human.

The first mab to hit big was by none other than Centocor, the company that epitomized antibodies' early failure. Its drug, ReoPro, is used before and during angioplasty and other coronary procedures where blood clots pose a high risk. Approved in 1994, it blocks the mechanism that makes platelets stick together. Scientists regard ReoPro as a low-tech antibody--it's still some 50% mouse--but since it's only given once or twice, the immune system doesn't react strongly. Clinical data show that ReoPro reduces the risk of death at one year by 57% after some procedures. As it took off, so did the stock; in October, Johnson & Johnson bought Centocor for $5 billion.

ReoPro alerted Wall Street to the fact that antibodies aren't hopeless. The shadows lifted even more in 1997, when Rituxan became the first mab to win FDA approval as a cancer therapy and set a record for an anti-cancer agent's first-year sales ($152 million). Rituxan fights low-grade non-Hodgkins B-cell lymphoma, which affects some 250,000 Americans and is notoriously difficult to treat--the cancer cells divide too slowly for chemotherapy to have much effect. Rituxan is 34% mouse, but because it targets B cells--the very cells that mount the HAMA response--the immune system rarely reacts. The drug's target is a protein called CD20, which appears on the cancerous B cells' surface.

Rituxan has proved safer and more effective than traditional treatments for some lymphoma. In clinical trials, about 50% of patients who didn't respond to chemotherapy experienced tumor shrinkage of 50% or better with Rituxan. An entire course of the drug consists of four once-a-week doses, vs. four to six months for chemotherapy, and its side effects are generally much milder. Some 80 studies are under way using Rituxan against diseases from leukemia to lupus in which CD20 seems to mark problem cells.

Genentech's Herceptin, approved in 1998 as a breast-cancer treatment, has been arguably the biggest contributor to antibody therapy's rebirth. It also testifies to the length of time that drug development can take--in this instance, 13 years. In the '80s, researchers identified a protein named HER2 and discovered that some 30% of more aggressive breast-cancer tumors have too many copies of it. Genentech spent five years developing an antibody to target HER2 and another six proving it in clinical trials. Len Presta, the scientist who engineered the antibody, says wryly, "We hoped it would work."

The trials showed that coupled with chemotherapy, Herceptin enabled women with late-stage breast cancer to live an average of 25% longer. There were stunning success stories, like that of Patty Ciccozzi, a 37-year-old New Jerseyite whose cancer had spread to her liver and lungs. In late 1998 she was lying in intensive care; after six months of Herceptin, her cancer-test results had returned to normal levels. Now, Ciccozzi receives one dose of Herceptin each week on an outpatient basis. "My doctors couldn't stop saying how remarkable it was," she says. Genentech is testing Herceptin against other cancers linked with HER2, such as prostate cancer, and against earlier-stage breast cancer. "Herceptin is just getting started," says analyst van den Broek.

Better mabs may be on the way. With antibodies like Herceptin, there's still a risk that the mouse DNA they contain (about 5% in Herceptin) will trigger a dangerous immune reaction. What has scientists and investors drooling is the idea of crafting fully human antibodies. Paradoxically, that means going back to real live mice.

Abgenix and another small company, Medarex in Annandale, N.J., have created transgenic mice to serve as antibody factories. Abgenix's Xenomouse and Medarex's HuMab have had their mouse-antibody-producing genes replaced with human-antibody-producing ones. The altered mouse immune system still recognizes human antigens as foreign but puts out 100% human antibodies in response. Better yet, the mice breed, so if you create a couple, you get an unlimited supply--useful because making the mab involves killing the mouse and harvesting antibody-producing cells from its spleen.

Supermice didn't come easy or cheap: Xenomouse took seven years and over $40 million to engineer. Now biotech companies and Big Pharma are scrambling to sign deals with the mousemakers. Novartis, Bristol-Myers Squibb, and Centocor have signed with Medarex; Genentech, Pfizer, and others, with Abgenix. "In four to five years, transgenic mice will be the bolt of how we get antibodies," says Genentech's Presta.

Supermouse antibodies are likely to cost less than today's mabs. A course of Rituxan costs $9,600; a typical course of Herceptin, $17,000. Michael Ehrenreich, who runs the New York City biotech investment bank Techvest, says using supermice could cut the initial development for a mab from more than a year to just two months.

Keep in mind that there is no real proof, in the form of a clinically approved drug, that either Xenomouse or HuMab works. (The one that's probably closest to approval is a Xenomouse mab that targets psoriasis.) Yet investors are willing to take the supermice on faith. Six months ago Abgenix was worth around $250 million and Medarex was half that; today they are valued at $1.3 billion and $600 million, respectively.

Xenomouse and HuMab aren't the only mab products that rivet investors. Tiny Alexion Pharmaceuticals is targeting the so-called human complement system--blood proteins that act in a cascading fashion to make war on bacteria. The complement system is usually a good thing, but in diseases like rheumatoid arthritis and lupus it spins out of control, causing painful inflammation. Also, tissues roughed up during heart surgery can develop inflammation that the complement response can aggravate. Alexion is one of many companies looking for ways to inhibit the part of the complement system that runs amok without shutting it off completely. It tested tens of thousands of mabs and finally located one that binds to a protein called C5; blocking C5 seems to stop the cascade.

That breakthrough came in 1994. The newly discovered mab then sat in a freezer for two years until Alexion succeeded in funding clinical tests. Recently preliminary studies showed that Alexion's product reduces cardiac damage after bypass operations; in another early trial, it reduced pain significantly in half of the arthritis patients tested. Now big companies are flocking to Alexion; it has a partnership with Procter & Gamble to develop products for cardiovascular problems. Alexion's stock has rocketed some 30% in the past month.

Scientists and investors are chasing many other mab possibilities. An old idea that has been revived is using an antibody to transport disease-fighting weaponry within the body. Idec's next mab, Zevalin, aims at non-Hodgkins lymphoma that won't respond to other treatments. Like Rituxan, the drug targets CD20, but it is bioengineered to have a molecular "claw" that holds a radioactive isotope; the idea is to clamp the radiation directly to the diseased cell, reducing the exposure of healthy tissues. That should boost efficacy and cut down on side effects. In clinical trials, Zevalin added to Rituxan increased patients' response rate to 80%. Idec hopes to file for FDA approval in mid-2000.

Clearly mabs really are different this time around. At least 20 more are in the works; as the Human Genome Project nears completion in 2003, companies will sift its data for hundreds more targets for antibody therapy. Yet despite the recent successes, antibodies' potential remains hard for investors to gauge. Even if Herceptin does hit $180 million in sales this year, isn't that small change compared with the $3.6 billion that a blockbuster like Lipitor will generate? Yet Genentech stock sells at a P/E of 93, almost triple that of the stock of Warner Lambert, maker of Lipitor. You can also argue that antibodies haven't lived up to their original promise--as Ehrenreich puts it, they've "fallen short of the magic bullet." Neither Rituxan nor Herceptin actually cures cancer; they just help some patients live better and longer. Still, it's no surprise that the stock market has a hard time taming its euphoria. After all, hope is a hard thing to quantify.