Better eating through genomics

NEW YORK (Fortune) -- Wandering through the aisles of the local grocery store, one can't help but notice the number of everyday food products that now feature some added health benefit.

These so-called "functional foods" include calcium-laced orange juice, pasta fortified with omega-3 fatty acids - even your beloved bowl of Cheerios now comes with a heart-healthy message. Sales of such foods have reached $25 billion annually and are growing at a double-digit clip, prompting big companies like Kraft (Charts), Kellogg (Charts), and General Mills (Charts) to take notice.

One company that's hoping to attract some attention in this burgeoning field is WellGen, a startup spun out of Rutgers University back in 1997. WellGen's focus is nutrigenomics, which is the study of how food ingredients affect our genes, particularly those related to the onset and prevention of disease.

"Consumers are beginning to realize that we bring two things to the dinner table - our appetite and our genotype," says Raymond Rodriguez, director of the Center for Excellence in Nutritional Genomics at the University of California, Davis.

While the pharmaceutical and biotech industries have incorporated genomics into their research and development efforts for some time, food companies are just starting to unlock its potential. In an interview with Fortune, Nestle CEO Peter Brabeck-Letmathe expressed great interest in nutrigenomics and outlined how his company plans to capitalize on this space.

Back in November 2001, Nestle was a co-sponsor, along with Unilever (Charts), of a conference in the Netherlands that looked at how genomics would influence the food industry. Researchers at Nestle, the world's largest food company with $75 billion in annual sales, have been studying the subject for several years alongside scientists around the world, and just last month, Nestle promised to pay $80,000 a year to Mexico's National Institute of Genomic Medicine to recruit a head researcher in nutrigenomics.

"Our scientists have broadened their knowledge in the genomic and nutrigenomics sciences," says Nestle spokesperson Robin Tickle. "These emerging technologies allow the understanding of how diet influences genes and the metabolism."

But as with any nascent field, much of the exciting developments come from smaller, nimbler outfits like WellGen. After many years toiling in the lab, not to mention weathering the sudden death of its former CEO last year, WellGen now has a pair of food ingredients primed for commercialization - if it can find a willing food company partner.

One product, a powdered, enriched black tea extract, fights inflammation, while the other ingredient battles obesity by hampering fat cell development. Of the two, the black tea product is further along in development and has already shown promising results in human tests on so-called "biomarkers" for inflammation. (Biomarkers, which include cholesterol and glucose levels, can indicate a desired response from a therapeutic intervention.) Inflammation is a factor in many health conditions including cardiovascular disease and osteoarthritis.

WellGen plans to sell the black tea ingredient in capsule form as a nutritional supplement later this year, and is talking to eight leading food companies about putting it into everything from beverages to cookies.

"There's so much pressure on food companies to get healthier stuff out there," says WellGen CEO Kathleen Mullinix, who sports a doctorate in chemical biology and whose most recent venture was a biotech start-up, Synaptic Pharmaceutical, which was acquired in 2003. "We provide the innovation they need."

The major innovation, in this case, is in the form of a patent - owned by Rutgers and exclusively licensed by WellGen - for a biotechnology screening process that identifies food and plant extracts that regulate gene expression. WellGen also plans to make money by allowing food companies to use that screening process to test their existing stockpiles of ingredients and see if any have disease-fighting capabilities. "The back rooms of food companies are gold mines, but they need technology to unlock the value," she says.

Down the road, WellGen is also exploring ingredients that improve cognition and heart health.

Of course, WellGen is not the first startup company to seek its fortune in this field. Founded in 1985, Martek Biosciences (Charts) produces a vegetarian source of the omega-3 fatty acid DHA (naturally found in fatty fish) for use in infant formula, yogurt, and milk.

But despite great promise, Martek has struggled for years to convince dubious food companies to add DHA to their products, and some nutritionists have questioned the company's broad health claims. Martek's stock now trades at $20, a huge drop from its high of $71 in May 2004.

Mullinix doubts that WellGen will suffer a similar fate. "This is a different time," she says. "I don't know when food companies will decide that they have to do this, but it will happen. It's a question of when, not whether."