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Is US-Canadian Beef-Traceability Space Ready for Orchid Biosciences Entre?

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Sometimes, timing is everything — especially when there’s little else.

This is what Orchid Biosciences learned last week when it watched the value of its stock surge 30 percent, to a 19-month high, after announcing plans to broaden its scrapie-susceptibility business into the food-traceability market.

“The recent incidents involving mad cow disease in cattle in the [United States] and Canada are fueling consumer food safety concerns worldwide and increasing demands for additional measures to ensure the safety of meat products,” George Poste, chairman of Orchid, said in a statement last week announcing the company’s plan to help direct its Cellmark division to develop assays for meat tracking.

This week, in fact, US and Canadian officials confirmed that the Holstein dairy cow infected with bovine spongiform encephalopathy and discovered in the United States last month originated in a Canadian farm. US officials are still trying to trace 81 head of cattle that accompanied the infected cow in 2001 when she was shipped from Alberta to Washington state. Officials have only found 11 in this group, according to news reports.

Also, it is believed that some cattle in a second group of 17 from the same Canadian farm were exported to the United States, and officials from both countries “weren’t sure” how many of them made it into the country.

Despite these developments, what remains unclear is the strength of the DNA-based traceability market. If one company’s experience in the sector is any indication, Orchid may find it difficult to break through. That company, GAG Bioscience, began life as a traceability specialist, but ironically was forced by poor market conditions to scale back its efforts and move into one of Orchid’s specialties, scrapie-susceptibility testing. These days, with BSE surfacing in Canada and the United States, even GAG is trying to push its traceability offering into North America.

The battle to trace beef is turning into a horse race between two big companies — though as GAG hits the North American ground running, Orchid lands at a dead stop. Orchid last week promised to have a “suite of [traceability] assays” ready for sale sometime this year, but officials must still formulate a plan for entering the market. Also, the company is unsure what geographic market it will target first, and has yet to decide how it plans to use its genotyping technology and the Cellmark unit to track beef. For example, will the tracking end with farmers, abattoirs, governments, or consumers?

“We are currently … working on a number of projects to develop traceability assays in the agricultural sector using SNP markers,” David Hartshorne, commercial director of Orchid Europe, told SNPtech Pharmacogenomics Reporter this week. “But at the moment, we don’t have any dates for the commercial release of those markers; those are still under development.

“The models for the use of this approach are still very much in development, and we are in discussion with a number of interested parties around how this approach will be implemented,” he added.

Traditionally, technology based on detecting short tandem repeats has been used to trace animals, but this method has “significant limitations” such as cost and speed, according to Hartshorne. “We see there is an opportunity in the marketplace for better traceability ... and therefore hope to develop this marketplace,” he said.

In terms of markets, he said, “there’s no reason why this should not be a worldwide marketplace.” He said the United Kingdom and North America will likely be the first places such assays are marketed.

These days, Orchid uses its genotyping technology to test sheep in the United Kingdom and Northern Ireland for susceptibility to scrapie, a disease that is the equivalent of BSE in these animals, and is thought to be responsible for mad-cow disease. The company has to date built a facility that can test around 500,000 sheep annually; Britain has roughly 40 million sheep, according to Orchid. By comparison, GAG tests sheep for scrapie susceptibility in a half dozen European and Middle Eastern countries, and has been in negotiations with the Canadian government to launch a testing program for its flock, according to Georg Melmer, vice president of business development.

Orchid’s scrapie-susceptibility system “has equal applicability to the traceability market,” said Hartshorne. He said existing customers, including certain governments, have asked Orchid to consider entering the traceability space. Though Hartshorne declined to identify the governments, Paul Kelly, president and CEO of Orchid, said in a statement last week that the company is “actively pursuing opportunities to expand” its scrapie-susceptibility footprint throughout Europe and North America. If this pans out, Orchid may want to follow with tracking tests in those markets.

If it is able to develop and commercialize the traceability assays, Orchid will enter a market that has few competitors beside GAG, and that is difficult to break into. Today, in fact, the cattle-tracking business is one of GAG’s four arms (the other two, beside scrapie identification, include human pharmacogenetics and plant breeding). Based on the MALDI-TOF genotyping platform made by Bremen neighbor Bruker Biosciences, GAG’s business aims at helping government regulators, farmers, and even consumers trace cattle to the farm in which it was raised and the abattoir in which it was slaughtered.

In a recent interview with SNPtech Pharmacogenomics Reporter, GAG CEO Jorn Mosner conceded the identification application hasn’t caught on outside of Germany’s farming community. Still, company officials maintain the strategy was sound when it was created, saying that the European Union’s notoriously stringent food regulations would sustain the business.

“This [business] is intended for the consumer to say, ‘Well, now I can look up which type of cattle it was, where it came from, what its origins are,’” Mosner said last summer. “There’s a general feeling [in Germany] for the need to have good food. But nobody wants to pay for the technology.”

GAG’s genotyping technology would result in a one- to two-cent increase in the cost of beef per pound, said Mosner. Nevertheless, the plan did not pan out commercially, and GAG said it now intends to focus more on the scrapie space instead.

However, since the BSE cases surfaced in Canada in May and in the United States last month, GAG has approached Agriculture and Agrifoods Canada and the US Department of Agriculture about licensing its traceability platform, Mosner said. He said he thinks the business will thrive in North America despite its failures in Europe; the North American beef industry mainly exports its beef to Asian markets, “which demand traceability and better documentation for where the meat” originated, Mosner told SNPtech Pharmacogenomics Reporter this week. He said the situation in Europe is different.

At about the time GAG was moving into the scrapie sector, Kelly said Orchid intended to enter the traceability market. “It’s a new market for us; it’s a new initiative,” he said in July.

Hartshorne said Orchid plans to hire additional employees to help the company move into the traceability space. “We see this as an expanding part of our business,” he explained.

— KL

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