"We used to go out," biotech drug maker Genentech (NYSE:DNA) reportedly said of Protein Design Labs (NASDAQ:PDLI), "It was nice, but it's over."

This shocked investors like me who had always considered the two biotechs Ward and June Cleaver, Batman and Robin, bagel and cream cheese. Fears of the breakup clobbered Protein Design shares to the tune of 25% during trading today.

The companies dispute whether Genentech's new Xolair asthma treatment requires licensing Protein Design patents and paying royalties. The companies shared certain patents and drug candidates under a Patent Licensing Master Agreement that expires next month, but Protein Design today issued a statement implying that Genentech is balking on Xolair and any extension of the Agreement -- at least that's how I read it.

It's not overly dramatic to say that Protein Design's very survival is at issue. The company desperately needs a good relationship with Genentech -- and the 100% gross margin royalties that flow from licensing -- to stay alive and grow. It's burning cash at the rate of about $60 million a year. And while that isn't near-term fatal to the company's net cash of $434 million (as of June 30), things look lousy with no in-house products in Phase 3 trials if the intellectual property loses potency. Every penny counts.

This is the first challenge to the biotech shibboleth that Protein Design just about owns the second-generation technology for making monoclonal antibody drugs (mAbs) that are just now maturing in development, passing Food and Drug Administration muster, and hitting the market. If the first coming of biotech was recombinant DNA proteins like Amgen's (NASDAQ:AMGN) Epogen, Neupogen, and Genentech and EliLilly's (NYSE:LLY) Humulin, the second is mAbs drugs.

Mouse or man?
Protein Design Labs' mAb biotechnology is the third of the four that are prevalent. The first generation of mAb drugs were murine (mouse derived), followed by chimeric (mixed mouse-human), humanized, and fully human (through transgenic mice or phage display technology).

  • Murine: Johnson & Johnson's (NYSE:JNJ) Orthoclone (organ rejection).
  • Chimeric : Johnson & Johnson's ReoPro (heart attack) and Remicade (Crohn's disease); Genentech and IDEC Pharmaceuticals' (NASDAQ:IDPH) Rituxan (non-Hodgkins lymphoma); Novartis' (NYSE:NVS) Simulect (organ rejection); ImClone Systems' (NASDAQ:IMCL) candidate Erbitux (colon and other cancers).
  • Humanized : Protein Design is a partner in Genentech's Herceptin (breast cancer), Wyeth's (NYSE:WYE) Mylotarg (leukemia), MedImmune's (NASDAQ:MEDI) Synagis (respiratory virus), and Roche's Zenapax (organ rejection).
  • Fully human: Abbott Laboratories (NYSE:ABT) Humira (rheumatoid arthritis). Abbott's Humira partner Cambridge Antibody Technology (NASDAQ:CATG), as well as Medarex (NASDAQ:MEDX), and Abgenix (NASDAQ:ABGX), own and license key patents for fully human mAbs.

The last group excites bio-speculators as their own and partners' pipelines mature. In June, Ron Garren, M.D., editor of biotechInsight and consultant to New York's InvestBio, made a strong case for all three of these companies based on balance sheet, drug trial data, and -- important considering today's news -- good patent positions.

But more drugs are slated to come on the market near term using Protein Design's technology than the fourth and last group because of industry logistics. The five steps of drug development take 10-15 years, so biotechnologies will advance long before drugs made from them appear in the hospital or on the pharmacy shelf.

Protein Design Labs' day is now dawning, and it needs Genentech. The company is the undisputed top dog in monoclonal antibody drug development because of its golden touch in choosing just the right partners and drug candidates that win FDA approval, produce future revenues, and shower royalties or even revenue shares on partners.

Given the Agreement's September expiration, this could be mere posturing for negotiation purposes. Patent skirmishes are routine where real money is at stake, but they most often lead to the combatants calling a truce, cross-licensing each other's patents with or without some cash, and moving on. Thus the current spat could be relationship jitters, a cry not to "take me for granted" and reduce the Agreement's cost, or actually a real problem.

It's this unexpected last possibility that scares investors, and rightly suggests that to invest in Protein Design before resolution is a gamble.

There's more on biotech with the Motley Fool: Tom Gardner explores the biotech future in his stock picks for Stock Advisor . Explore this Take's stocks on our Protein Design Labs , Genentech and Biotechnology discussion boards. And then celebrate our 10th anniversary with 10 Ways to Make More Money Now! Want more Tom Jacobs ? Check out his archive . Phew!