I'll bet you thought Disney(NYSE: DIS) was the only company based on a mouse. Think again. The biotechnology revolution has brought us two companies whose genetically engineered mice create human antibodies for drugs. They are Medarex(Nasdaq: MEDX) and Abgenix(Nasdaq: ABGX), and their technologies have attracted major deals not only with all the big drug makers, but also the newer genomics-based companies who hope to join the big leagues.

I spoke with Medarex's President and CEO Donald Drakeman about Medarex's prospects for growth in a world where human monoclonal antibody drugs are poised for takeoff. (Tom Jacobs was unsuccessful in his request for an interview with Abgenix's CEO earlier this year.)  

(The following is an edited transcript. You can see the complete version on the Medarex discussion board.)  

TMF: To get started, what does Medarex do and how does it make money?

Drakeman:  Basically, what we see happening is that the genomics revolution is creating a huge change in product development. The whole $350 billion pharmaceutical industry up until now has been developed around the knowledge of about 500 disease targets, something that is present on a diseased cell but not present in a normal cell that can be targeted for drug intervention. But now scientists estimate that we are going to have anywhere between 4,000 and 15,000 new disease targets coming out of genomics. This is a watershed event in the history of medicine the likes of which we've never seen before. 

This new abundance of targets creates both an opportunity and a challenge for the industry, which is how to come up with effective products to such a wealth of targets rapidly and efficiently.

At Medarex, we think that human antibody technology is the best way to address this market -- it's faster, it's more efficient, and it appears to be more effective than the traditional technologies for creating new drugs. We've set out to make Medarex the leader in creating new antibody technology.

As far as how we make money, we have a strongly patented technology base, which positions us to make money in two different ways.  The first to simply sell our technology to people, which in this case is to provide them with our UltiMAb ["MAb" stands for monoclonal antibody] platform, which makes transgenic mice that create human antibodies. In this case, we receive milestones and royalties and generally share in the success of these partners with no additional cost to us.

The second way, and the most important way, that we plan to make money is by developing our own broad pipeline of therapeutic products based upon targets that are being provided to us by the 15 or so different companies with expertise in genomics and proteomics and a variety of other areas that we've partnered with.

So we are trying to combine the best of both worlds, the worlds being the platform technology where you have low risk but where the revenue is more modest, but which will generate cash flow for us in the near term so that in the mid term and beyond we can create a product pipeline that is as robust as anything in the biotech industry.

TMF: Let me ask you a question about transgenic mice -- this sounds like something out of a science fiction novel. Do you actually deliver cell lines for the mice or do you deliver the mice? What exactly do you deliver?

Drakeman:  In a certain number of our partnerships, we deliver mice. Think about these mice as ones that have been genetically engineered to have human genes instead of mouse genes. What we have created is the Adam and Eve of mice, and any one mouse can make an antibody to whatever target our partners are interested in. After that, we simply breed them, feed them, and ship them.  

TMF: And I guess mice are pretty good at making other mice.

Drakeman:  Yep. I'm pretty sure they think that's the best part of the job.

TMF: Human antibodies seems like such a hot theme in the industry. I've read that there are some 220 different companies with antibodies in development right now. But if you look at what has actually reached the market, you realize that what's there is a long way from state of the art. There are still lots of mouse parts in these drugs.

Starting with the first generation of antibodies, which are half mouse and half human (called chimeric), there is Genentech's(NYSE: DNA) and IDEC Pharmaceuticals'(Nasdaq: IDPH) blockbuster drug Rituxan. The second generation, of which Genentech's Herceptin would be an example, is a humanized antibody, where it's mostly human but still contains some mouse parts. Finally, we have the third generation -- a human antibody with no mouse parts at all.

But none of these third-generation drugs have reached the market yet. How long do you think it will take before the first of these fully human drugs hit the market, and how well do you think that these drugs will perform relative to the partially human and chimeric antibodies currently on the market?

Drakeman:  The first ones are coming along over the next two or three years. A handful of fully human antibodies are now in clinical testing, and I think that analysts have estimated that the first of these will reach the market within that two or three year timeframe. I think that when you compare fully human antibodies to partially human antibodies, there is a series of reasons why fully human will be more attractive... by eliminating the mouse parts, you have a chance to create a product that essentially performs better. There is less of a chance that the human body will identify something as foreign and therefore create an unwanted immune response.... [Another reason is that] the intellectual property in this area is so clear and clean. For a company developing an antibody, it may actually be cheaper to develop a fully human antibody rather than a partially human antibody.  

TMF: As a layperson, it's difficult for me to compare your antibody technology to that of your major competitor, Abgenix. But it is clear to me that aside from Abgenix and Medarex, there aren't any other major players in this area. Can you clarify some of the differences between the two companies?

Drakeman:  I think that one of the analysts has called it a "duopoly" -- we have cross-licensed our patents back and forth between Medarex and Abgenix so that we can each provide that crystal clear intellectual property value to our partners and for our own products.... I think that it is not a zero sum game, and there is going to be room for both Medarex and Abgenix to be very successful companies. Of course, I think that Medarex is going to be substantially more successful. Part of the reason for my opinion is because I believe that we have the best and most advanced technology, and part of it is that we have a slightly different business strategy that I think in the long term will provide us with a significant advantage in terms of business results.

We were the original inventors of this transgenic mouse technology and all the early patents were issued to Dr. Nils Longberg, who works for Medarex.... Abgenix mice were very similar to our mouse, although they pointed out that their mice had more human genes than ours did and they made the argument that more genes make a better mouse....  But what has happened now is that thanks to a collaboration we have entered into with Kirin, we have mice in our UltiMAb platform with the ability to make 100% of the human antibody genes.  So I'm now willing to concede that more genes make a better mouse, because we've got all the genes.

And since we unveiled this new technology last November, if you look at the rate of new partnerships entered into by us and those entered into by Abgenix, you will see that we are well ahead, and have probably a two-to-one advantage during this timeframe. We have really gathered some excellent momentum, and our new UltiMAb platform is a significant reason for that.

Next: Part 2 »

Zeke Ashton (TMF Centaur) edits The Motley Fool Select, TMF's monthly guide to great stock ideas. He owns shares of Medarex, which you can see on his profile . The Motley Fool has a  disclosure policy.