Los Angeles -- Biotechnology companies are learning success has its price.

Companies racing to move new drugs through clinical trials and to market in the next several years could run out of manufacturing space. Medicines made in large quantities may become especially vulnerable to such a capacity shortage.

Idec Pharmaceuticals Inc., Biogen Inc., Imclone Systems Inc. and other biotechnology companies are building additional plants to meet anticipated demand. For others, a capacity constraint could force many into partnerships with larger rivals, surrendering a share of their drug revenue and some of their freedom.

``Over the next three to five years, given all the biotech products coming out, we really could face a crunch,'' said Eric Ende, an analyst at Banc of America Securities. ``It's a very serious issue.''

The industry now has the capacity to make about 359,000 liters of product, Ende estimated. That will increase by as much as 600,000 in the next five years as companies build plants.

It's a sign of the progress the industry has made since the first biotechnology company, Genentech, was founded more than two decades ago. Until recently, companies chose to focus most of their resources on research and development.

Products in Pipeline

More than 350 medicines are now in human testing, more than double the amount in 1993, according to the Pharmaceutical Research and Manufacturers of America. Nearly a third of them have reached the last of three stages generally required by the U.S. Food and Drug Administration for marketing approval.

``Until the very recent past, the great differentiator between biotech companies was the strength of their pipeline,'' said Alidad Mireskandari, fund manager of Monument Medical Sciences Fund. ``Now, we'll see companies succeed based on their manufacturing capabilities.''

The capacity problem is already hurting some companies.

Immunex Corp., for one, has said it could run out of its lead product, the rheumatoid arthritis drug Enbrel, within the next year if it can't secure more manufacturing capacity. The company now can make about $750 million of the drug a year, far less than the $1 billion in demand forecast by some analysts for next year. A new plant in Rhode Island that could double capacity won't be completed until the first half of 2002.

Immunex may begin to ration Enbrel next year, with new candidates for treatment selected based on need, said Prudential Vector Healthcare analyst Rob Toth.

New Construction

A company, especially a small one with limited funds, is loath to build a plant only to see the drug to be made there fail. At the same time, it wants to avoid getting caught flat-footed if a drug passes regulatory muster and it doesn't have a facility or partnership to handle manufacturing.

Synergen Inc. is an example of a plan gone bad. The company, which was bought by Amgen Inc. six years ago, built a facility in the early 1990s to make its experimental sepsis drug Antril, only to abandon the drug and put itself up for sale after Antril flunked a clinical trial.

``Companies have to really be careful about committing that kind of capital and putting all their eggs in one basket,'' said John McCamant at the Medical Technology Stock Newsletter.

Nevertheless, several companies have started building plants that could both satisfy demand and allow excess capacity that can be used by partners. That's a plan Genentech has pursued in its partnership with Idec for the cancer drug Rituxan.

Biogen is building a 250,000-square-foot facility in North Carolina, more than doubling the size of a plant there where it makes its Avonex multiple sclerosis drug. Biogen has earmarked the new plant for products in its pipeline.

``We will have some capacity for others, or we can use it to speed up development of our own products,'' said Ian Hirst, Biogen's director of manufacturing. ``People are approaching us, looking at our state of capacity and checking for availability.''

Idec is spending $300 million to $400 million to build a plant that it says will boost its capacity about 24-fold.

The new plant will give Idec space for its four products now in clinical trials, said its chief financial officer, Phil Schneider.

Alternatives

Biotech companies have also been looking at alternatives to bricks-and-mortar construction.

One idea has been to use genetically engineered animals that can produce drugs in their milk. This could be key to companies making monoclonal antibodies, bio-engineered protein that can help block other, disease-causing proteins. Genzyme Transgenics Corp., for one, has been developing a breed of goats to produce proteins.

``The potential play that transgenics companies get out of this capacity squeeze could be pretty interesting,'' Prudential's Toth said. ``It's going to get a lot more attention.''

Traditionally, biotechnology companies have turned to so- called contract manufacturers such as Boehringer Ingelheim GmbH and Lonza Group AG.

ImClone Systems Inc., for instance, recently hired Lonza to be a supplemental manufacturer of its lead drug in development, IM- C225, a cancer treatment analysts say could reach the market late next year.

While contract manufacturers have been expanding their own facilities, even some of them are having trouble keeping up with demand. Boehringer Ingelheim is building a plant in Biberach, Germany, that it said will more than double its biotech-related drug production capacity within four years. Until then, though, it's having to be careful about what it agrees to make.

``Presently we can take up a product that is in Phase 2 or Phase 3, but until we have new capacity in 2004, we can't take up products that will go to market immediately,'' said Rolf Werner, corporate director of the biopharmaceutical division.

Boehringer Ingelheim has contracts with about 20 U.S. companies, including Immunex, Medimmune and Genentech.

A new group of companies could emerge to meet demand. Generic- drug makers, which manufacture cheaper versions of brand-name drugs, could devote some of their resources to contract manufacturing, said Monument's Mireskandari.

``They have a lot of expertise and could become players,'' he said, citing companies such as Forest Laboratories Inc.

The focus on manufacturing is overdue, investors said.

``Manufacturing has been a secondary part (of the business),'' Mireskandari said. ``That has to change. This is an area that more and more companies will have to pay attention to.''