The federal government yesterday approved the first commercial use of a form of interferon to treat a rare type of cancer, giving doctors the first of an expected series of new anti-cancer agents produced through genetic engineering.

The Food and Drug Administration's decision to let drug companies sell alpha interferon "marks a new age in medicine," said Otis R. Bowen, Secretary of Health and Human Services.

Although the FDA approved use of alpha interferon only as a treatment for hairy cell leukemia, a rare form of cancer, the decision "marks the first of what is sure to be an explosion of dramatic new medical advances emanating from this technology," FDA Commissioner Frank E. Young said at a news conference yesterday.

Alpha interferon is the first commercial cancer treatment developed by the genetic-engineering industry, which expects the cancer-drug market to become a $6 billion a year business. The industry has invested more than $2.5 billion and a decade of research trying to develop innovative products by modifying the genetic memory of living cells.

Alpha interferon is expected to be the first of many genetically engineered drugs that will one day be used to treat ailments ranging from deadly cancers to the common cold.

Although FDA approved alpha interferon only for use against hairy cell leukemia, the action means physicians can prescribe the drug for other diseases.

But Young said, "We advise caution in its use against other diseases. . . . It would be premature to use it willy-nilly for any type of cancer."

Hairy cell leukemia -- named for hair-like projections on the cancerous cells -- afflict about 2,000 to 3,000 Americans, a tiny fraction of the more than 5 million people in this country who have a history of cancer.

Interferon derives its name from its apparent ability to interfere with the reproduction of viruses in the body. Scientists are not sure how it works against hairy cell leukemia, which does not respond well to any other treatments. But they say alpha interferon has produced remission of the disease in 75 percent to 90 percent of the more than 2,000 patients tested, causing the hairy cells to disappear.

Interferon, which has triggered soaring hope, hype and disappointment in the past, has not proven effective when used alone against more common cancers such as those of the lung, breast and colon.

Alpha interferon has been approved by several foreign countries for use against other rare cancers, including Kaposi's sarcoma, which is associated with AIDS. Companies in this country hope to win FDA approval for use against other cancers as well as a variety of infectious diseases, including genital warts and the common cold.

FDA allowed Hoffman-La Roche Inc. and Schering-Plough Corp. to market two brands of alpha interferon. Hoffman-La Roche developed its brand, called Roferon, with Genentech Inc. Schering-Plough developed its product, Intron-A, with Biogen N.V.

Though federal officials hailed yesterday's action as a major breakthrough, the biotechnology and pharmaceutical companies racing to develop anti-cancer agents through genetic engineering have sought to restrain expectations. "No cancer cure is on the horizon in anybody's book," Peter Feinstein, a spokesman for Biogen, said earlier. Rather, the goal is "to increase the quality and length of life for cancer patients."

These companies and cancer researchers expect alpha interferon to be the first of a series of new anti-cancer agents derived from the body's immune system, its natural mechanism for defending itself against disease. These "biological response modifiers," or BRMs, act as chemical messengers stimulating or suppressing the body's immune response.

Alpha interferon is one of these substances. Others that are being tested now on humans are two other forms of interferon known as beta interferon and gamma interferon, interleukin-2, another chemical messenger that stimulates the immune system, and tumor necrosis factor, which appears to kill cancer cells without harming normal cells. Researchers have not yet determined precisely how they work.

These substances occur in minute amounts in the body and were difficult to study even in the laboratory until gene-splicing techniques developed in the mid-1970s enabled researchers to produce them in larger quantities. Scientists isolate the human genes that trigger production of a specific protein, and then "splice" them into the genes of harmless bacteria, which become tiny factories mass-producing the desired protein.

The ability to manipulate the genetic code has fired the imaginations of entrepreneurs and investors, who have launched biotech companies over the last decade with hopes of using the techniques to develop new drugs, vaccines, crops, herbicides, food additives and other products.

Besides Biogen and Genentech, other biotech companies leading the race to bring genetically engineered cancer drugs to market include Cetus Corp., Amgen and Immunex Corp.

At yesterday's press conference, FDA commissioner Young called alpha interferon "the forerunner for many other successful and life-saving applications of biotechnology."

Industry analysts expect to see a stream of approvals over the next five years for the other BRMs, and estimate the potential market could be worth $2 billion to $6 billion worldwide.

Schering-Plough said its brand of alpha interferon, which patients can give themselves by injection, would cost a hairy cell leukemia patient about $300 a month. Hoffman-La Roche said its version of the drug could cost $3,000 to $5,000 a year. Both companies said their treatments might take six months to 18 months, or several years, depending on the patient. Like other cancer treatments, alpha interferon can produce serious side-effects, ranging from nausea to heart problems.

The case of alpha interferon and hairy cell leukemia illustrates how market forces and government regulatory policies influence the development of cancer treatments -- affecting companies' choices of what products to pursue and which diseases to attack first.

Cancer presents an opportunity for the young biotech industry to prove itself to impatient investors and an expectant public. Most biotech companies are less than a decade old and have not yet made a profit. Only Genentech has a genetically engineered human drug on the market -- human growth hormone, used for treatment of some forms of dwarfism.

Biotech companies say they must pursue products that they can bring to market most quickly -- those for which they have a competitive advantage in technology, patents or financing.

Companies have made more progress with alpha interferon than with the other BRMs, in part because it was discovered first and is better known. Human trials of alpha interferon were conducted in the mid-1970s before other potential treatments had even been discovered. "You tackle the easiest things first," said Linda I. Miller, a biotech analyst for Paine Webber. "They built the Model-T before the Mustang."

Biotech companies also pursue those products that they believe can win FDA approval most rapidly. Anti-cancer drugs offer a chance for a "fast track" through FDA because the agency traditionally gives priority consideration to products to be used against life-threatening diseases that do not respond to other treatments.

Hairy cell leukemia is one such disease, and responds very clearly to alpha interferon, and therefore was a perfect vehicle to take the product to market.

The efforts to push alpha interferon to market had benefited hairy cell leukemia patients before yesterday's announcement. To win FDA approval, the companies pursuing the product gathered data on it by making it widely available to patients for testing. Hairy cell leukemia patients had "no problem getting into a trial," because there were so many studies and so few patients, said Dr. Gregory Curt, the National Cancer Institute's deputy director for cancer treatment.

For the other genetically engineered cancer products, the outlook is less clear. Companies and analysts say it may be years before scientists determine which of these drugs to use against which diseases, or which diseases will serve as the best vehicles to market.

"We are still very much in an experimental mode," said Dr. Stephen A. Sherwin, Genentech's director of clinical research and former NCI chief of clinical investigation. "It's true we don't entirely understand cancer or the immune systems, but we may quickly because of [gene-splicing] technology."

News of such work has boosted both the hopes of the afflicted and the stock prices of the companies involved. For patients, however, the payoff may be years away. "Cancer research is not going as fast as people's imaginations think it should be," said Miller of Paine Webber.

The efforts of the biotech industry to move these products to market has made more experimental cancer drugs available to thousands of patients. Biotech companies build manufacturing plants to produce the material and provide it free to researchers. NCI estimates that 5,000 to 10,000 patients have received alpha interferon and other BRMs through research programs over the last five years.

Cetus estimates that more than 1,000 patients in research programs will receive its interleukin-2 by the end of the year.