First there's this:
"Going Beyond Genomics"
By Bernard B. Tulsi
High-flying genomics companies will soon face the challenge of their lives. As their much-vaunted genetic databases become commodities--no longer able to pick up big pharma's juicy
premiums--they'll need electron microscopes to see their revenues.
Once as precious as a diamond, genetic data is now being generated at warp speed. Witness the work of Craig Venter of Celera (NYSE: CRA). With 50 new gene sequencing machines chugging away in his Rockville, MD. labs, Venter has thrown down the gauntlet, and begun a race to sequence the three billion letters of human DNA.
The way Venter sees it, the public human genome effort is not only slow it is on the wrong track. He charges that the main purveyors, the NIH and Wellcome Trust of London, are using a flawed
approach--one that will produce a seriously incomplete DNA structure.
Of course, the scientists on the public payroll insist that they have the job nailed. This has the makings of an interesting horserace…but that's another story. What all of this really means is that these and other projects will generate oodles of genetic information, which will destroy competitive advantages once held by developers of proprietary databases.
Staying Alive
To keep open their lifeline to big pharma, today's genomic companies will have to change their business strategies rather dramatically.
One of the more prolific big pharma partners, Glaxo-Wellcome, now demands that genomics companies overhaul their service model and become more than mere gateways to genetic data.
And other big players are challenging the biotechs to take on a new a product-oriented focus and become involved in other stages of drug discovery. This means that they have to become involved in gene, protein and cell targeting.
Hyseq Inc. (Nasdaq: HYSQ) of Sunnyvale, CA, for example, acknowledges that to be successful, biotechs have to help make products. In other words, they have to get closer to the finished drug. Today, Hyseq derives the bulk of its revenue from its data analysis software, its industrial robots for screening samples and its gene discovery platform--a database of 10 million partial human gene
sequences.
For fiscal '98 ended Dec 31, revenues rose 55% to $9.6 million. Net loss totaled $16.4 million, up from $6.5 million. Revenues for Q1 '99 were $2.75 million, with a loss of $4.6 million. Its 52-week high and low is $14.12 and $2.50 respectively, with market cap now at $36.5 million, which is below its cash position reported in the most recent quarter: $46.4 million.
Looking beyond the genetics database era, Hyseq has potentially lucrative research deals with Chiron to identify cancer genes and Kirin (Japan), where the goal is to identify genes involved in cell growth regulation.
Another genomics player Incyte Pharmaceuticals (Nasdaq: INCY) of Palo Alto, CA has partnerships with Pfizer and Glaxo. In fiscal '98, Incyte's revenues rose 50% to $134.8 million. Net income fell 50% to $4.5 million. Its Q1 '99 revenues were $37.6 million, with a loss of $1.9 million. INCY's trading range for the past 52 weeks is $16.75 on the low end and $43.25 on the high end. Market cap is around $673.1 million. Its cash totals $111.2 million. Using related strategies, Millennium Pharmaceutical (Nasdaq: MLNM) of Cambridge, MA partners with Bayer and Monsanto. By September '98, Millennium had ongoing pharma collaborations and tech transfer agreements worth about $913 million. But this visionary company may be well ahead in the game. CEO Mark Levin reportedly said:
"We're beginning to move away from strategic research alliances and we're no longer looking for R&D support. Instead, we are seeking support for our own clinical trials." For the three months ended March 31, 1999 revenues rose 95% to $41 million. Net income totaled $2.1 million against a loss of $4.4 million. Trading range of $9.62 on the low side and $40.38 on the high side, with a market cap of about $1.42 billion. Total cash is now at $223.0 million.
A Better Mousetrap
One of the very impressive players in this field is Gene Logic, Inc. (Nasdaq: GLGC) of Gaithersberg, MD. GeneLogic's spokesman Steve Push noted that while many of the major genomics companies are
working on gene sequencing, they have concentrated on gene expression--a technique that looks at tissues to determine whether the genes are turned on or turned off.
"It is not really like a light switch that goes on and off, it is more like a dimmer. It can be off or on to a certain degree, and the degree to which it is on could be higher or lower in different tissues."
Push said. Gene Logic has found that if someone has a diseased heart, for example, there will be differences in gene expression between their heart tissue and the heart tissue of a normal person. These
differences create possible drug targets--one of the most important things pharmaceutical companies are looking for.
"Big pharma will pay big money to anyone who can identify for them targets for which they can develop new drugs. A good way to look for these targets is to see how these genes are differentially expressed," Push noted. Gene expression is also believed to be better at catching environmentally induced disorders--which will never be caught by a gene sequencing database.
Today, Gene Logic is using its gene expression technology to focus on target discovery and toxicology. Once compounds are found for targets, those compounds have to be tested for toxicity. Gene expression can screen for toxicity a lot faster and cheaper than using animal tests--a lot of potentially toxic compounds could be eliminated without doing animal tests, though these will have to be done in the end, according to Push. Push explains another gene expression advantage: Suppose a drug is effective in 98% of the population and toxic in 2%, if you can develop a diagnostic test using gene expression to find out who those 2% are, you can get a drug approved for the 98%. He notes that there is a tremendous potential for the development of diagnostic tools using gene expression. Gene Logic's big pharma partners in gene discovery include Proctor & Gamble, Japan Tobacco, and Organon. For fiscal '98 Gene Logic's revenues were $13.2 million, up from $2 million. Net loss rose from $8.5 million to $44.9 million. For Q1 '99, revenues were $4.06 million, with a loss of $4.9 million. GLGC traded at a 52-week low and high of $2.87 and $10.62 respectively, with market cap now around $103.0 million. Total cash at the end of the most recent quarter is $31.0 million.
Compared to this that you posted earlier:
Message 9891630
It seems these two, while interesting in their own right, are slightly contradictory in their conclusions. If the genome is much more complicated than previously thought, then the INCY's of the world can probably do great sticking to their knitting. If this infomation is turning into a "commodity" like a Rand McNally road map, INCY may indeed have to change course.
Any new comments on the subject?
DAK
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