Very bullish article from Smart Money, with very bearish remarks. What they fail to consider in the article is that Celera will be a leader in the drug discovery field, IMO.
SmartMoney: Street Smart - Gene Genie
Dow Jones Newswires
This story appears in the June issue of SmartMoney
magazine.
By David Stires
Just a few short months ago, Celera Genomics was a superstar of this year's biotech rally. Shares of the firm, which expects to become the first company to decode the human genetic map, had catapulted to $252 in February, from a 12-month low of $7.
Then came the slide. Though CEO J. Craig Venter told a congressional committee in April that Celera would map the entire human DNA sequence, or genome, within weeks, shares collapsed to $63.
What went wrong?
It appears the stock got way ahead of itself. The hope is that the genome map will provide the basis for a new generation of drugs. They'll attack diseases such as cancer at the genetic level. They should also be highly profitable: Morgan Stanley analyst Douglas Lind forecasts that one-third of the $3 trillion in annual drug revenue will come from such products by 2020.
That said, Celera's business plan does have some problems. So far, clients pay only between $5 million and $15 million a year for rights to use the gene data. Earnings are hardly those one would expect from a $4 billion highflier. This year Celera is expected to post a loss of $1.84 a share, and next year's losses are projected to be even worse: $2.03 a share.
Plus, competition abounds. For one thing, the government-funded Human Genome Project expects to finish a rough draft of its decoding by midsummer and is already making its data freely available.
Celera's fans, who include all seven of the analysts following the outfit, insist it will win out. The main reason is its plan to negotiate royalty agreements on new drugs developed by its subscribers. Morgan Stanley's Lind estimates that if Celera can capture just 10 percent of the estimated $1 trillion in revenue expected to come from genomics by 2020, it could earn $10 billion in net income.
But even some of the stock's admirers admit that's a long way off. Says Faraz Naqvi, co-manager of the top- ranked Dresdner RCM Biotechnology fund and a Celera shareholder, "I think they're going to go through a lot more pain."
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