The Smart Way to Play DNA :
....SNPs
SNPs (single nucleotide polymorphisms), called "snips," are the variations in our DNA that make each of us unique.
A recent example of SNP analysis, reported in John McCamant's Medical Technology Stock Letter, concerns Genaissance (NASDAQ: GNSC), which recently calculated that asthma sufferers respond to the drug Albuterol according to genetic differences.
Knowing this, it's possible that future patients can be tested to see if their genes indicate a muted response to Albuterol, in which case a separate asthma medication might be prescribed. A further possibility, the Letter notes, is that drugs with harsh side effects that are SNP-linked to a particular genetic make up can be "resurrected."
The implication is that if genetic databases can sort the human genome and suggest targets of opportunity for potential new drugs, SNP analysis can refine the entire process of drug targeting.
And the pharmaceuticals industry could use some help. As Chovov notes, drug companies currently face multiple patent expirations and a dearth of new products. In short, the industry needs promising drug targets, and that's where genomics firms can help.
In the highly targeted SNP space, Chovov rates just two stocks as 'Buys,' Orchid (NASDAQ: ORCH), which provides screening tools to study minor genetic variations, and Genaissance, which correlates individual variation with drug responses. Both are recent IPOs. Orchid came public in May and Genaissance in August, and neither company has much in the way of current revenue. Chovov forecasts year 2000 revenue of $17.9 million for Orchid and just $700,000 for Genaissance.
Though Orchid just recently went public, it's considered one of the oldest companies in the SNP space. Its primary business is developing SNP-scoring instruments that detect and score medically relevant SNPs, which can be used to determine drug efficacy, as well as drug susceptibility in any given individual. Orchid also runs a lab testing business, GeneScreen, which provides forensics and paternity testing.
On September 27th, GeneScreen received a contract from the New York Police Department to screen existing criminal evidence for DNA samples, which are to be compared with DNA "fingerprints" in other law enforcement databases. The hope is to solve heretofore "unsolvable" cases using DNA evidence already available.
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Genaissance, another "pharmaceutical support group" company, employs population genomics data to improve the processes of drug development and drug prescription. The company provides clients with its proprietary haplotype, or HAP markers, to predict either a drug response or disease predisposition.
Haplotypes are groups of SNPs and such markers are considered more predictive than single SNPs.
Genaissance generates revenue from subscriptions to the HAP Maker database and fees from the use of DecoGen software, which correlates genetic variations and drug responses in a graphical interface.
Chovov says fees-for-service may come from HAP typing of clinical samples, which is expected to help drug companies initiate "smarter" clinical trials. And additional revenue is expected from Genaissance's Mednostics program, which uses HAP technology to investigate drugs already on the market and to resurrect those taken off market.
A potential case of "drug resurrection" would be the former Warner Lambert, now Pfizer (NYSE: PFE - Quotes, News, Boards) drug Rezulin, a drug of known clinical utility with toxicity problems. Rezulin was supposed to be a blockbuster Type II diabetes drug, until it was found that the drug induced liver toxicity in a small percentage of patients. That discovery forced the withdrawal of the drug from the market, depriving the company of about $4.5 billion in potential revenue.
In theory, the use of Genaissance HAP Technology could identify the markers associated with Rezulin-induced liver damage, and with those patients safely excluded, the drug could be safely reintroduced. But that is pure theory, as no "resurrection"-type contracts have been announced.
Genaissance is a very early stage company. Chovov forecasts year 2000 revenue of just $700,000, ramping to an expected $43 million in 2002. The analyst values Genaissance at 20 times the $43 million figure, which produces a target price of $32 per share. The stock was recently at $20.63.
Are SNPs the answer to the drug industry's need for more and better drugs? Maybe -- someday.
Mehta's Dr. Yi Ri notes, "SNPs are exciting, but it's way too early to call the winner. Remember, the genome right now is like a lot of jumbled letters. There's definitely a good story in there -- maybe a million good stories -- but nobody's gotten to the point where they know what the story is."
That view was echoed by John McCamant, who said it may take years to develop SNP-based drugs, adding that such early-stage biotech companies as Genaissance and Orchid bear an unusual amount of investment risk. Noting that both firms are small caps and that Orchid is involved in an intellectual property dispute, McCamant said, "Sometimes it's better to be bigger."
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