[Article] Beyond the Lab Dish
Dan Spillane, 11/98
Recent front-page stories in The New York Times, The Wall Street Journal,
and The Los Angeles Times proclaimed hopeful messages surrounding the
research activities of Geron Corp. (NASDAQ:GERN). Promising nothing less
than the proverbial "fountain of youth", these stories attached bold
significance to the "super-scientific" replication of human stem cells.
Naturally, medical science was going to be changed overnight, wasn't it? And
so it was, with such promise in mind, that herds of investors bid the shares
of Geron up nearly 250 percent in a single day...this notion of promise,
then, was no doubt replaced by one of dismay shortly thereafter, as the
shares of Geron have since plummeted. Indeed, there seems to be considerable
difference of opinion in how to value Geron, given what amounts to no more
than experimental results produced in a lab dish -- far away from anything
which can be applied to the real world. Perhaps the question is not one for
Geron specifically; rather, there is a more general question that can be
applied to a whole class of companies. More precisely, is there any
objective way to value research-pipeline oriented companies? And in
particular, which companies really stand out in the area of "super-science
for the future"; i.e., similar to Geron in prospects, but perhaps further
along in a real-world product development cycle? In other words, which
promising companies represent compelling investment opportunities which are
well past the lab dish, and are ready to be served up on Wall Street's
plate?
Monsanto's Dishes are Done
Few companies can claim to have transformed an industry almost overnight.
And yet, it is without much fanfare that Monsanto Corporation (NYSE: MTC)
has done just that. No news-flurry over lab dish results here -- Monsanto
has an incredible research record going back many years, and a portfolio of
patents behind it. Indeed, Monsanto is already selling its own brand of
"super-science", as Monsanto's efforts have swiftly transformed the
economics of agriculture forever. What's brought this about is Monsanto's
success in the introduction of genetic engineering technology via what's
known as "bioagriculture", the term used to describe genetic engineering of
plants. Of note, bioagriculture has proven tremendously successful within a
relatively short time. Importantly, a large number of major crops in the US
and abroad already rely on such technology, and this number is increasing
(incidentally, this number also translates into Monsanto's top and bottom
line). This quick adoption isn't surprising, given the benefits offered by
Monsanto's improved plants. For example, Monsanto's current corn and soybean
products offer farmers improve yields without the use of traditional
pesticides and herbicides (a fact which may not make certain pesticide
companies very happy). Importantly, the potential here goes way beyond the
initial introduction of bioagriculture via food crops, but let's talk about
another aspect of Monsanto first.
Monsanto Boosted by Drug Portfolio
As if Monsanto's bioag prospects weren't enough, it is also a leading
pharmaceutical company, as embodied in its Searle Labs division. Notably, it
is the first company in line to release a new advanced pain medication,
Celebrex ("a Cox-2 inhibitor") which is superior to existing products since
it provides pain relief without dangerous or deadly side effects. Once again,
Monsanto has demonstrated its ability to bring advanced science to market,
and a profitable market at that -- the market for Cox-2s is estimated in the
billions. In addition, Monsanto has a number of other drugs in the pipeline.
Moreover, what sets Monsanto apart is the combination of genetic engineering
and drug research capability. It can leverage some of the same advanced
techniques to apply to both, as few other companies in the world can.
Makes DuPont Green with Envy
Sure, it's impressive that Monsanto has proven it can take years of
progressive scientific research and turn this into blockbuster products --
obviously, this company has the critical element of business savvy. What's
more exciting is an extrapolation of Monsanto's degree of success with bioag
so far, given its upcoming product pipeline. In line with current products,
future ones will provide even more benefits in the area of enhanced farm
productivity, but will be healthier and more attractive to consumers:
nutrition, taste and freshness can be enhanced. But that is by no means the
limit Monsanto has set on itself...it is on the way to expanding its markets
in a pervasive manner. This becomes clear when you realize bioag has a lot
more applications than might at first seem obvious. For example, plants can
be modified to grow in arid conditions, or to produce their own fertilizer.
Such possibilities are somewhat exciting, but don't illustrate the whole
story. Rather, what's key is that multi-industry penetration by bioag
products is possible, since there is major raw materials input from the
agricultural industry into others such as chemicals and textiles. Dramatic
improvements in the production efficiency of basic and intermediate
materials seem imminent. If this all sounds like science fiction, think
again -- Monsanto has a number of key partnerships in the area of
gene-sequencing and advanced computer algorithms (including with IBM) which
will allow it to not only meet but go well beyond those goals described
above. What's clear is that bioagriculture has the capability to become
pervasive, much like the Internet has relative to commerce. Taking a step
back, what might seem like "overly zealous green-thumbing" to some is really
much more than that. To wit, using genetic engineering Monsanto has
effectively cornered a self-created market, which truly captures the essence
of high-tech productivity enhancement at its best. Perhaps it is this more
than anything else that explains chemical giant DuPont's recent scramble to
imitate Monsanto, even if just a little bit?
Gene Therapy: Coming to a Body Near You Soon
Whereas bioagriculture has suddenly arrived by storm, there is another
exciting brink at hand. For many years, it has been suggested that gene
therapy is the wave of the future. Basically, genes already control every
aspect of your body, but they can be adjusted a bit to cure or repair any
condition. The question is no longer whether gene therapy will work, but
when it will work. It might surprise some to find out there are people alive
today who might otherwise be dead if it were not for successful treatment
with gene therapy [The gene for "vascular endothelial growth factor" was
recently used to treat a number of heart patients with incredible results,
see link below.] Further, there are "miracle vaccines" in the works for
several serious diseases based on gene therapy -- including serious cancers
and AIDS -- that are showing promise in first- and second- phase human
trials. It is important to note, however, recent results have come only at
the expense of many years of disciplined research, subject to strict and
constant review. Sadly, in many cases, it seems the gene therapy journey has
been too long a wait for Wall Street, judging from the relative lack of
attention and capital afforded to key companies in this area. (How can an
Internet company -- in an environment where barriers to entry get lower
every day -- be worth a hundred times a gene therapy company?) The bottom
line is there is enough information available right now which shows for
certain that gene therapy offers major medical hope. In short, gene therapy
is working in human bodies right now -- clearly, a far cry from what is
happening in a lab dish. So, digging beyond what the news is carrying, can
any companies be found which have shown steady progression in the area of
gene therapy, but have been long-since forgotten?
Cell Genesys: Rich in Pipeline and Patents
Cell Genesys (NASDAQ: CEGE) has been patiently developing gene therapy
technologies for many years. Over time, it has amassed more than a hundred
gene-related patents with applications for several hundred more. These
patents cover a range of genes (areas to treat) as well as delivery
systems (ways to get into the body). In fact, the company likely has the
strongest gene therapy patent portfolio in the industry. Further, the
company has a number of promising gene therapy clinical programs, including
a cancer vaccine, a cancer therapy, and an AIDS therapy. In addition, Cell
Genesys has pre-clinical programs for treatment of hemophilia and
Parkinson's. Importantly, several of the clinical programs are progressing
well. Moreover, additional results are due out in late 1998 and early 1999.
Gold Mine of Gene Therapy
As for financial performance thus far, keep in mind that the company has
been progressing through long research cycles. Although it has already
received license payments from major pharmaceutical partners, it has not yet
capitalized on the potential of gene therapy, since gene therapy is not yet
widely deployed. However, we are now seeing the first dramatic signs of
success in gene therapy, having paid the price over many years of research.
Therefore, a company like Cell Genesys seems like a compelling investment
opportunity since large revenue growth is finally within sight. Even if
other companies capitalize on gene therapy, with Cell Genesys's broad patent
portfolio, it will also rise within a tide of license and royalty revenue.
In short, this company seems like a clear winner over the next few years.
This company has been building up a gold mine of gene therapy technology and
patents; it's only a matter of time before this becomes clear -- and with
recent developments in human gene therapy trials, it's clear such time is
becoming short. Taking a step back, is the company holding many of the world's
gene therapy patents really worth so little?
Related links
-----------------
Monsanto:
biz.yahoo.com
Gene Therapy/Cell Genesys:
cnn.com
"This clinical trial in 21 patients with advanced metastatic melanoma demonstrated
potent antitumor immunity as evidenced by the dense infiltration of immune cells
into metastatic tumors in 11 of 16 patients in whom biopsies were possible, as well as
the detection of antitumor T cells and antibodies specific for melanoma and the
destruction of tumor blood vessels." (Describing Cell Genesys cancer therapy trial.)
From:
biz.yahoo.com
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