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COVER STORY
? The Genome Gold Rush
? COVER IMAGE: Eureka! The Genome Gold Rush
? TABLE: Unearthing DNA's Riches
? The Genome Explained
? What This Means to You
? The Pharma Frenzy
? TABLE: Genomics among the Giants
? Survival of...Who?
? CHART: The Biotech Roller Coaster
businessweek.com
? ONLINE ORIGINAL: William Haseltine on Human Genome Science's Plan
? ONLINE ORIGINAL: The Slow, Painful Path to Payday in Genomic Stocks
COVER STORY
Unearthing DNA's Riches
Scientists have nearly finished sequencing the entire human genome. They can now "read" the DNA that makes up the genetic code. This opens the door to a vast, uncharted biological landscape--and promises to revolutionize medicine. But mining the treasure in the genes will take years. Here's how it will be done:
PANNING FOR GENES
Actual genes, which make up only 3% of the genome, lie hidden along the twisting strands of DNA. To identify them, companies are using computer programs and cross-species comparisons. Stretches of DNA that look similar in mice and humans are probably genes.
KEY PLAYERS: Celera, Incyte, Human Genome Sciences, DoubleTwist
FIGURING OUT WHAT GENES DO
What role does each gene perform? Scientists can get a hint by looking at the proteins they make and by knocking certain genes out of action in mice, fruit flies and other creatures, one at a time, to pinpoint each gene's function.
KEY PLAYERS: Lexicon, Exelexis, Millennium, Human Genome Sciences, Incyte
BUILDING DNA CHIPS
More clues come from asking which genes are turned off or on in each of the body's tissues--and in a whole variety of diseases. To do these experiments, companies have developed chips able to tell whether thousands of genes are on or off.
KEY PLAYERS: Affymetrix, Agilent, Myriad, Caliper
LOOKING BEYOND GENES--TO PROTEINS
Sometimes genes and the proteins they make can be turned into drugs, or be targets for drugs. More often, though, the best target is somewhere else in the biological pathway that includes the gene. Companies in a field called proteomics are puzzling out the complex networks of proteins.
KEY PLAYERS: Cytogen, Oxford GlycoSciences, Myriad
CREATING NEW MEDICINES
With the right targets in hand, companies can use "combinatorial chemistry" to create tens of thousands of potential new drugs. By analyzing the 3D structure of the targets, they can also design new compounds that home in on the targets.
KEY PLAYERS: ArQule, Pharmacopeia, Aurora Biosciences, Vertex
DESIGNER TREATMENTS
Ultimately, it will be possible to devise drugs that are precisely tailored to each person's genetic makeup. Even better, people who know what genes they have will be able to take steps to avoid the diseases for which they are most at risk.
COVER STORY
The Genome Explained
The information in the genetic code is used to make proteins--the real workhorses of the cell
The genome of an organism is its instruction book: It contains all the genes needed for life. Genes are made up of DNA, the famous double helix, and they reside on long, densely packed fibers called chromosomes. Only 3% of the genetic information in the human genome represents genes. A tiny bit of the remaining 97% contains control regions that tell genes when to turn on and turn off. The rest is called junk DNA, because it has no apparent function.
The information encoded in genes must be copied into RNA, a close cousin of DNA, and then used to assemble proteins, the real workhorses of the cell. Hemoglobin, which carries oxygen through the bloodstream, is one example. Proteins have their own code, which is more complex than the genetic code. Among the things the protein code does is knot the molecules into the complicated shapes necessary for them to function properly.
The sequence of building blocks--called bases--in DNA determines the nature of the protein that will be assembled from a given gene. A mistake in a single base in a gene that is thousands of bases long can lead to serious disease. Sickle-cell anemia is one example of a single-base mutation, called a point mutation. Other illnesses, such as heart disease and obesity, are more complex, resulting from particular combinations of genes.
If every cell in the human body has the same genetic information, what makes a heart cell different from a muscle cell? Specific genes are flipped on at different times in different tissues. Figuring this out is a daunting task: Researchers are using semiconductor-like DNA chips to help automate the process.
By Ellen Licking
COVER STORY
What This Means to You
Knowing your personal genetic code could help you act to head off illness or help doctors tailor your treatment
The decoding of humanity's genetic heritage will help patients seize control of their own health. ''I think medicine will turn into a consumer business,'' says Kenneth Conway, president of the predictive-medicine unit at Millennium Pharmaceuticals Inc.
J. Craig Venter, president and chief scientific officer of Celera Genomics Group, envisions a not-too- distant future in which anyone can get a DVD with his or her genetic code. Eventually, that genetic information will reveal an individual's risk of heart disease, cancer, and other ills. People will see how they fared in the genetic role of the dice--and what they can do to improve their odds.
Already, the race to decode the human genome has turned up so-called Methuselah genes--linked to a long lifespan--and new genes associated with disease. ''Wouldn't you want to know which genes you have?'' says Venter. Conway even imagines that there could a ''test-of-the-month club,'' where people sign up for periodic good or bad news about their genetic heritage.
Of course, discovering that your genes contain the seeds of prostate cancer or Alzheimer's disease doesn't help unless there are ways to ward off the perils. That may take decades to solve. And the lesson of genetic testing so far is that not everyone wants that knowledge. ''Your mother or your sister isn't going to buy information from a genomics company,'' says William A. Haseltine, CEO of Human Genome Sciences Inc. ''What consumers want is a product that will make them feel better.''
Still, people can already buy drugs or make lifestyle changes to help counteract the influence of, say, genes for diabetes or heart disease. Barbara Bradfield of La Canada, Calif., is one of thousands of breast-cancer patients already benefiting from a drug called Herceptin, which targets a particular genetic condition. And Millennium has found that the absence of a particular gene makes it more likely that melanoma will spread. The implication is that patients without the gene should get aggressive treatment. Some researchers predict a flood of targeted treatments that will rejuvenate cells and repair the ravages of aging--a Fountain of Youth in your cells. Vincent Dauciunas, strategic-planning chief in the chemical-analysis group at biotech toolmaker Agilent Technologies Inc., says: ''I tell people that if they live 10 more years, they will live 100 years.''
By John Carey in Rockville, Md.
COVER STORY
The Pharma Frenzy
In the race for gene-based therapies, big drugmakers join forces with upstarts
On the surface, it would seem that no force is changing the pharmaceutical landscape more than the megamerger. The pending marriages of Glaxo Wellcome (GLX) with SmithKline Beecham (SBH) and Pfizer (PFE) with Warner-Lambert (WLA) will create behemoths with annual research and development budgets approaching $5 billion. That's forcing competitors to reevaluate their own independence.
The merger frenzy, however, is merely a symptom of the real change sweeping Big Pharma: the revolution in genomics. This new era is likely to alter every facet of the pharmaceutical business. Research, focusing increasingly on the root causes of illness, will lead to more effective drugs and transform one-size-fits-all therapies into products tailored for an individual's genetic makeup. And it may strengthen the hand of upstart biotechnology companies. Genomics, says Pradip K. Banerjee, partner at Andersen Consulting, ''changes your entire business model.''
At the heart of this transformation is an unprecedented opportunity to find new ways to attack disease. Dr. Jurgen Drews, a consultant at research outfit OrbiMed Advisors LLC, says that drugs today work against just 500 different disease-related proteins in the body, or ''targets,'' as the industry calls them. Genomics may yield a quantum leap, revealing close to 10,000 new targets, Drews says.
Already, early work has offered some tantalizing possibilities. Merck & Co. (MRK) has identified a gene linked to a common form of blindness. Bristol-Myers Squibb Co.'s (BMY) genomics research has spawned compounds that may treat cardiovascular disease and rheumatoid arthritis. SmithKline (SBH), with help from the Rockville (Md.) biotech firm Human Genome Sciences (HGSI), has zeroed in on a possible new target for osteoporosis. And Glaxo Wellcome has found several potential targets, including a gene variation that makes people more prone to migraines.
NEW IDEAS. To speed commercialization of such discoveries, drugmakers have a key asset: their massive libraries of compounds. Bristol-Myers, for example, is testing many of the compounds in its library against fruit flies in which a certain disease-causing gene is turned on. If a compound counters a condition in the fruit fly, then Bristol knows it works against that gene--and they've taken the first step in turning the compound into a human drug.
Even as big drugmakers are overhauling their internal research to exploit genomics, the new technology makes it more critical than ever for them to reach outside. Small biotech companies and academic labs are likely to be more successful in using genomics to spot breakthrough disease targets, insists Orbimed's Drews. ''In early discovery and plowing the soil for the next generation of new ideas, the biotech industry is much more fertile ground,'' insists Drews.
That belief has led to a flurry of alliances between the giants and the upstarts. Bristol-Myers spends more than half of its genomics budget on outside collaborations. Pfizer Inc. has made deals with J. Craig Venter's Celera Genomics (CRA) and with Celera competitor Incyte Genomics (INCY) to gain access to those companies' gene libraries. ''To have done what Celera and Incyte have done would have distracted us from our core business,'' says Martin Mackay, Pfizer senior vice-president of worldwide discovery. ''Would we have done it as well? I doubt it.''
Not everyone, however, is convinced that paying big bucks for such databases is the way to win. Merck, for example, has its own database and technology deals with a number of companies, such as Affymetrix (AFFX), which provides chips to study genes. But it is also trying to uncover disease-causing genes with public data from the Human Genome Project and groups like it.
Genomics technology promises not only to cut the costs of discovery--it could make testing these new drugs a lot cheaper. Scientists will one day be able to genetically select people for clinical trials who are likely to respond to a drug and identify those patients who are likely to have adverse reactions--information that could help weed out potentially toxic drugs earlier in the process.
For the patient, genomics promises a revolution in how medicine is practiced. Doctors could use genetic tests to tailor drugs to individuals. It's already happening: Roche has done work on a heart drug that is most effective in patients with a particular gene mutation that the company found. And Glaxo Wellcome is collecting DNA samples from people taking the HIV drug Ziagen in an effort to identify a gene or genes that seem to make people likely to suffer an adverse reaction.
Such tests are merely the beginning. Eventually drugmakers will develop medicines tailored for smaller patient populations. Where there is a $1 billion hypertension drug today, down the road there might be five $200 million drugs, each designed to treat different groups with different genetic makeups. Genomics ''will change the way medicine is practiced,'' says Dr. Allen D. Roses, worldwide director of genetics at Glaxo.
A DRY PIPELINE. Some argue, however, that the genomics payoff could be a long time coming. The work needed to tease out what protein a gene encodes and how the protein contributes to disease is long and painstaking. Only then can drugmakers begin hunting for a safe, effective drug that blocks the action of the new target protein. ''We've known for fifty years the genetic mutation that causes sickle-cell anemia, and we still have no good therapy,'' says Merck Executive Vice-President Roger Perlmutter.
The problem for big pharmaceutical companies is the pressure they are under to increase their output of new drugs. According to Boston Consulting Group, investors expect each Big Pharma company to bring an average of three new drugs a year to the market. But Boston Consulting figures the drug companies are on track only to offer 1.6 new compounds per year. ''If this [genomics approach] takes longer than anybody envisaged,'' warns Dr. Joseph Zammit-Lucia, chief executive officer of Cambridge Pharma Consultancy, ''unless you've hedged with traditional drug research, you could end up with a dry pipeline.''
At the same time, the genomics boom could produce a host of new competitors for Big Pharma. Stephen S. Tang, national director of the health-care industry practice at A.T. Kearney Inc., believes that many of the early products that emerge from genomics research may be protein-based drugs, the specialty of biotech companies. If that's the case, the balance of power between biotech and traditional drugmakers could begin to shift--another seismic rumble that the dawn of genomics may bring.
By Amy Barrett in Philadelphia
Genomics among the Giants
While the payoff may be years away, Big Pharma is racing to build its genomics expertise.
GLAXO SMITHKLINE *
SmithKline was early to genomics with its 1993 deal to gain access to Human Genome Sciences data. Glaxo is working to identify genes that make people susceptible to diseases like asthma.
PFIZER INC. **
Pfizer has struck external alliances, including a November, 1999, deal with gene-sequencing company Celera. The two companies will work together to identify drug targets from Celera's massive genomic database.
MERCK & CO.
The company has struck deals with companies such as DNA chipmaker Affymetrix to access new technology. Merck is relying largely on public information and its own gene sleuths to uncover new drug targets.
BRISTOL-MYERS SQUIBB
It has struck more than a dozen alliances in three years. A big player in cancer drugs, Bristol is collecting tumor samples and patient DNA to explain why drugs do or don't work against certain cancers.
* MERGER OF GLAXO WELLCOME AND SMITHKLINE BEECHAM EXPECTED TO CLOSE THIS SUMMER.
** MERGER OF PFIZER AND WARNER-LAMBERT IS EXPECTED TO CLOSE EARLY JUNE.
Survival of...Who?
For biotech's whipsawed investors, it's a jungle out there
For the past nine months, investors in biotech companies have been on a wild ride. Last fall, stock prices of biotech's top-tier companies, including Amgen (AMGN), Chiron (CHIR), and Genentech (DNA), stealthily began climbing upward. These outfits, with real products, real earnings, and deep pipelines, led the way in an all-out biotech bonanza that continued for six months.
The race between the government-led Human Genome Project (HGSI) and Celera Genomics (CRA) to finish sequencing the human genome only added to the frenzy. By Mar. 3, the biotech sector was the darling of investors, with the Nasdaq Biotech Index up 151% from early October. But the celebration was short-lived. Within weeks, the stocks had plummeted to 41% off their March highs. And even though technology stocks saw modest recoveries in May, biotech stocks are for the most part still trading sideways.
For biotech investors, these turbulent times are not likely to end soon. Genomics and other types of biotechnology are turning traditional medicine on its head. The tools to extract, organize, and use genetic information to make innovative drugs are getting better every day. ''The science is fundamentally exciting,'' says Dr. Eric M. Hecht, a biotechnology analyst for Merrill Lynch. ''But Biotech's Achilles heel is that time lines are long and risks are high.'' On average it takes decades of research to move from a promising gene to a drug that shows actual clinical benefits. Although new technologies promise to shorten this time frame, it's too soon to say for sure whether that's the case. And drugs that show promise in animals may work in people--but then again, they may not.
Estimates by PhRMA, an industry trade group, suggest that for every 5,000 compounds that emerge from discovery and animal testing, only about five perform well enough to continue on to human testing, and only 20% of those will actually make it to market.
Broadly speaking, biotech companies fall into three different categories. First are the genomics companies that sell patented genetic information and analytical tools to other biotech and pharmaceutical companies. Then there are the toolmakers, which are developing novel and innovative technologies to industrialize the medical research process. A third group of companies is intent on using the latest genetic information to make new and innovative drugs, either on their own or together with large pharmaceutical partners.
PRIME MOVERS. It's too early to say who the ultimate moneymakers in any of these categories will be. ''Right now, there are hundreds of emerging entrants with promising technologies,'' says Dr. David Blaustein, senior analyst for Oracle Partners. ''It's like the Internet was five years ago.''
That said, there are clear standouts. Biotech's blue chips, especially Amgen and Genentech, have shown investors that they can endure a rocky financial climate and still bring products to market. Scott Morrison of Ernst & Young is a big believer in what he calls ''the four early movers''--Millennium (MLNM), Human Genome Sciences, Incyte Genomics (INCY), and Celera Genomics, together with its sister company PE Biosystems. ''These companies have really shaped the genomics field and will continue to do so.''
Millennium, for example, has transformed itself in just six years from a small gene-sequencing company to a biopharmaceutical heavyweight with six drugs in clinical trials. And since its creation two years ago, Celera Genomics has snapped up technologies from several small but powerful companies, including Paracel, making it one of the leaders in computer analysis of genomic data.
Undoubtedly, some of today's tools--and their creators--will be replaced by tomorrow's technologies. Business strategies will remain fluid as companies continue to assess where they fit in a rapidly evolving industry. The biotech ride has just begun.
By Ellen Licking in New York
William Haseltine on Human Genome Science's Plan
"Our model is to become just like Amgen, only with a deeper pipeline"
Human Genome Sciences, based in Rockville, Md., is one of the first biotechnology companies to use new, cutting-edge genomics technologies to develop novel drugs. Only eight years old, the company has three drugs in seven different clinical trials. In addition to making and marketing its own drugs, the company has partnered with large pharmaceutical companies to lend its research expertise to their scientific problems. Major partners include SmithKline Beecham, Merck, and Schering-Plough. In a recent interview with Business Week Science Editor Ellen Licking, Chief Executive Officer William A. Haseltine discusses Human Genome Science's business model and the future of "regenerative medicine." Here are edited excerpts of their conversation:
Q: What is Human Genome Science's mission?
A: Our fundamental business is to develop cures for disease using new gene-based medicines and to manufacture and sell those gene medicines to patients. Making and selling drugs, whether the drug is made from tree bark or is a gene product, is one of the oldest businesses in the world. It's also a highly successful business, because you can sell products at very high margin that are protected by government-supported monopolies, also known as patents. Furthermore, the products are ones that people really need.
Q: What kinds of products are you developing?
A: They are not "me-too" drugs. We can not only make new pharmaceutical products -- we can make better ones that are comprised of human genes, human proteins, and human antibodies. The concept is to use the body's own substances to regenerate what is damaged by disease, injured by trauma, and eventually worn by age. One gene makes one protein which is one drug which is one market. The primary market for these "regenerative medicines" is our aging population. The market for these products is the broadest possible -- it's everyone who ages.
Q: How do you go about finding your novel medicines?
A: We weren't interested in all 100,000 genes in the genome. We were interested in a specific class of genes that code for proteins that are secreted from individual cells and circulate in the body. These molecules tell cells what to do -- for instance, to grow or to die. They are probably going to be the most medically useful compounds.
We automated ways to measure levels of these proteins in various tissues. We sequenced both the gene and the protein it encodes. Then, we designed highly automated cell-based assays to figure out what the proteins actually do. We have now collected data for over 10,000 genes [and their corresponding proteins]. One of our most promising targets is involved in stimulating immune function.
Q: Will your strategy improve the efficiency of drug development?
A: Yes. Our goal is to use genomics to generate 100 human leads that are active in cell-based experiments. From that we will choose 10 leads and test them in animal models. We plan to generate two new drug compounds a year, and will develop at least two of them in-house. So, with just a small budget -- $100 million annually -- we'll deliver four potential therapies a year. That's much greater efficiency than other pharmaceutical companies.
Q: Please explain your business plan and financing strategy.
A: Most people misinterpret our business plan and assume that since we sell our technical expertise to pharma that we're a service company. Instead, we invented a new financial strategy for funding our company through the lean years until we grew into a stand-alone entity.
Our model for success is Amgen. Fifteen years ago, Amgen started from nothing, but was able to find, develop, and market two major drugs, called Epogen and Neupogen, on its own. To this day, no biotech company has done better than Amgen. Our model is to become just like Amgen, only with a deeper pipeline. Think what would happen if Amgen had a systematic method for discovering its drugs. It would be one of the largest pharmaceuticals in existence. Well, that's our goal.
Q: And your financing strategy?
A: Timelines in biotech are very long -- it's a major structural problem for the industry. We knew this when we started, so we conceived of a 15-year plan back in 1992 that's a new financial strategy for funding a biotech company. When we started, we decided not to pursue nonexclusive contracts with pharmaceutical companies. I feared we would become just a commodity business.
Yes, that strategy would have raised a lot of money up front, but the value down the road wouldn't have been as great.
So we chose an exclusive arrangement with SmithKline Beecham that gave us $125 million up front, plus 10% of royalties from drug sales, and the right to co-develop a product in 20% of the market. That gives us a total return of 30% just for collaborating with SKB. We quickly saturated SmithKline's ability to handle targets and have since expanded our web of alliances to include Merck, Takeda, and others. This has allowed us to raise $300 million to cover research costs. The result: Our balance sheet is cash-neutral.
The Slow, Painful Path to Payday in Genomic Stocks
Some of the biggest winners could be lurking among today's lesser-knowns. Just don't expect them to jump out at you
Mapping how genomics companies will do on the stock market is a little like mapping the human genome itself. Whether you're an investor or a scientist, the going is slow, and the finds are often incredibly difficult to decipher, but the end promises great riches. The problem is you'll have to follow a long, winding helix to get there.
Take a look at the 20 to 25 companies in an emerging field called proteomics. This involves searching for protein interactions in the body that may cause diseases ranging from diabetes to dementia to cancer. Scientists believe the secrets to many diseases lie hidden within the interactions among roughly 300,000 different human proteins. And probing the billions of interactions among these proteins for clues has become one of the hottest fields in genome research.
Just one problem: Don't expect to strike gold in these stocks anytime soon. Proteomic stocks are likely to go up and down in wild swings. And while some genomic stocks already command premium prices, the payoff is still a long way off, most analysts agree. "The market has reacted to genomics by falling in love with it like it did with the Internet, yet most investors have no idea what the technology can do," says The Sage Group's Gordon Ramseier, a longtime consultant to the biotech industry and a critic of the momentum investing that has surrounded genomics stocks recently. "Those who think the returns on this science are right around the corner will be surprised to find that it's not."
SMALLER PLAYERS. Most of the current hoopla surrounds five genetics pioneers: Celera Genomics (CRA) and its parent, PE Biosystems (PEB), Incyte Genomics (INCY), Human Genome Sciences (HGSI), and Millennium Pharmaceuticals (MLNM). All of these stocks command a steep price -- upwards of $100 a share -- in the market. But beyond the five early movers lies a host of arcane smaller players that are flush with cash, high on promise, but also fraught with risk and lacking much in the way of sales and profits.
Ramseier is right. The field has much in common with the Internet startups of a few years ago. These baby biotech firms have years ahead of them before profitability, but everybody wants to get in early. A second round of furious biotech investing is bound to happen when Celera Genomics announces its has completely sequenced one person's human genome. Before getting swept up in the excitement, remember that today's genomics movement represents merely the beginning of a long, slow transformation in biotechnology that very likely will crown only a few big winners -- leaving dozens of today's newest companies in the dust.
Still, analysts recognize a few dozen companies that could become the next pioneers in genomics research. Besides the five leaders, this set includes Affymetrix (AFFX), which has developed a technique for arranging DNA for analysis that is becoming an industry standard, and Nycomed Amersham, a European maker of DNA sequencing machines that competes with PE Biosystems.
BIG BACKERS. Then there's Myriad Genetics (MYGN), which has developed a technology called ProNet. It is used in finding proteins that could become easy targets for medicines that neutralize the proteins as disease-causing agents. The technology has attracted great interest from large-cap pharmaceutical companies. Collaborations with big drugmakers tend to validate a biotech firm's technology, and Myriad has lined up $150 million in partnerships with some majors, inlcuding Bayer, Eli Lilly, Novartis, Roche, and Schering. These companies subscribe to databases from Myriad that may contain drug targets for cancer, rheumatoid arthritis, and asthma, among other diseases.
"Myriad is one of the leaders," says Jason Reed, analyst for Oscar Gruss & Son. "Everyone in the field regards this science as one of the most important areas of research and one which will undoubtedly be pioneered by companies like Myriad and funded by large drug-development companies." Reed recommends Myriad's stock, which traded June 1 at $77 a share, as a buy. That's long way down from a March high of $232.
While the genomics movement has focused on sequencing the 100,000 human genes and finding the roles that some DNA segments play in causing disease, companies such as Curagen (CRGN) and Myriad are taking the science a step further by looking at the proteins crucial to carrying out virtually every bodily function from metabolism and digestion to warding off pathogens.
"EXTREMELY DIFFICULT." Michael Becker of Wayne Hummer Investments says Myriad catalogs tens of thousands of protein interactions annually. But he favors Cytogen (CYTO), a company that takes Myriad's protein-interaction screening a step further by using high-powered computers to catalog as many as 200,000 interactions each month. If it sounds complicated, it is. "I don't think the average investor, or even most of Wall Street, understands why the functional proteomics companies are the Holy Grail of drug discovery," says Becker, whose firm holds a position in Cytogen and other genomics stocks. "This stuff is extremely difficult for people to grasp."
John D. Rodwell, president of Cytogen's AxCell Biosciences subsidiary, says the databases assembled by his company will contribute to the shifting dynamic of drug discovery. "All drugs in use today were developed against 400 to 500 drug targets, which are sites of action where a drug takes effect," Rodwell explains. "Now consider how these numbers are going to explode as we assess the huge number of proteins which are potential drug targets. There's a massive amount of information that pharmaceutical companies are going to have to distill," he say
Translation: These companies are years from making a profit. For example, for the nine months that ended on Mar. 31, Myriad posted a 35% increase in revenues, to $25 million, but still showed a loss of $6.2 million, mostly due to high R&D costs. The stock, which has been quite volatile, is expected to have an earnings per share loss of 86 cents for the year ending June 30. And that's one of the hot stocks in the proteomics area.
OFF THE RADAR. If and when companies like Myriad take off, "they are more likely to share most of the cash flow from discoveries with larger investors," says Viren Mehta, whose firm Mehta Partners is scrutinizing the chances for profitability at several genomics outfits. "We have to force that issue, even though it may seem premature," Mehta says. Much of Wall Street shares Mehta's concern. S.G. Cowen, for instance, recently dropped coverage of Myriad, a sign of that firm's frustration with the biotech company's business plan.
Myriad at least shows up on analysts' radar screens. Cytogen's stock gets scant coverage on Wall Street. The company hasn't lined up a single subscriber to its database, and it desperately needs a big name such as Pfizer or Merck to validate its technology. Without a partnership, Cytogen shares could continue falling. The stock reached $20 during the biotech boom in March. Since then it has fallen to $4.40.
Feeling lucky? Myriad might look like a bargain right now to some investors. But this volatility won't go away, analysts say. This is where the risk lies, says the Sage Group's Ramseier. "There's a tendency to believe genomics companies are almost mystical," he gripes. "Wow, a genomics company. Nobody asks the question, 'How is this company going to make any money?' It's always: 'This is the future, this is what I should be investing in.'"
"SYMPATHY." Even the savviest investors, pros like Dr. Faraz Naqvi, a biotech money manager for Dresdner RCM, cautions investors to be prepared for a wild ride. "We're huge believers that this is going to be a tremendous area for people to invest in, but these are incredibly difficult companies to understand, even for us," Navqi says. "I have a huge amount of sympathy for the average investor struggling with |
