Nice Job on the Genome. Now, Let's See Some Profits

Unlike some rivals, Celera Genomics is no Wall Street darling

When J. Craig Venter started biotech company Celera Genomics Corp. nearly three years ago, the gene hunter planned to decipher humanity's entire genetic code, or genome. He expected to make big profits by positioning Celera as the "Bloomberg of biology"--the preeminent source of data about genes and their functions.

Now, Celera has reached one of its lofty goals. On Feb. 16, Venter and his co-workers laid out the analysis of the entire sequence of the genome--3 billion bits of DNA--in Science. Similar results from a rival, the public Human Genome Project, were announced in Nature. The twin feats revealed a startling landscape with far fewer genes than expected--about 30,000 in total.

But if scientists are giving the genome sequence rave reviews, Wall Street has been skeptical about plans by Celera and other companies to sell genetics data. "People are not convinced of the business model," says genomics analyst Charles C. Duncan of Prudential Vector Healthcare Group. Although the news has lifted Celera's stock 20% this year, it fell 58% in the final six months of 2000 largely due to such concerns.

SEA CHANGE. Those fears have propelled Venter and other genomics companies toward a major shift in strategy. Now, they are aiming to boost profits by developing products as well as selling gene data. "We are going to push way beyond the information model," Venter vows. "Celera has entered the race against diseases like cancer."

The new direction is part of a sea change in the gene business. Since the early 1990s, some 60 genomics companies have sprung up looking to spin DNA into gold. Some, such as Incyte Genomics Inc. and Myriad Genetics Inc., were founded to discover genes that could lead to drugs. Others, such as Exelixis Inc. and Lexicon Genetics Inc., began with known genes and set out to learn how they function.

But increasingly, rather than selling that information to drug companies, these gene-mapping and gene-function outfits are trying to create new tests or treatments themselves. Behind the shift: the prospect of megaprofits. "Where can you create the most value? By creating breakthrough drugs," says Dr. Robert Tepper, chief scientific officer at Millennium Pharmaceuticals Inc.

Who is leading the way? Human Genome Sciences Inc. in Rockville, Md., which already has four drugs in clinical trials--and more on the way. Close behind are Myriad and Millennium, which are marketing diagnostic tests for breast cancer, melanoma, and other diseases while also developing drugs. And on Feb. 14, Iceland's deCODE Genetics and Switzerland's Roche announced progress in turning gene discoveries into tests and treatments for schizophrenia and artery narrowing. "We all see the way it's panning out," says Roy A. Whitfield, CEO of Incyte. "The issue is who's going to do it cost-effectively." Investors see it too: The top performers in UBS Warburg's genomics index for 2000 were Myriad (up 290.2%), Millennium (up 120.1%), and Human Genome Sciences (up 94.1%).

Oddly enough, the discovery that there are only 30,000 genes may make the task harder. The lower number means the genes must interact in more complex ways than expected. This makes developing a drug capable of precisely targeting a single biological pathway more difficult. But there's another trend at work: New technology allows scientists quickly and cheaply to copy natural substances such as proteins and antibodies, which can precisely alter the disease process. "We're moving to a world where you don't necessarily need the financial support of a big pharmaceutical company," explains Incyte's Whitfield.

JUMPSTART. Can Celera be a leader in that world, too? By focusing on the genome, Celera is expected soon to reach $100 million in annual revenues from selling subscriptions to its gene data. But analysts fear that growth may sputter as gene information becomes a commodity. "Even with expensive subscription fees, you would be hard-pressed to generate the revenue potential that you could with a breakthrough drug," says Myriad CEO Peter D. Meldrum.

Venter hopes to jumpstart Celera by developing diagnostics and finding drug targets using a bold approach that involves reading the code of 1 million proteins per day. Celera will sample the blood, urine, spinal fluid, and tissues of patients with cancer and other diseases, searching for proteins that are telltale signs of the exact stage and type of the disease. Venter and Celera have achieved one of history's great milestones. But the jury is still out on whether their new strategy will enable them to transform their scientific triumph into profits.

By John Carey in Washington and Ellen Licking in New York

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