June 28, 2000

Finding Gold in Scientific Pay Dirt

By ANDREW POLLACK

	Issue in Depth • The Human Genome Project Video • President Bill Clinton spoke at a White House announcement on Monday morning. • The Composition of Life narrated by Nicholas Wade, Science Reporter, The New York Times. (Requires Macromedia Flash Plugin) 3D Interactive Images • DNA Replication Process (Requires Hypercosm Player) • The Scale of DNA (Requires Hypercosm Player) Biographies • Francis Collins: Dedicated Researcher, Family Man Heads Public Project • Craig Venter: A Maverick Making Waves Chronology • Timeline: Journey to the Genome Glossary • Genetic Terms
	ADD YOUR THOUGHTS
	The Genome Project What are the implications of a decoded human genome? Predict the uses humankind will find for this knowledge. "Scientists should think carefully before 'discovering' a gene for IQ, sexuality, obesity, etc. Making these illnesses solidifies discrimination, intolerant worldviews, and implies that we need to cure people."  — schm "We will be able to see more clearly those things about us that are nature and those that are nurture."  — jashy Add your thoughts and see more reader comments in Abuzz.

he sequencing of the human genome is often described as a triumph akin to landing on the moon. For investors, that might not be the most comforting analogy. Three decades after Apollo 11, no one has yet made a profit going to the moon.

A similar business challenge faces the Celera Genomics Group.

Having mapped the human genome at a speed that doubters had said was impossible, Celera now must once again defy the skeptics who say it will not be able to make money by selling information about the genome.

"It's like a private company in 1967 announcing they are going to race NASA to the moon," said Dr. William A. Haseltine, chief executive of Human Genome Sciences Inc., a rival genomics company with a different strategy. "And they did it. The next question is, 'What is the business plan?' "

Experts agree that knowing the human genetic code will be immensely important for creating drugs and tests for diseases. But even Celera officials acknowledge that the genome, a mind-boggling string of three billion letters, is not that useful on its own. "It's the starting point for what we want to develop as a business," J. Craig Venter, the founder and president, said at a news conference yesterday.

Genomics companies are using different methods to build businesses out of the genome. Incyte Genomics Inc. of Palo Alto, Calif., sells access to a database about genes to drug companies. Millennium Pharmaceuticals of Cambridge, Mass., is using genomics to understand disease processes to develop drugs. Human Genome Sciences of Rockville, Md., is developing drugs and selling its information.

Like Incyte, Celera is licensing access to its databases to corporations for annual fees of several million dollars apiece, with lower fees for academic institutions.

One obvious difficulty with this strategy is that the publicly financed Human Genome Project is also sequencing the genome and is giving its information away.

A second difficulty, competitors argue, is that pharmaceutical companies are most interested not in the raw sequence but the genes themselves, which code for the production of proteins that carry out bodily functions.

Genes account for only about 3 percent of the genome. The function, if any, of most of the rest of the sequence is unknown.

Computer programs can spot genes amid the sequence, but not reliably. Even with the genome sequence virtually complete, scientists cannot agree whether there are 30,000 genes or 130,000.

Incyte Pharmaceuticals and Human Genome Sciences have already compiled databases of genes or gene fragments, which they found by catching genes in the act of producing proteins in cells.

Incyte already has more than 20 companies subscribing to its database of genes, yielding revenue last year of $157 million. Celera, which has five corporate subscribers, had revenue of $12.5 million in the 1999 fiscal year. Yesterday, it announced a sixth, the Immunex Corporation, a Seattle biotechnology company.

Moreover, Incyte and Human Genome have applied for patents on thousands of those genes, potentially locking them up before Celera can find them. Celera of Rockville, Md., has also applied for patents or plans to apply for them on genes, but Dr. Venter said the company was depending mainly on sales of information, not gene patents, for its success.

For all the doubts, Celera's supporters seem substantially to outnumber its detractors. Shares of the company's parent have risen more than tenfold the last year, although they fell $13 yesterday, to $100, in a postpartum depression. Celera's revenue is expected to more than triple this year, and analysts see it continuing to rise sharply in the years ahead. And although Incyte has more customers, Celera's stock market valuation recently, just under $6.5 billion, is more than twice Incyte's. Investors say the full genome sequence will be worth more than a database of just genes.

"If information is power, Celera is going to be insanely powerful," said Lissa Morgenthaler, biotechnology analyst for the California Technology Stock Letter. "If you haven't got the whole kit and caboodle, you're one down from someone who does."

Dr. Venter said he was not worried about competition from Incyte and Human Genome because the method they used misses many genes. And while the Government's Human Genome Project will soon have the whole kit and caboodle, Dr. Venter said Celera had a more accurate sequence and more powerful tools for analyzing the data. Some customers agree. "It's a more complete effort right now than what's available in the public domain," said Carl March, vice president for biochemical sciences at Immunex.

That matchup is similar to that between commercial computer software and so-called public domain software. Public projects can draw on more diverse brain power than a single company, but the resulting product tends to be less polished than a commercial product.

"I don't see the public domain ever doing in collective fashion what someone can do when their whole reason to exist depends on the success of the database," said Michael G. King Jr., biotechnology analyst at Robertson, Stephens, a brokerage firm in San Francisco.

Even some scientists associated with the public project say Celera has a more complete and accurate sequence. But the public project will be where Celera is now in a year or two. So Celera must keep progressing. It is racing to sequence the mouse genome by the end of the year so it can offer man and mouse for comparison. The public project will not have a draft of the mouse genome until 2003.

Even without competition from the public project, Celera must advance. Many biotechnology start-ups are already working on the next task -- determining the functions of genes.

Companies like Sangamo BioSciences Inc. and Exelixis Inc. have technology for figuring out what genes do, sometimes called functional genomics. Gene Logic Inc. and other companies offer information on what genes are turned on in different types of cells, a field known as gene expression. Other companies, like the Cytogen Corporation and Oxford GlycoSciences P.L.C., are pursuing proteomics, determining which proteins are present in particular cells.

"The race at this point is not for the DNA," said Steven Holtzman, chief business officer of Millennium Pharmaceuticals. "That race is over. The race is in assigning to genes and to variations in genes a role in disease initiation and progression and drug response."

Celera is moving into proteomics. It is also compiling a database of millions of differences in genome sequence among people.

Such differences, known as single nucleotide polymorphisms, could become important in determining which drugs will work best for which patients.

Celera hopes to bring to bear the same tremendous computer power and money -- it raised about $1 billion in a stock offering early this year -- that allowed it to race ahead in genome sequencing.

The company's business plan continues to expand and it now wants to develop diagnostic tests for disease, not just sell information.

The company, which was founded in 1998, had a cumulative loss of $130 million at the end of 1999, compared with a cumulative loss for Incyte, which was founded in 1991, of $55 million.

But that is not as bad as it might sound. Celera is a subsidiary of the PE Corporation of Norwalk, Conn., which also makes the machines used to sequence the genome. That part of PE, known as PE Biosystems, is profitable and has no doubt benefited from the fact that Celera's effort spurred others, including the public project, to buy more sequencing machines. PE has also enjoyed some tax benefits resulting from Celera's losses.

Dr. Venter predicted Celera's genome database business will break even by the end of 2002. But because Celera will be investing in proteomics and other new activities, the company itself will not be profitable for several years after that, he said.

Stuart Weisbrod of the Merlin Biomed Group, a New York investment fund, said he did not think Celera's database would be of much immediate value to drug companies. But "if they can last," he added, "they will be one of the premier companies of the next decade."