By Randall Osborne
Five to seven years ago, only a few biotech visionaries could foresee how much of the industry would involve not monoclonal antibodies, or even gene therapy, or anything involving test tubes at all.
Only a handful of far-seeing theoreticians in that era could surmise that, when the Information Age and biotech converged as they would, in a dovetailing that now seems inevitable software, databases and microarrays would play such a powerful role in a sector where many believed chemistry would remain always fundamental.
People figured those futurist guys were nuts.
Laboratory work on drug development has hardly gone away, of course, and remains the spearhead of most biotech companies' efforts. But the onslaught of genetic information, tangled and mysterious data with connections that are only starting to be guessed, brought the chance for much better-focused experiments, not to mention the chance for treatments tailored to patients' needs.
Enter Incyte Genomics Inc. and Human Genome Sciences Inc. (HGS). Bring on Gene Logic Inc. and DoubleTwist Inc.
And, making the most headlines lately, welcome Affymetrix Inc., the GeneChip microarray company recognized by some analysts as potentially the best positioned for providing the tools to sort, manage and analyze genetic information.
"Affymetrix is just getting started in the database business, but they're certainly a leader in the microarray space," Mike King, analyst with Robertson Stephens, told BioWorld Financial Watch.
Technology companies are everywhere.
Last week, Affymetrix (founded in 1993 and already well enough known in biotech to be called, in most conversations, simply "Affy") made two major public disclosures in a row.
First, the firm said it would acquire Neomorphic Inc., a privately held computational genomics firm, by way of a stock swap valued at about $70 million.
Through the buyout, Affymetrix said it will integrate genomic data with expressed sequence tag information, "which is really what the game is all about now," said Affymetrix president Susan Siegel.
Computational genomics, by itself, is big, King said, citing such firms as Compugen Inc., Myriad Genetics Inc. and CuraGen Corp. "There is no one king of the computational companies," he said. "We like Compugen and LION Bioscience."
A day after disclosing the Neomorphic deal, Affymetrix said it was in the process of raising $100 million in third-party financing to fund a new genomics subsidiary, called Perlegen Sciences Inc., that aims to read 50 genomes for patterns of genetic variation.
Having scanned the genomes using Affymetrix's technology, Perlegen will take on the entire genomes of specific patient populations provided by pharmaceutical partners, looking for links between patterns and health factors.
"Who has the strongest technology?" King said. "Whether [Perlegen] translates into a successful database company remains to be seen."
King was optimistic about Affymetrix's DNA scanning technology, as deployed by Perlegen, in a research note, where King wrote that Perlegen's platform will be based on Affymetrix's "unprecedented" microchip-based method.
"Most laboratories utilize gel-based [polymerase chain reaction, or PCR] sequencing methods that are both more expensive and time consuming," he wrote. "At present, approximately five overlapping PCR reactions per gene need to be run to truly identify and validate that gene. Each template for this reaction runs at approximately $11, or $5.5 million to resequence the 100,000 genes believed to be in each human genome. Obviously, costs would be even greater if the 3 billion base pairs of the genome were resequenced. As Perlegen is planning on scanning 50 genomes, this cost would be a staggering $275 million for template and oligonucleotide development."
King told Financial Watch Perlegen's "real value in is in its ability to perform association studies and capture the value of haplotypes, which are basically [single nucleotide polymorphisms, or SNPs] that travel together and influence disease, drug response, etc. Thus, Perlegen is Affymetrix' version of Celera."
The strongest database firms, the smartest investments, are those that "have been at it the longest," King said namely, Incyte and HGS. "The genome is huge, but finite," he said.
Celera Genomics has been much in the news, but it's hard to guess "what Celera will be able to garner, since there may only be a few genes 'left' [to find]," King said. "They have a bigger, badder machine, but they're playing catch-up. The genomic sequence is valuable to confirm what is hypothesized by the analysis of fragments, or ESTs, but whether or not [Celera will] actually find genes is another matter."
Meanwhile, Celera is moving ahead by making deals such as the agreement last month with Proteome Inc., which gives Celera access to Proteome's BioKnowledge Library, which will be linked and distributed through the Celera Discovery System for researchers.
HGS, for its part, is about to regain the rights to its database, licensed to SmithKline Beecham plc in 1994. "[SmithKline's] subscription is up in July of next year, and all rights return to HGS," King said. "We expect them to monetize the database for a handsome sum."
Affymetrix, with its potential double-barrel approach microarrays and, by way of Perlegen, databases seems to have an edge, although investors may be put off by Affymetrix's widely fluctuating stock price. It has traded over the past 52 weeks at between about $36 and $163.
"Affymetrix has been under pressure from all the 'vaporware' competitors like Motorola, Agilent, Corning, etc., who have all claimed, to varying degrees, that they are 'in' the gene chip business," King said. "As far as I am able to tell, none of them has any commercial products, and only Motorola has any customers three, to Affymetrix's 30."
King wrote in his research note that Affymetrix likely will stay ahead by introducing new products steadily.
"With Motorola and other competitors promising to launch mass-produced biochips this year and next year, Affymetrix must use price as a weapon and position itself as a more customer-affordable and friendly chip provider," he wrote.
"In our view," the note says, "no other genomics company is better positioned to deliver exportable microarray products with robust performance characteristics."
The question for investors is simple, but not easy: In the genomics realm, would it be wiser overall to put money into a company such as Affymetrix, with microarrays still the main focus and databases seemingly coming up strong, or would it be smarter to get on board with the likes of Incyte, Celera or HGS?
Beyond sticking with the "first-mover advantage" in databases, King said, there's not much guidance to be had although there's plenty of money to be made.
"All I can say is that there is no right or wrong way to invest in genomics, and that investing in both [sectors] is not contradictory," he said. "The market is not a zero-sum game." *