By Randall Osborne

Editor

"Functional genomics."

The phrase was flying around much early in genomics' burst of Wall Street popularity, but lately it's gone out fashion partly because the first half seems redundant (What good is gene data, if functions aren't known?), and partly because fevered investors from outside biotech wanted a single-word, shorthand term for the fast-buck realm they had discovered after bailing out of Internet stocks.

"Buy me genomics," they could tell their brokers, and everybody knew what they meant.

Things are more complicated now. At the same time, in a certain way, they're more simple and functional genomics as a necessary concept is coming back into its own.

Celera Genomics said last week it had finished the first assembly of the first human genome, having sequenced 99 percent. The company said it was galloping into analysis and annotation, setting its sights on much-ballyhooed single nucleotide polymorphisms (SNPs) and on proteomic work.

Celera's rival, the publicly funded Human Genome Project (HGP), said it has mapped 97 percent of the genome, and sequenced 85 percent.

Who won? The short answer is: Nobody. Yet.

Scientists, government officials and industry leaders trumpeted the accomplishments of Celera and HGP, but all acknowledged the real challenge and the real source of profits will come in determining what the genes do.

"Functional genomics means different things to different people," said David Stone, founding partner of Applied Genomics Technology Capital Funds in Cambridge, Mass. "For a company like Exelexis Inc., it means finding out the way genes work in various organisms. For a company like Myriad Genetics Inc., it's the study of pathway linkages, defining the function of a gene by looking at the protein it encodes."

In any case, if "functional genomics" once seemed a redundancy like "outcome-based education" or "edible food," it doesn't seem that way anymore. Real estate agents like to say, when it comes to property, location is everything. When it comes to the intellectual property gained through genomics efforts, function is everything.

Stone, formerly an analyst with SG Cowen & Co. (now SG Cowen Securities Corp.), established the fund with the "next step" in mind. The most visionary thinkers tend to imagine such applications as biological computing, he said.

"The fantasy scenario is that biological structures will replace silicon-based semiconductor circuits," Stone said.

"That will remain a glimmer on the horizon, perhaps permanently," he said. "Probably the more feasible and quite promising version of biocomputing is, rather than trying to replace the silicon chip, to think about ways of using biocomputing to make a more facile connection between the biological world and digital world biosensors that can interact with molecules and circuits."

Meanwhile, Celera is busily signing up subscribers to its databases. The day after disclosing it had sequenced the genomes of three females and two males, the company signed Immunex Corp. as a subscriber to four databases, in a deal valued by analyst Caroline Copithorne, of Morgan Stanley Dean Witter, at between $25 million and $50 million which would make it similar to Celera's earlier subscription agreements.

Immunex gets access to Celera's Human Gene Index, Human Genome Database, Drosophila Genome Database and Mouse Genome Database. The company intends to use them for identifying genes that play roles in the immune system.

It's all about function.

Celera also has five-year subscription deals with a unit of Basel, Switzerland-based Novartis AG; with Pharmacia & Upjohn; with Takeda Chemical Industries Ltd.; and with Amgen Inc. A pact signed in November with Pfizer Inc., which included collaborative gene discovery, was said to be worth much more, although Celera did not disclose terms.

"Ownership of data is not where the value is going to be," Stone said.

Instead, those investors who are looking to put money on the table, and who are not inclined to futuristic visions of "biological silicon," would be wise to watch Celera's collaborators and hook up with firms that can boast promising drug development technology to complement methods of information sorting.

"Celera itself wants to be in that business, adding value to its data, but because it's the [leader] in this space, it's also a natural source of liquidity," Stone said.

"Even if you had exclusive access to the data, there's a big premium on figuring out how to crank experiments," he added, deploying zoological metaphors to explain the smartest way of dealing with the data glut brought forth by genomics.

"You can be more efficient with the military kind of approach, asking, 'How can I get the whole donkey down the anaconda?'" he said. "Or you can ask which parts might be most tasty to eat."

This will be the job for headline-making Celera's more capable subscribers. Stone likened them to services online that organize and market data from the Securities and Exchange Commission (SEC), such as financial statements and other filings often sought by investors

"There are at least a half dozen resellers of that information, because the government's version is not as friendly or powerful," Stone said. "Celera won't let others tap their database and repackage it and resell it, but they are going to make it available to academics," he said, and the HGP is making its findings public, hence there will be an abundance of data to work with.

Another smart approach, Stone said, is to try keeping investments just ahead of acquisitions. Buyouts have been big in biotech for years, and with the giants created by genomics, the buyouts are likely to become even bigger and so will the opportunities for investors, Stone said.

"If you line up the top half dozen Celera, Millennium Pharmaceuticals Inc., Human Genome Sciences Inc. they're all multi-million dollar companies, and they all have a big pile of cash," he said.

The bottom line for would-be genomics investors isn't much of a bottom line, Stone conceded. Celera's value, which has jumped predictably as the company met its declared goals, will rise again in the fall when the genome-mapping data are published, he said.

Beyond this, picking money-makers will be a matter of evaluating new ventures and determining, of the firms that hitch their wagons to Celera's, which are best equipped to make use of what they pay for, Stone said.

"There will be a re-broadening of the scope of biotech efforts," he said. "The [genomics] data set is much bigger and more diverse, and we think you'll see not so many Amgens of the world deciding to go into new industries, but people thinking of what type of companies they'd start today."

In the game as it stands today, Stone said, "everybody's a potential winner, and nobody's a sure winner. It's not obvious. It's tough."

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