By Malorye A. Branca
March 7, 2002 | His face came to symbolize the commercialization of genomics. Now, J. Craig Venter’s startling decision to resign as president of Celera Genomics, just one year after the company shared worldwide acclaim for sequencing the human genome and Venter himself was declared Time magazine’s “Scientist of the Year,” is highlighting crucial questions about the future of bioinformatics companies dedicated to providing genomic information.
Two years ago this month, Venter defined his business model before a crowd of science journalists gathered at Celera: “People think this is a biotech company. It’s not. It’s an information company. We’re in the same business most of you are in, and like you, we’re still trying to get paid for it.”
But following the publication of the human genome last year, management began to reposition Celera as a drug discovery company, most noticeable with its purchase of Axys Pharmaceuticals. Tony L. White, CEO of Applera (Celera’s parent company), is looking for a new president experienced in pharmaceutical discovery to oversee the next phase of Celera’s business.
The switch from selling databases or software to drug discovery is almost as old as the field itself. “Human Genome Sciences (HGS) was the original database company,” says Edward Tenthoff, senior research analyst at Robertson Stephens. After their landmark $120-million-plus deal with SmithKline Beecham (now part of GlaxoSmithKline, GSK) in 1993, HGS changed course. “They almost immediately got out of databases and plowed that money into drug discovery,” says Tenthoff. Many other companies, including DeCODE Genetics, CuraGen, Lexicon Genetics, and Deltagen have followed suit, often barely tarrying in the database field before entering the discovery mode.
Venter’s departure is the most conspicuous sign so far of the difficulties inherent in relying on genomic data as a business cornerstone. Last October, Incyte Genomics cut about 400 jobs and refocused on drug discovery rather than information. This despite having 19 of the top 20 pharma companies among its database clients. DoubleTwist, an Oakland-based bioinformatics company, announced more than 50 new subscriptions in 2001, yet had to dismiss 40 percent of its staff in January.
Despite the large numbers of database clients, the value of proprietary sequence data has become debatable in the face of the impressive assembly of freely available human genome data produced by the public genome project consortium. Celera’s revenues rose from almost $43 million in 2000 to almost $100 million in 2001, but operating losses rose to $289 million last year. Even with about $900 million in the bank, Celera was losing its appeal to investors.
Incyte, meanwhile, watched revenues grow to almost $200 million for 2000, but amassed operating expenses of more than $250 million over the same period. Incyte has built a mountain of intellectual property (approximately 15,000 patents, including hundreds of human genes). Celera, meanwhile, seems to be focused on building a gold standard platform of technologies, much like Millennium Pharmaceuticals.
Staying the Course
Not all database providers are jumping into drug discovery, however. Gene Logic has spent approximately $150 million to set up their GeneExpress Suite, which contains expression data on more than 10,000 samples from normal, diseased, and drug-treated patients. Each sample includes information on up to 400 clinical attributes, such as the age, sex, smoking history, and ethnicity of the patient. “Once we’ve done it, it doesn’t make sense for others to go out and do it,” says Doug Dolginow, senior vice president of pharmacogenomics. The company has signed up 25 customers to date, including Aventis, GSK and Pfizer. Clients pay an average of $2.3 million per subscription.
Many commercial database providers (see table on Page 11) are pursuing other types of genomic data, even as they are chasing a finite number of potential clients. While database companies may never attain the market caps of discovery companies, they do avoid some of the risks. “I think the database companies have been misunderstood by the financial companies, because of what’s happened with Celera and Incyte,” says Dolginow. “We are hitting our numbers now by focusing on the discovery side and target validation, but we are also moving into predictive diagnostics, which has the advantage of bringing us downstream, towards higher value information.”
Ultimately, database companies are competing against their own customers. “Who has the bigger informatics effort behind them,” asks Tenthoff, “the genomics database company or their customer, who probably has both massive amounts of data and massive data processing centers, often across several continents?”
And what of Venter himself? Might he be lured back into industry at some point? For now, Venter is staying on as chairman of Celera’s Scientific Advisory Board, and will likely spend more time at The Institute for Genomic Research (TIGR), the non-profit Rockville, Md.- research institute he founded ten years ago, now run by his wife, Claire Fraser. (Venter is TIGR’s chairman of the board.) A highly controversial figure over the past decade, particularly within segments of the academic community, Venter still commands widespread respect in industry circles. The words “they said Venter couldn’t do it,” are often heard from executives championing their own emerging genomic tools. His next move is eagerly anticipated.