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By Malorye A. Branca

June 12, 2002 | A series of announcements made by Applera Corp. on April 22, designed to help the company complete its evolution from an information to a drug-discovery company, rattled investors and sent down the stock of the company’s two operating units, Celera Genomics Group and Applied Biosystems Group (ABI).

“The important thing is getting the company cleared up,” said Applera president and CEO, Tony L. White, during a 90-minute Webcast. The moves signal major changes to both Celera and ABI business models.

Ordoñez to Head Celera Genomics
The first announcement was the appointment of Kathy Ordoñez, effective April 25, as president of Celera Genomics, filling the sizable shoes of J. Craig Venter, who resigned in January. Ordoñez will continue to serve as president of Celera Diagnostics, a joint venture between Celera Genomics and ABI. “Kathy has a track record of turning technology into money,” said White, to whom Ordoñez will report.

The internal promotion is a surprise: Given Celera’s newfound commitment to drug discovery, many expected the new president to be a high profile with extensive experience in the pharmaceutical industry. White said he had initially sought a “brand-name, recognizable figure we could run off into the sunset with,” but he changed his mind during the search process. “I became aware that what we needed was good, old-fashioned leadership, and we had that already in Kathy,” said White.

Before taking the helm at Celera Diagnostics in December 2000, Ordoñez was president and CEO of Roche Molecular Systems Inc., a post she held for nine years. Although she has strong credentials in diagnostics, analysts expressed concern about her lack of experience in therapeutics. But White staunchly defended his pick, stating “I’ve never been more comfortable with an appointment.”

The task facing Ordoñez, he points out, is also unique in some ways. “We do not want to become a me-too drug company,” White said. “We became convinced Kathy would be the best to do that.” Ordoñez was conspicuously silent during the briefing. According to White, her first tasks will be to finalize the reorganization and new strategy.

White declined to divulge much about Celera’s drug development pipeline, but hinted that more information might be forthcoming this summer. “We have done some updating of the Axys pipeline,” he added, referring to Axys Pharmaceuticals Inc., a company with expertise in small molecule therapeutic discovery and development, acquired by Celera in June 2001.

Other informatics companies now pursuing drug discovery include AxCell Biosciences, Incyte Genomics, and Lexicon Genetics, although most are hanging on to their database businesses, at least for now.

Growth in subscriptions brought Celera’s revenues up slightly at the end of the third quarter for its fiscal 2002, reaching $30.5 million, compared to $23.4 million for third quarter fiscal 2001. Combined with lower R&D costs, the company also posted a lower net loss of $28.5 million for Q3 2002 (compared to $29.1 million for Q3 2001). Meanwhile, ABI’s net revenues for third quarter 2002 fell to $409 million, compared to $440 million for the same quarter the previous year. R&D expenditures rose 19 percent in Q3 2002, to $56.6 million. 

In a separate announcement, Applera senior vice president and chief financial officer Dennis L. Winger said Applera may repurchase ABI shares.

ABI to Market CDS
In another surprise, White announced that Celera’s online business would be turned over to ABI for marketing, which will incorporate the Celera Discovery System (CDS) into a knowledge business. This new e-commerce platform will feature a range of information tools and an online catalogue of related ABI products, including Assays-by-Design and Assays-on-Demand.

Scheduled to launch this summer, Assays-on-Demand will feature off-the-shelf assays for approximately 200,000 validated SNPs. Assays-by-Design is a custom service that provides validated SNP assays. These products are part of a rapidly growing and highly competitive segment. Sequenom Inc. launched a similar online reagent catalog/database product in April, featuring public SNP data and assays for approximately 400,000 validated SNPs.

Applera’s goal is to extend the life of Celera’s bioinformatics business while increasing sales of related ABI products. “There is heightened competition to the online business from free data,” said White. “And pure data businesses are not viable in this industry.”

The deal aims to protect Celera from the vagaries of the bioinformatics market, and provides Celera a guaranteed revenue stream of at least $62.5 million per year, for the next four years, as well as a royalty on revenues from the knowledge business. ABI’s Deborah Smeltzer will oversee the knowledge business, and Jason Mollé will continue to supervise CDS from the Celera side. 

To some analysts, the benefits to Celera seem clearer than those for ABI, which will now assume the expense of maintaining, upgrading, and marketing CDS. But White said the deal “lowers the risk for both ABI and Celera, and increases the probability of commercial success on both sides.” ABI can change the structure of the CDS offering if it chooses. Current clients will be transitioned to the ABI product as they renew.

So what does it all mean? White summed it up: “Our focus is on generating cash for drug development.”

 


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