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By Michael Greeley

MICHAEL GREELEYAugust 13, 2003 | ARE VENTURE CAPITALISTS still looking for "the killer app"? Although that term seems rather 1990s, it comes to mind given the intense interest in the "$1,000 genome." Affordable, individualized genome sequencing holds great promise, but making the claims sound too grandiose can be dangerous.

Today's venture market is characterized by incremental advances, and investment strategies have been modified to reflect that. Today, investors operate under a "proof of principle" philosophy, deploying more modest amounts of capital against nearer-term milestones, minimizing the total capital at risk. Funding the next big idea is extraordinarily challenging right now.

That notwithstanding, some entrepreneurs have raised large sums to develop technologies that will likely move us closer to the $1,000 genome (see "Wanted: The $1,000 Genome," Nov. 2002 Bio·IT World, page 12). Earlier this year, U.S. Genomics, a young company based in Woburn, Mass., announced the close of $25 million of venture financing, bringing the total capital raised to nearly $50 million.

U.S. Genomics is developing a microfluidics platform called the GeneEngine, which rapidly unravels native DNA molecules into discrete linear strands suitable for laser scanning, rather like a movie reel passing through a projector. David Hoey, vice president of business development, observes that there is "a great desirability to see a cost-effective genomic map and that we will see that level of resolution within five to seven years." The company's founder, Eugene Chan, told a genomics conference last year that his goal was "to be able to read your genome instantaneously."

While laudable, the goal of successfully — and affordably — sequencing key segments of individual genomes requires advancements in at least three broad categories. First, the chemistry surrounding sample preparation and tagging is still inadequate. Second, the challenges surrounding the equipment (optical scanners, parallel processing, etc.) are not trivial. Finally, the informatics component is insufficient to cope with the flood of data unleashed.

Venture investors are leery of business plans predicated on advances in other technologies. Chan is an inspirational scientist, but it is difficult for any first-time CEO to navigate the current economic turmoil. Recognizing that, the team at U.S. Genomics modified its initial strategy and installed earlier this year a new management team with an impressive track record. Venture investors, who look for great teams that can turn promising technologies into great companies, took notice.

Marching On 
The new team is headed by Stephen DeFalco, formerly of PerkinElmer. He quickly recognized that continuing to finance the $1,000 genome as a stand-alone idea was going to be challenging. "There must be the prospect of near-term revenue, which meant that the product development strategy needed to be modified," he says.

GeneEngine: DNA uncoils as it enters the funnel for laser reading of tags. Inset: Post-fields for stretching DNA.Early versions of the technology are focused on single-molecule detection products for RNA analysis and will be in customers' hands within a year. According to DeFalco, "investors were looking for clearly articulated cash flow models, instead of a funding strategy tied to technical milestones. On the march forward to the $1,000 genome, commercial applications were made available much earlier in the biodefense and disease diagnostics sectors."

That modified strategy is applauded by Russell Garlick, formerly vice president of R&D at PerkinElmer, now CEO of Protein Forest, which is developing novel protein profiling technologies. "Mapping the genome is only the first step; one needs to understand the protein expression at the cellular level," Garlick says.

The technologies required to generate the $1,000 genome may not be terribly useful in the absence of other tools. Providing doctors with CDs of their patients' genomes will be of little value to anyone without additional predictive tools. As Garlick notes, "If I could have a $1,000 test, it should really be a test of the actual function of the cell and tissues."

A central concern continues to be the complexity and number of inter-related subcellular pathways and how to make sense of it all.

"Advances in the last five years are just a start; we will see a tenfold improvement over the next 20 years" as the bio-IT capabilities improve within pharma, Garlick concludes.

This need is not lost on others. Jim Golden, manager of business development at 454 Corp., another company associated with the $1,000 genome buzz by developing massively parallel technologies for high-throughput sequencing, says venture investors need to recognize that "we have a systems problem, not a technical problem." Golden is willing to say only that 454 Corp. will be able to generate the "$100,000 genome" within three to five years, as too many other advances need to be achieved.

The search for the $1,000 genome may grab headlines, but it masks the central concerns facing emerging bio-IT entrepreneurs. The killer app may really be developing personalized tests for diagnostic medicine. Recognizing that this will require a number of functionalities to be developed simultaneously creates a framework to consider new investment opportunities. Entrepreneurs need to clearly articulate how they can uniquely solve rate-limiting steps along that continuum and how their solutions coexist in the larger ecosystem.

Michael A. Greeley is the managing general partner of IDG Ventures, a global family of venture capital funds operating in North America, Europe, and Asia, with approximately $600 million under management. E-mail him at 


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