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By Tomheadrick
February 7, 2001

The following perspective was written by a member of the Fool community and regular contributor to our discussion boards. The opinions of the author are not necessarily representative of the opinions of The Motley Fool or its editorial staff.

[This is Part II of a 2-part piece. Part I ran yesterday]

One thing I'm sure most of us have noticed, in the language of all the subscriber agreements to-date, is that none of them state that the subscriber agreement includes access to Celera's (NYSE: CRA) proprietary protein database. You're thinking because it's never had one to offer. True. In 12-18 months though, it will have begun to compile one. If anyone has the opportunity to ask Celera, please ask if it plans to require additional money from current and future subscribers for access to it.

Molecular biology unit and third-party revenue
I touched briefly on this once, mentioning the LifeTech deal where Celera shares in revenue from the sale of reagents for full-length clones that LifeTech develops from the Celera database. I think what may be one of the most significant early drivers of this revenue stream will be the currently under-construction molecular biology unit by Applera Corp. (NYSE: ABI). The Ordonez group will be, in part, developing diagnostic tests as well as other things. Key to Celera and shareholders, these tests will be derived from the Celera informatics databases.

Do you recall the Taqman Assays for the fruitfly genome that ABI developed? Because the assays were developed from already-public-domain data, Celera does not share in revenue from the sales of those assays. However, I would like to think that Celera has a good deal of proprietary information from all the sequencing and mapping of multiple genomes and collaborative research they've been involved in. I assert that the MB Group will use Celera's data to develop the diagnostic applications. Hence, Celera should enjoy a revenue expansion in that area.

At a recent investor conference, Mike Hunkapillar mentioned that SNP assays are high on this group's list. The greatest collection of unique SNPs, he states, is Celera. The MB Unit's group will make marketable assays from this collection. There are millions of SNPs and it will take a long time to develop meaningful sets. You could start with 200,000, but ideally, he says, you want to reduce it down much further to the most important ones for two reasons -- to speed up throughput and lower the cost of manufacturing.

Celera's ongoing collaboration with City of Hope for SNP study in breast cancer that has just been extended into the clinical trial area with the Fabre Institute for breast cancer therapies is, I think, very deliberately aimed at this outcome. It is very likely that you could see, in the next couple years, an SNP assay developed and marketed by the MB unit based on these collaborations. Through the sale of these assays Celera will realize a percentage of revenue. Watch for more developments like this that build on the Gemini collaboration and the Geron collaboration.

Be prepared to hear and read the same from people who continue to assert that Celera was set up as showroom for ABI to demonstrate new products. They will say the same about the Molecular Biology unit -- that it was formed to create products from Celera data, a loss leader and nothing more. It is true, to an extent, that Celera was formed to demonstrate the power of the 3700. Tony White said, in so many words, he knew that if they went to the HGP they would be told to send them a machine -- and they would look at it and try it out, but it would end up in a back room somewhere collecting dust. So, he figured it was best to do something internally to feature the machine.

The plan has been a success beyond his wildest dreams. It drove sales of those units higher than could be imagined. I speculate that it is likely Mr. White is using the same approach with this Molecular Biology Group. They may have been in talks with diagnostic companies for developing assays from Celera data and they were getting nowhere with that approach, getting answers like "it is unproven" and/or "too costly." If the Molecular Biology unit is as successful in developing diagnostic products from Celera-derived data, then watch out for companies like Abbott Labs (NYSE: ABT) and its ilk to become subscribers to Celera as well. It won't be just pharma/bio companies anymore.

Venter just wants a Nobel?
Maybe. But, do you think if this attitude permeated Celera -- that the only thing Venter cared about was winning a Nobel Prize and couldn't care less about Celera -- and this was known throughout the industry, that people like Scott Patterson would involve themselves with such an organization? Did Dr. Hoffman leave the Navy to contribute to Venter's self-centered goal? Did Kathy Ordonez, along with several others, leave Hoffman-La Roche to contribute to Venter's Nobel? Why did Compaq and Sandia want to involve themselves with such a megalomaniac? Surely all these people would have known this about Celera and Venter. Are they all in on it too? Makes for a great conspiracy theory.

Tom