So, if you thought the race to sequence the genome was exciting to watch, things will only heat up from here.
This is all exciting, and it understandably has captured the public's imagination. (Perhaps Celera's Craig Venter will be Time's "Person of the Year" in 2000, taking the torch from Amazon's CEO, Jeff Bezos. Another likely winner could be America Online's Steve Case -- yet another Rule Breaker.) However, above the excitement surrounding the genome race, Foolish investors are asking: What are the financials behind Celera's model? How large is the market and how much revenue can Celera earn?
These are excellent questions only partially because they're impossible to answer. The industry is new and the potential ramifications of having detailed genetic information on everything from humans to mice, corn and rice, to wheat, chicken, and cattle is a giant question mark. How many companies will be willing to pay for such information?
Could Coca-Cola (NYSE: KO) become a client of Celera in hopes of lowering its "cost of goods sold"? Perhaps Coke would develop a program through Celera aimed at increasing the production of its farming suppliers and thereby lowering everyone's costs. Would McDonald's (NYSE: MCD) pay to support a genetic program that makes cattle and chicken a less expensive animal to raise? With the right data, could Starbucks (Nasdaq: SBUX) find ways to engineer better coffee beans more consistently?
We don't know yet.
Despite there being so many questions in the air, industry size estimates do exist. One of those estimates was released in a Merrill Lynch report dated May 24. First, however, a word about institutional investment reports: The Fool does not critique full-service brokerage reports without qualification. Well-researched information is excellent to have assuming it comes from a reputable source; so, much of the "hard" information in brokerage reports is excellent.
The Fool is critical, however, of the fact that full-service brokerage reports are issued with "buy," "sell," "accumulate," and other such directives that are often used to make investors trade much more frequently than they should. So, that is one of the Wise aspects of these reports that makes a Fool see red. Another is the unnecessary complexity that these reports typically display.
Anyway, Merrill Lynch estimates that the total market opportunity for providers of genomic content, such as Celera, is between $2.7 billion and $3.4 billion, with about $1.3 billion in annual, recurring opportunities. Right now, Merrill estimates that key clients (biotechs, pharmaceuticals, diagnostics, and life sciences) spent $176 million for database subscriptions in 1999, and these sales should grow by more than 25% annually the next five years. Overall, biotech and pharmaceutical companies spend over $30 billion annually on research and development (R&D), so according to estimates, gene database subscriptions will be a minority of total R&D costs.
I believe that this $2.7 billion to $3.4 billion industry size estimate could prove low long-term, but any argument presented today is necessarily only a hypothesis. Still, this is well worth discussion and, after getting your thoughts, I want to continue this dialogue. Right now, I need to hand the Rule Breaker to Brian Lund, who has more on fuel cells. Before that, however, if you haven't read the recent Business Week article on Celera, check that out. Then, answer our poll asking how large the genomic information industry could be. Is Merrill Lynch on target, or way off?
The Fuel Cell Debate
By Brian Lund (TMF Tardior)
A great discussion sprung up on the Rule Breaker Companies board as a result of our two articles this week looking at the fuel cell industry in general and Ballard Power Systems (Nasdaq: BLDP) in particular.
Js99boice and bhellweg offered a closer look at the chemistry behind the fuel cell.
Airbare, who makes solar cells, contributed his experience in the alternative fuel sector, and Jbohland followed up with an argument that solar cells themselves are the Rule Breaking industry.
Blue9718 agreed with my contention that the general public is not eager to adopt fuel cells in their cars, but pecten believes society can motivate itself to overcome the hurdles that exist. Whitedo3 agrees, maintaining that fuel cell technology will not revolutionize the auto industry, but will force it to evolve away from the internal combustion engine. Geochris emphasized the necessity that this evolution occur, since our current practices are not sustainable. Sympatico will buy a fuel cell vehicle for that and other reasons.
Ruggernaut kicked off a great thread with a post insisting that fuel cell usage is inevitable. The polls sided with this view. More than half of the participants said that fuel cell-powered cars would reach 10% U.S. market penetration in 10 years, and almost half of the voters disagreed with me, asserting that Ballard is a Rule Breaker.
Stop by and join the discussion!
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