Celera Turns the Other Cheek

Mama mia!

Bill Clinton and Tony Blair ushered in the announcement that the first map of the human genome has been completed. Afterward, they stepped aside and let Francis Collins, the head of the Human Genome Project (HGP), and then Craig Venter, the mind that leads Celera (NYSE: CRA) -- and the mind that arguably made today happen today, and not several years from now -- have their words.

Reading the transcripts from the press conference and seeing some of the ceremony on video, it was probably apparent to anyone with knowledge of the situation (which is relatively few people, unfortunately) that "a whole lotta politics was goin' on."

And because of those politics, Celera essentially received second billing for its accomplishment. The company has mapped the genome of five individuals with paired sequence reads that cover the genome 35.6 times. The Human Genome Project is only 85% finished with its map of the genome. Still, Celera shared the stage with the government's Human Genome Project and Celera is sharing headlines with Clinton, Blair, and Collins -- which is OK, except that Celera is typically mentioned last in the whole lineup.

I don't mean to be a nitpicking guy. Really! But if ever there were one media event meant to please most everyone involved and save face, and then one separate set of facts that will be written in the history books (and subsequently will make that media event trivial), this was one such event. Celera shared its accomplishment generously and in doing so it was given second billing.

That's politics for ya. The government funded the Human Genome Project for a long time. If a private company emerged and made it look bad (as, um, Celera did) the government would look bad, too. Also at stake: Clinton wants the genome map to be part of his legacy. The only way he can accomplish that is to give credit to the Human Genome Project. And I'm not begrudging that. The Human Genome Project deserves a great deal of credit. Just not top billing when it was Celera that made today possible. If not for Celera, the Human Genome Project may not have finished its work until at least 2002 (which would have been far too late for Clinton, incidentally).

Anyway, enough politics. What today means was best described, I think, by Collins: "We've been racing down white water in a narrow channel trying to get the sequencing done. Now we're opening into the [slow, expansive] ocean."

In that ocean are endless possibilities for medicine that demand to be discovered. Everyone has said many times, including us, that this discovery will take a great deal of time. Venter reminded us today, though, that many discoveries probably won't take as long as most people expect. Technology is moving so quickly that in many cases, what took science 10 years to accomplish one decade ago can now be completed in months.

This is excellent news for science and for our health. As investors, however, it's prudent for us to continue to err to the conservative regarding our expectations. So, we'll continue to assume that major drug discoveries due to the genome map won't begin to appear for a long time, and we'll continue to remind ourselves that drug trials and FDA approval take many years longer.

Venter stated today that the next step is the "interpretation" phase, meaning now the true work begins: find out what everything in the genome means, and even "what makes us alive." Alongside that, there is important business to take care of at Celera if it is to survive long-term alone. (How strong a factor money is in all of our lives!) Celera's second main focus now is to sign new customers. Today Immunex (Nasdaq: IMNX) signed with Celera under a new royalty-sharing contract. When Immunex completes revenue-generating discoveries using Celera's data, Celera receives royalties on sales.

In the past, companies like Pfizer (NYSE: PFE) paid $50 million for straight access to Celera's data for five years. At least three other companies, including Amgen (Nasdaq: AMGN), paid $25 million for three-year contracts. Royalty relationships are new to Celera and could prove to be the largest revenue stream someday, assuming bioinformatics proves as valuable as Celera believes. Royalty sharing is a logical contract to sign in bioinformatics business deals, but we might also speculate that royalty relationships were necessary to stir up more business at Celera. A subscriber's risk is much lower if the company only pays Celera very meaningful cash upon a successful discovery. On the negative side for Celera, up-front payments are immediate cash flow. Waiting years for a discovery is not.

Either way, what's most important to investors now is new subscribers. We want to see Celera announce several subscribers in the near-term. So, here we are: living, breathing collections of genes -- about which Celera knows more than anyone -- watching our company while at the same time it unravels us.

Biotech Chat Tonight!
Join David Gardner and Rule Breaking Fools Brian Lund, Rick Munarriz, and me in a live chat tonight at 7 p.m. ET. We'll be talking about how to think about biotechs and we'll be taking your questions. Join in!

Amazon Redux
Amazon.com (Nasdaq: AMZN) ticked nowhere today following Friday's drop. Aside from debt concerns, on Friday Lehman Bros. raised concerns about Amazon running out of cash this year. While that's typically a valid concern to have for any young company, it's not yet a substantiated one in this case. In fact, Amazon called it "hogwash." I have an appointment to talk with ye old Amazon this week and I'll write about it Thursday. If you have a question that you'd like asked of Amazon, please post it.

Suggested Links: