"Biotechnology is probably the ultimate Rule-Breaking industry of all time."
-- Rule Breaker Buy Report for Amgen (Nasdaq: AMGN), 12/98
With those words, the Rule Breaker Portfolio began its entry into biotechnology investing with Amgen. A year later, it added Celera Genomics (NYSE: CRA). (Today Celera announced its new SNP database and explained what it means. It also announced a new subscriber, the Howard Hughes Medical Institute.) Now the Rule Breaker is cozying up to Human Genome Sciences (Nasdaq: HGSI) and Millennium Pharmaceuticals (Nasdaq: MLNM). What gives? Fools who invest in Rule Breakers must be asking: How can there be four top dogs and first-movers in the important, emerging biotechnology industry?
Because there is more than one biotechnology industry, though we didn't know this when we bought Amgen. We were young in the ways of biotech, and we thought biotech was an industry all by itself. By the time we bought Celera, we had learned our mistake. We wrote in the Celera Genomics Buy Report:
"Biotechnology is not an industry. It is a technology. There is no 'biotechnology industry,' per se -- just as there is no 'Internet industry.' There are many, many companies that use biotechnology or the Internet in order to profit, providing products or services that customers find attractive and valuable. But, just try to identify a single 'top dog' Internet or biotechnology company. It's not really possible. Again, different companies adopt these technologies to gain a lead in one industry or another."So, biotechnology is not an industry, but industries.
When the port bought Amgen, it was the leader in the biopharmaceuticals industry. It turned advances in cell biology -- genetic engineering -- into medicines. On the basis of two blockbuster drugs, Amgen engorged from a $20 billion market cap when purchased to $72 billion today. And, just as we hope for all our Rule Breaker children, it's grown big and strong and is contending for Rule Maker status.
Amgen and all drug makers know that information about the human genetic code will fuel their future drug discoveries and products. Today, genetic information -- bioinformation -- has become an important emerging industry in its own right. As followers of this portfolio know well, Celera and its massive computing power lead the way in bioinformatics. Celera is definitely not in the same business as Amgen. At least today, Celera does not plan to find, test, or market drugs as do Merck (NYSE: MRK) and Pfizer (NYSE: PFE). Nope. For now, its mission is to be the definitive source of genomic and related medical and agricultural information.
By the time we even considered buying Celera, we knew that other very exciting companies used biotechnologies to revolutionize the process of identifying disease targets and developing treatments. We wondered if they presented more possible biotech Breaker industries.
Natural or regenerative medicine
One of those companies is Human Genome Sciences. At first glance this may seem like another Amgen, but Jeff Fischer demurs, identifying the company's different rule-breaking industry:
"Natural or regenerative medicine. HGS's medicines use the body's natural substances -- genes, proteins, and antibodies -- to fight or cure human health ailments, including anything from cancer, to weakening arteries, to deep skin wounds."Does Human Genome use bioinformation? Absolutely. In fact, it's in the business! Do its bio-geniuses use genomics, proteomics, monoclonal antibodies? You betcha. Does it make drugs? Sure! But, its business is to make drug treatments wherein the body's own forces do the work -- natural or regenerative medicine. A certain kind of biopharmaceutical company, then -- an Amgen, with a specific, rule-breaking focus.
Industrial drug development and stuff
We also were excited about Millennium Pharmaceuticals. Another Amgen here? Nay! Jeff Fischer wrote:
"Millennium's business boils down to efficiently organizing and researching to speedily discover drug candidates across many diseases, and then developing the resulting drug candidates. Based on its end-to-end technology and science platform, Millennium sells both information and discovery techniques to partners, collects royalties on resulting successes, and creates drugs. Millennium is industrializing drug development. It is also personalizing it. Management has a goal to develop predictive medicine that delivers the right drug to the right person on an individual basis."Millennium wants to make and sell drugs, but it's also serious about another business: Its proprietary platform for improving the drug discovery process. Millennium is not just trying to keep the money coming in until it hits the big time with drugs; it wants to make money both making and selling drugs and selling industrialized drug development.
Are these really separate industries?
These are brief efforts to distinguish Amgen, Human Genome Sciences, and Millennium from one another. But, as they say in law school, are these "distinctions without a difference" (which Bartlett's attributes to Tom Jones author Henry Fielding)? Maybe we're splitting genes over Human Genome and Millennium!
I suggest reading Jeff Fischer's recent Rule Breaker analyses of the important, emerging industries for both Human Genome Sciences and Millennium Pharmaceuticals. Then decide for yourself and tell us on the Rule Breaker Strategies board whether you think these two companies are really in the same or different important, emerging industries -- and whether they are in the same important, emerging industry as Amgen.
I'll bet that no two Fools agree on a biotech industries break down. Even if we could converge on a single, unchanging set of definitions, the biotech revolution would at some point change and confound us. With Rule Breakers, we know we are on the cutting edge, buying a vision fantastic enough to encompass a future that will change. This also means that an emerging industry might not even emerge! Phew. As we remind everyone, Rule Breaker investing is not for everyone, and our choices are teaching models, not recommendations.
In the meantime, why stop at Amgen, Celera, or even Human Genome Sciences and Millennium Pharmaceuticals? Join me tomorrow for three ways to decide whether we can identify other important, emerging Rule Breaking biotechnology industries.
Finally, if you'd like to go further in an online educational format, we will be offering a five-week Biotech Seminar, starting in mid-October.
Tom Jacobs, TMF Tom9 on the Discussion Boards