Smart management and good backing.
Celera is trying to crack the human genome. That takes brains. So, yes, Celera has smart management. Case closed. Onto the next criteria!
OK. OK. More details. Many more details.
If you are trying to crack the human genome, it does take brains. Not only does Celera possess the second-biggest computational facility in the world with 300 DNA sequencers that combined can generate 140 million bases of gene sequence daily (using the most advanced data assembly mathematical algorithms), but the company has many of the top human brains in the world of science, too. Celera employees are often dubbed the "dream team" of scientists. (Michael Jordan & Company had nothing over these guys.)
Celera's President and Chief Scientific Officer, Craig Venter, is a world-renowned genetic researcher. We like to think that he is the most esteemed man in his line of work; many would agree with us, others would take issue. (Controversy follows genius like a shadow.) Dr. Venter was a co-founder of public company Human Genome Sciences (Nasdaq: HGSI) and he invented "expressed sequence tagging" (EST). EST is the technique that enabled first generation genetic databases. Taking gene sequencing technology to a new level -- and this is where SPEED enters the room again -- Venter invented what is called "shotgun sequencing" of a whole genome.
Maybe you "shotgunned" a beer or two in college. This is a bit different. Shotgun sequencing randomly blasts a genome into small bits of DNA that is then individually sequenced based on an overlap at the ends of the fragments of DNA. To ensure overlap, shotgun users may fragment and sequence the same genome several times (as many as 10 times) and then reassemble the pieces where there is overlap. Traditional physical mapping, on the other hand, the likes of which Celera's competition has used, essentially aims to keep things relatively "tidy" by subdividing a genome into DNA that can then be sequenced logically.
Venter's rapid, bloodletting shotgun sequencing technique was initially criticized by his peers, but Venter used his much speedier approach to sequence the genomes of bacteria and other organisms, and since then the shotgun approach has been used to sequence the genomes of over 20 additional organisms. It is currently being used all day, every day, at Celera to sequence the human genome and this -- Venter's technique and his mastery of it -- is putting the company on top in the race to crack the Holy Grail of science, to crack "the book of life." Venter's technique has helped him publish complete gene maps for more organisms than any other scientist in the world, and it just might win him the human gene map, too.
(For more on Venter, see the transcript of this interview he did on The Motley Fool Radio Show last month.)
Venter, who is said to be driven and stubborn to a fault (a good fault in business), has working beside him many of the most accomplished scientists in our time. Samuel Broder, the former Director of the National Cancer Institute, is Celera's executive vice president and chief medical officer. He was the first scientist to propose the idea in the mid 1980s that AIDS could be treated. Beside him, Celera's senior director of DNA resources, Hamilton Smith, won the Nobel Prize for discovering a type of enzyme (restriction enzymes) that permits genetic manipulation. Mr. Smith is commonly regarded as the world's expert in physically manipulating DNA.
Roaming elsewhere in Celera's gilded halls, Mark Adams is Celera's vice president for genome programs. Mr. Adams co-discovered some of the fastest gene-sequencing techniques in the world, and formerly served as a director of DNA sequencing. He is a world-recognized leading expert in gene-sequencing technologies.
But management isn't about science alone. What Celera is doing would not be possible without the most advanced computers in our bright blue world. (In fact, what Celera is doing was NOT possible just two years ago; computers have advanced that much.) Key Fools -- er, key people -- at the helm of Celera's technological ship include Anne Deslattes Mays. Ms. Mays is vice president of software systems and is in charge of building software programs that allow Celera to manage immense amounts of data. Beside her, Eugene Myers has long been a much-respected scientist in computational biology, writing software that assembles tiny pieces of genetic information into a complete map. Next, Marshall Peterson is Celera's expert at deploying highly complex computer systems. He is the senior director of infrastructure technology at the company. We have mentioned only half a dozen of literally dozens and dozens of talented industry leaders working at Celera, and for that we apologize. Plenty of time later for more (interviews, anyone?).
Nobody on the company's Board of Directors slouches when seated at a table, either. Celera's Board includes 1993 Nobel Prize winner for medicine, Richard Robers, and Arnold Levine, the President of Rockefeller University.
Finally, alongside incredible management, Celera enjoys the unmatched backing of its parent company, PE Corporation, and its holdings. Via its sister company, PE Biosystems (NYSE: PEB), Celera has access to the 3700 DNA sequencer, a machine that can sequence 460,000 bases of DNA per day. Celera has three hundred of these puppies cranking out information 23 ï¿½ hours a day (they require just 30 minutes of technician setup time per machine per day, unlike competitors' machines which typically require more maintenance). Celera's 300 machines make it three times larger (and much faster) than any other gene-sequencing lab in the world. From partner Compaq (NYSE: CPQ), Celera is leasing 1,200 Alpha processors, each of which can perform more than 120 trillion sequence comparisons per hour. Nobody comes close to matching this. Not even Fool HQ.
Finally, PE Corp also provided Celera money, as we mentioned earlier, and higher visibility, but it is PE's technology that has put Celera in front, and PE Corp and Celera have no intention of letting that change.
Strong management and backing? You bet.
Excellent past price appreciation, measured by a relative strength of 90 or greater.
Celera began to trade as a tracking stock of parent company PE Corp on May 6, 1999, and so far the early bird has been awarded the spoils. The stock lingered between $14 and $20 for its first two months, then it began an ascent that rivals almost all other stocks on the stock market over the same period. Celera's relative strength now stands at a brain splitting 96, meaning that it has outperformed 96% of all other stocks on the market over the last 12 months, even though it has only traded for seven. (If you want to know what a tracking stock is, click here.)
We have been watching Celera since before it became a tracking stock, so, yes, we sat on the sidelines and witnessed the stock's monstrous run from $14 to a recent $79. Do we regret it? Well, we aim to regret nothing. In this case, we instead are reassured! (What's that?!?) Yes, thanks to the stock's rise, we are reassured that as Rule Breaking investors our focus on Celera is a well-directed focus. It may sound counterintuitive, but we want to see our potential Rule Breaker investments rise before we invest. How come? Because we want the stock market to recognize our investments as unique and extraordinary, with market-beating potential. This recognition manifests itself in strong share price appreciation. It is only through such price appreciation that this Rule Breaker criteria can be fulfilled. Now it has been fulfilled for Celera.
The stock market has begun to recognize Celera as a Rule Breaker having enough potential that the company's market valuation has risen from about $400 million to over $1.8 billion. If Celera succeeds on the scale that we believe is at least possible, this could be just the beginning. We've all been there before -- we've all felt that we missed something in the past after seeing a stock run, when really the only thing we continued to miss was the future.
Most notably, we watched America Online, Amgen, and eBay soar for several months before we took our position in each stock. One fact that Foolish investors must remind themselves of repeatedly is this: if you are investing for the long term (many, many years) it is typically not important how many months or even years pass before you take your initial positions in various winning stocks. Take your time; learn your companies well; do not rush. The mistakes avoided by your being patient and thorough should more than compensate for any lost appreciation very early in the game.
Celera has risen enough to more than please us. Its relative strength stands at 96 of a possible 99.
The greater the consumer brand, the better.
At Starbucks, you're lucky if the barista remembers your favorite beverage and hands it to you without asking. When you step up to Celera's little store someday, you could be handed your complete genetic makeup.
Celera's consumer brand lacks now (although if you're reading this report, it now rings a bell with you), but Celera has the potential to be one of the most important consumer brands in the world. If Celera can provide to you and your family your complete, personal genetic map, you would likely hold Celera very near and dear to your heart. Doctors could use the information to help you and your family prevent disease. Plus, if you've ever worried about sharing your credit card number with strangers, imagine how protective you'll be when it comes to your genetic map -- or "My Genome" as Celera may call it. (Makes the importance of "My Yahoo!" pale in comparison, doesn't it?)
Many consumers will entrust their genetic information only to the company providing it and to their doctors. If Celera is your genetic information provider, it puts the company in the catbird seat as far as "brand loyalty" is concerned. You trust your discount stock broker with your dollars, and that trust creates strong brand name recognition and loyalty. You don't forget your discount broker's name. You won't forget Celera's name if it holds the key to your genetic makeup. In fact, Celera may become one of the most important brand names in your life.
Hyperbole? It would be, if we were assuming this outcome. But we're not assuming it. We are only suggesting that this could be one outcome regarding Celera's brand. Many other possible outcomes exist, too. For instance, the thing could fall off the map. But the possible Rule Breaking outcome that we like to focus on (being optimists) is that of Celera's brand name becoming incredibly important to consumers around the world. Understanding the risk of failing this criteria, we are investing anyway. Why? Partially because a strong consumer brand name is probably not essential to Celera's success.
As with Amgen, Celera is developing a respected trade and professional brand name in the science and biopharmaceutical industry. Its name grows with every mapping milestone and every healthcare partner signed. Besides, let's not kid ourselves. All of the scientific world is watching to see if Celera can accomplish its goal, and as the company progresses, the popular press will jump on the story, too. If that isn't enough buzz to create a name for a company, what is? Celera's quickly growing trade and professional brand name could quickly jump into the publics' lexicon once the company maps the human genome. That said, if the company fails bigtime, there goes the name (and everything else) out the window.
A final point, a point that was shared on the Celera message board, is that Compaq likes to advertise that Celera uses its technology. Though small, this can be the first sign of a growing non-exclusionary (non-industry specific) brand name. See this post by TMF GetFit for more on the company's brand name.
A recent constituent of the financial media has recently called the company "grossly overvalued."
With so much of the media busy calling Amazon, eBay, and other young companies overvalued, few journalists seem up to the task of calling Celera overvalued, too. That's unfortunate. We love this contrary indicator and we rely on it. Luckily, we have seen some journalists at least question Celera's valuation, although not in so few words so as to suit our purpose here. Generally, journalists have questioned how Celera will ever make money (sound familiar?) and they have written deadpan straight that the company is already valued at over $1 billion despite almost no revenue and no profits (this is the usual saw that they grind regarding any young, profitless operation). Outside a few small mentions, though, nobody has truly taken the company's valuation to task.
We have a theory as to why cautionary tales are lacking. Here it is, take it or leave it (and if you have thoughts about it, post 'em on the RB board for us): We believe that most of the media doesn't understand biotechnology enough to venture writing about it. If the financial media could understand biotechnology as easily as they THINK they can understand Amazon or America Online (NYSE: AOL), they would feel brave enough to write about Celera and call it "grossly overvalued" (the way they did with Amazon and AOL). However, we just don't believe that most media boys and girls out there understand this beast well enough, and many won't do the necessary work. Why bother? It's so much easier to crank out another "books is bad business, duh" article.
So, yeah, we're disappointed. So, yeah, we're being a little critical here. Hey. We've been waiting for a single brave journalist to step to the plate and call Celera grossly overvalued. As the company's market value soared from $400 million to a recent $1.9 billion, we thought we'd get our wish. We thought surely some independent thinker would step up and declare this thing "bonkers, crazy, overvalued." No such luck -- yet. (Just wait.)
In lieu of a straight shooting journalist, we have a backup solution for meeting Rule Breaker criteria #6. We won't be doing this again anytime soon, but today we're bending our #6 criteria a little bit (which is in our RB Principles: we do bend or break even our own rules on occasion). How are we bending it? We're bending #6 in this way: We are calling this stock grossly overvalued ourselves. We are part of the financial media and we are officially calling this stock, Celera, GROSSLY OVERVALUED. We mean, come on! This thing has no profits, no real revenue, and it has no clear business model, just a bunch of promises. At a market capitalization of over $1.8 billion, this stock is grossly overvalued!
There. That feels better. We're ready to buy it now.
Any perceived joking aside (we're really not joking), the risks of investing in Celera are extremely high, perhaps even higher than the risk we took by investing in eBay (Nasdaq: EBAY) at $10 billion, which we call our most risky investment to date. At least eBay's business model is clear and it has been profitable and almost certainly eBay faces a growing market. What Celera mainly faces are a lot of question marks alongside heady potential. Unfortunately, it already has a heady valuation to match its heady potential. Sure, we believe that if the company succeeds, its current valuation is just a start. However, if the company doesn't live up to its promise, this valuation could be the end of the high-flyin' days, and we could watch the stock collapse (following its recent expansion) like a dying star.
That would be sad, but it wouldn't force us to live on the street. Remember, we're putting less than 6% of the BreakerPort's net worth in this investment. We are diversified beyond this stock, as all investors should be.
To close, the risks that we're taking by putting $50,000 into this stock are high and we recognize and accept that. Being Foolish investors, we took a long time to decide on this investment. With your investments, you should always do the same. Take as long as you need. If you do, you'll roll into 2000 and beyond as a Fool among Fools.
We acknowledge that we didn't cover nearly every topic under the sun regarding Celera in this initial report (heck, we didn't even mention its GenScope and AgGen units). We can't cover every topic in a report of reasonable length (the likes of which this report already is not) and plus, our editors need to sleep, too.
We have daily Rule Breaker columns in which to discuss this company ad nauseum. Meanwhile, the BreakerPort message boards and the exceptional Celera message board are open for constant discussion. (Heads up: a Celera FAQ is being constructed on the Celera board right now by Fool, ElricSeven -- a big tip of the jester cap goes to ElricSeven.) So, please head to the Celera message board if you want to talk about the company now. We'll see you there.
Smart management and good backing.
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