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April 4, 2000

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Subject:  More thoughts on Celera
Author:  grdunn

This is somewhat of a continuation of my previous posts with an attempt to recap events that have occurred in the past week, as well as explain a few thoughts on my mind that have been provoked by responses to my previous posts. On a side note, I have to agree with those who have stated their disdain for those who use this message board to make personal attacks. Please everyone, try to post only content and refrain from condemning others. With that, here comes another long post. Feel free to critique, as I am not a so-called expert.

Several major announcements and events have occurred in the past week. Some of the more important ones include the Celera's plans to enter into the field of proteomics, the unveiling of the fruitfly sequence, and more details regarding Celera's business model (although I think this may be old news).

In a recent issue of Science magazine (see post #9730), Celera has made its plans to enter into the field of genomics public. What is proteomics? According to the article, proteomics is the field of "identifying all the proteins expressed in an organism and then track their ebb and flow." As noted in the article, this is an enormous undertaking, and it appears that Venter has already decided that the one billion dollars generated in a recent stock offering will fund this project. First, we should get a firm grasp of how formidable an undertaking it is for Celera to determine which proteins are expressed in each tissue in the body. Although each of our cells essentially have the same DNA composition, only a subset of genes are expressed as protein. For example, it has been suggested that there are 100,000 genes in the genome. If we were to look at say, liver cells, we might find that only 10,000 genes in the genome are expressed. If we looked at muscle tissue, we might find that 8,000 genes are expressed, some of which are also expressed in the liver (i.e. there is overlap of the genes expressed). Celera would then continue the process, until they went through each tissue in the body and found out what genes are expressed in the brain, heart, lungs, etc. On top of that, you add the complexity of genes vs. proteins. As I explained in a previous post, a copy of DNA
"Proteomics is the future of all medicine, and I think that Venter is just thinking ahead."
known as mRNA must be cut up and then "glued" back together before it can leave the nucleus so that it can be converted into protein (see previous posts for lengthy explanation). Thus, in the process of getting cut up and glued back, the resulting "mature" mRNA can have a variety of sequences. You can compare this to a train. Each unit of the train (i.e. caboose, passenger car) can be removed or the order can be switched. So if we take the caboose from the end of the train and place it in the middle between two passenger cars, we now have a different sequence. In much the same way, different "mature" mRNAs can be created and result in different sequences, which in turn result in different proteins. Thus, one gene can lead to say, ten different proteins. In addition, there are other modifications which further lead to an even larger variation in proteins. In the aforementioned article, they cite that there could be as many as "10 million to 20 million" proteins in the human. Quite a bit more than the 100,000 genes. And on top of that, there are healthy and diseased states. The proteins produced in a sick person are not the same as those produced in a healthy person. In addition, I believe they also wish to quantify the amount of protein in a given tissue. Does this seem impossible enough yet? I admit, even within my own feeble mind, this seems like science fiction, but alas, I must calm my fears with the future potential, which is, as I understand it, the entire reason for Celera to be valued the way it is.

Proteomics is the future of all medicine, and I think that Venter is just thinking ahead. As I mentioned in previous posts, proteins are where all the action is. Proteins are what interact with that baby aspirin that you take to thin your blood everyday, proteins are what allow your heart to beat and conduct an impulse. And already, there are companies out there that have already begun a similar undertaking (see aforementioned article). Proteomics is also where the patenting action is as well. ElricSeven can verify this for me, but obtaining a patent for a gene whose protein (or proteins as the case may be) has been characterized is much easier than obtaining a patent for the plain old sequence. The reasoning is this: if you have done the work to not only get the sequence, but to also find the protein and understand how the protein works, then you deserve a patent. This is the confusion that people are having with Collins of the Human Genome Project. People are badmouthing him because he always seems to give Venter a hard time (and much of this may stem from previous arguments) with patenting sequences, and yet Collins has patented sequences himself. However, to Collins' defense, the man has done extensive research on the genes that he has patented and as far as I know has some understanding of its resulting protein. He didn't just throw some DNA in a sequencing machine and then patent the sequence that the machine spit out. Thus, in my mind, Venter is already looking ahead, as all good leaders do, to the future of the industry. He realizes that patenting valuable proteins is where the big money's at and he is gearing Celera to share in those rewards. "If key genes could be of immediate value, we would file patents on them to make sure we got them developed as treatments as soon as possible," Venter says in an article (in post #10194). He is already aware of where the lucrative business is located, and has already shifted Celera's gears toward that pot of gold. He apparently already had this in mind back when he raised one billion in operating cash. He also acquired Paracel, a sequence analyzer powerhouse, a short time later. Is this all by chance? Of course not. It is slowly becoming clear to me that this man is on a mission.

"What was the point of wasting valuable time and resources to collaborate with a public university to sequence the fruitfly genome?"

So what of the fruitfly sequence that some skeptics have brought up? What was the point of wasting valuable time and resources to collaborate with a public university to sequence the fruitfly genome? Where is the financial benefit? The skeptics are right, there may in fact be no direct financial gain by sequencing the fruitfly genome. But there are indirect financial gains. Perhaps Celera collaborated to disprove the world that shotgun sequencing could be done, albeit not perfectly. They have that fruitfly's genome down to one error in 10,000. Of course, that still leaves much room for error, but it just goes to show the world that it is possible. Furthermore, perhaps its purpose was to just give the public a glimpse of what is yet to come. Kind of like the trailers at the beginning of movies. Perhaps they want scientists and researchers to be eager for more. And once again, I reiterate that their strength will not be in their sequencing alone. It will be in their annotation and the software used to scour the genome map. If they can provide superior software, their subscriptions will rise dramatically.

This brings me nicely to the details of their business model that Celera has revealed (again this might be old, but it's news to me). They plan on initially offering their annotated genome at $5,000 per academic institution, and $10,000 per commercial institution. A small price to pay to have access to the complete genome sequence even if there are a number of errors contained in the sequence and annotations. I honestly cannot see any institution turning this offer down, especially since the free HGP data won't be available for quite some time. But how can they possibly justify a market cap of 5 billion, when they are selling a product for $5,000-$10,000? And they will only be able to cater their product to a limited audience (i.e. universities, biotech companies, etc.) How does that translate into a 5 billion market cap? How shall I say this.....upgrades? Just as Microsoft, the king of software has made billions of dollars off of consumers by continually upgrading their operating system as well as their software, Celera will make money by continually providing updates and revisions on not only their genome sequence, but also their annotation and software. Their initial "version" will be akin to MS-DOS, where it will be widely used and affordable. But soon they will get their consumers attached to their product, and with each improved version (Windows 3.1, Windows95, Windows 98), they will be able to charge more and more as each successive version is superior to the previous one. With all of their computing and sequencing power, I am sure that Celera would be able to vastly improve their sequencing, annotations, and software every six months. As more is discovered in their field of proteomics, perhaps they will also begin to do the same. Of course, as Venter has said, they will keep those proteins which show medical promise. These are the proteins/sequences that they will most certainly patent and (hopefully) reap rewards. With Celera's financial and technological power, they will clearly be among the leaders in this field.

That concludes my thoughts on recent events/announcements. I now wish to address a few responses to my previous posts, namely the potential of cDNA (the foundation of Incyte's (INCY) future). Never in my post did I say that cDNA was useless (see previous posts for explanation of cDNA). I simply said that the full sequence which includes both introns and exons contains much more information. And this is what makes Celera's product much more appealing that Incyte's. For instance, the genomic DNA that Celera is aiming to produce contains sequences that are not converted into protein known as promoters. Promoter sequences are not contained in cDNA sequences (Incyte's product). These so-called "promoter" regions tell the cell what proteins to produce and when they should be produced. Some promoters are "stronger" than others and as a result, the genes that are associated with "stronger" promoters are more often expressed. Thus, these sequences carry vital information, even though they are not expressed as protein. They tell the cell to produce insulin, and when to produce it. And with the computing power that Celera now has, they may be able to soon predict with accuracy the binding of proteins with one another as well as with DNA and with medications. How can computers predict this? Well, all of protein folding and protein interaction is based on a little known science called biophysics. The essence of protein folding and protein interaction is fundamentally based in charge interactions (sort of like how magnets attract one another), which is a purely mathematical, and thus predictable, question. Thus, with improved computer modeling, Celera may be able to accurately predict what proteins will bind to. This is one of many important concepts in order to fully understand human physiology. So who cares about human physiology? We're taking about the all important dollar! Well, yes, a better understanding of human physiology will lead to better treatments which will lead to some serious cash flow. Furthermore, a better understanding of human physiology will complement Celera's proteomic research effort. They all tie in together, to produce a better understanding of how the human works. Now what drug company wouldn't pay for that kind of information? Of course, depending on Venter's ability to speed things up so that they are finished ahead of schedule, we're probably talking twenty or so years (I honestly have no idea). On the other hand, hopefully the revenue stream will pick up from their genomic efforts so that shareholders will begin to see a profit within a couple of years.

"There has been mounting resistance to CRA's effort to sequencing the genome not just from politicians, but also from ordinary citizens..."

So what about the competition? Well, INCY and HGSI are in similar, yet different fields. As I understand it, INCY deals primarily with cDNA sequences (the sequence of the "mature" mRNA that is cut up and glued back together) and not with genomic sequences (Celera's product). As I mentioned before, cDNA does not contain as much information, although it is a quick and dirty way to isolate expressed proteins (i.e. useful in the field of proteomics). INCY also is in the business of creating therapies. HGSI on the other hand, is (I think) sequencing genomic DNA like Celera as well as producing therapies. Right now they have 2 protein therapies in clinical trials (they may or may not be approved). However, both these companies are in pretty risky business. Although the rewards are gratuitous, what if the therapies that they have spent so much money on fails? That is a large part on which their earnings are based, and will severely hurt them. I have heard that CRA should not be valued nearly as much as these companies, because the rewards of being an information disseminator is not nearly as profitable as INCY and HGSI. Perhaps, but they will be making some money through their subscriptions (hopefully) while the huge payoff in proteomics is in the works. On the other hand, I believe that CRA should not underestimate INCY and HGSI despite not being direct competitors. I think CRA should take advantage of the fact that INCY has recently lost one of their larger subscribers and buy out INCY at a discounted price. This will give CRA a head start that they need in their proteomics effort as INCY has been in the proteomics field for a couple years now.

There has been mounting resistance to CRA's effort to sequencing the genome not just from politicians, but also from ordinary citizens as evidenced by the protest at the conference in Boston. This kind of criticism is important and necessary, and ethical issues must be adequately addressed lest such technology be abused. As one Fool put it, "the people that have to be addressed include, but are not limited to the following: Academia. Government. The Public. Medical Ethicists. Environmental activists(as they get into management of crops and animal husbandry issues). Physicians in practice. The Press." (Post #9802) However, on the other hand, the public also needs to be aware that there are already several threats to our genetic makeup. Many substances in the environment that we live in right now contain carcinogens and mutagens (substances that cause cancer and mutations). For example, the sun. How do we get away from it? And yet it bombards us with cosmic radiation on a daily basis. We encounter chemical exposure everyday that are known to cause cancer, such as petroleum products. And lastly, although it has yet to be proven, we are surrounded by electromagnetic fields, most notably, cellular phones (but also power lines, etc.), which may explain the rise in incidental (random) cancer rates. (Of course this could also be explained by the fact that we live longer now)

In any case, I am hopeful that Celera will begin to generate greater revenues, especially this summer with the first release of the human genome sequence. Their future project of proteomics will provide all the future potential a company can handle. This of course will take time, and I am not in the field of predicting the future. Cheers.


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