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May 19, 2000
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Just some thoughts...
I've been away for awhile, and haven't been reading the board much� just little pieces here and there. So many issues� so little time. I'm somewhat uneasy with how things have been developing. Because I wonder what others think, I'd like to share some of my thoughts on several things that I've read, and some of the concerns I've developed. Please feel free to disagree, respond, and let me know what you think�
On Celera's ever-evolving business model:
I'm a bit worried by Celera's morphing of its business model, the mishandling (miscommunication/ misinterpretation?) of PR, and the future prospects of their primary revenue producing service (the genomics databases). The business model began as a straightforward information platform. Celera would provide data (the genome) as well as committed, presumably proprietary analysis tools. Their aggressive completion of the Drosophila genome and acquisition of Paracel, a leading bioinformatics hardware/software developer, seemed to confirm that Celera meant business, and more importantly, could deliver the goods. Simply put, they would provide the best product, for a price-- a simple, time tested, and reliable model! The existence of cheaper (even free) competitors would conceivably be irrelevant, if the price was reasonable ($5M -10M seems reasonable given the size of Pharma research budgets�) and the added value significant. In my opinion, everything seemed consistent with the success of this business model. Recently, the strength of this opinion has weakened.
The biotech pullback has induced me to look again at my beloved stock with somewhat less rose-colored glasses. Don't get me wrong, I still am long and will remain long. I still love Celera and their vision, but I also won't bet any *more* $$$ on this biotech until I see some clarification of its future prospects. People have said that this is a long term buy and hold. I agree in principle, but this is not your typical buy-and-hold stock. This stock comes with risk-- major risk. I haven't appreciated that enough until recently.
A while back (February?), Venter hinted that additional subscriptions were on the horizon. The only announcements to materialize since that prognostication are Takada in March of 2000, and the recent agreement with Vanderbilt University. Is this it? I have read (here on this board, I think) that Celera is developing/expanding a salesforce. I hope so, because the pace of development of new agreements has been somewhat lackluster. In my mind, it raises a question as to whether or not Celera's projections for the future will materialize. Will this product really provide enough value for Pharma to subscribe? Perhaps more significantly, will the database ever penetrate the smaller biotech market? What about the academic market-- will more universities subscribe, even at modest cost? Ask me this question a month ago, I would have said yes, yes, and yes. Ask me today, I'm not so sure. Why? Because of the lack of new subscriptions. Why are they trickling in, if this database is crucial for the future of pharma and biotech?
I can *imagine* several potential reasons. First, the database is still in development. What are companies getting for their investment? Is it a complete product? Will future releases be more fully annotated, have greater accuracy, and more potential usefulness? If so, why not wait? Second, the database may not currently provide the proprietary value that has been implied. If I can get equal value from subscription-free sources, I'll look there first. When Celera really delivers a superior product, I may change my mind, but until then I'll take free. One positive is that this kind of a shortcoming (*if* it exists) can be corrected, especially with the acquisition of Paracel, a leader in the bioinformatics arena. Third, Pharma already has a full plate of targets, and any more seem unnecessary short term. Trolling for homologues of known genes might then be cost-ineffective from a discovery perspective-- it would reduce concentration on existing already promising potential targets. Fourth, the kind of drug discovery that genomics facilitates is *limited* in its potential scope from an industry perspective. Maybe the large-scale utilization of this database is really only feasible for big Pharma. This worries me.
What do I mean? I'll elaborate. Genomics will provide a new batch of potential drug targets by suggesting functions for previously unknown and unidentified genes. These kinds of similarity comparisons (similarity or homology searches) are only predictive. Identification of DNA sequence similarity to a gene of known function (or more properly a gene whose product has a known function) is merely suggestive. These similarities must be confirmed by experimentation. Therefore, a company must have the assets and manpower to pursue the large number (potentially hundreds, if not thousands) of potential leads that analysis of genomic data provides. Is this beyond the scope of smaller biotechs? Quite possibly. From this perspective, a genomics drug discovery model is only feasible for big Pharma-- companies with the manpower, capital to support the necessarily high burn rates, and existing experience with high-throughput screening methods. Given this hypothetical situation, will smaller, traditional biotechs be willing to pay subscription fees for a database that their competitors already have full access to, when their competitors are *better* positioned to take advantage of that database? In short, is Celera's database capable of providing value to *smaller* subscribers? If not, then database subscriptions will continue to be limited in number, and revenue growth may be hampered. This has me concerned. What do others think? Will we see market penetration into the smaller biotech sector, or will Celera's customers be limited to the Pharma/MegaBiotech (Amgen, etc.) sector?
On Celera's recent "delay" of the human genome assembly completion press release:
To be honest, I'm relieved that they chose not to release "completion" of assembly. Yes, the stock would have risen, but the drop would have followed, when Celera ultimately had to explain to everyone *again*, that completion of "assembly" does not mean they're done with the validation/annotation, etc., etc., etc. PR in the biotech arena is a nightmare. In general, people do not understand the sector, the businesses, or the science. That makes PR a challenge. I would like to see a little better control of press releases-- maybe even a pullback on their frequency. While they do seem to boost the stock price, they only benefit day traders. The rest of us are just getting seasick! Stick to fewer releases that mark only the most significant steps of development. Too many releases give the impression that Celera is just trying to buoy the share price. This may ease the pain short term, but it does little in the long term. Ultimately, Celera will be judged by its delivery on its business promises, not on how fast it completes sequencing, assembly, validation and annotation. Delaying PR until assembly is complete, and some annotation is underway is a good idea. A juicy little tidbit like 'after partial annotation of the human genome, Celera has identified 53 previously unknown cytokine-related genes, among the 137,000 currently predicted human genes', would be a much more significant release, and would also, in my opinion, be better received.
The "PR or not to PR" question is also nagging at me for another reason. It's related to the subscriptions concern. It seems to me that if you are selling a product that is in early development (in many ways something that resembles a beta release), then foreshadowing any updates that may be on the horizon could actually be counterproductive. Especially when you are predicting that those updates will be ready within "weeks". Why would anyone buy Win 95A, six weeks before Microsoft released Win 95B? (Better question: why would anybody buy Win 95 at all?) Could the same apply here? From the customer's perspective, if the *human* genome appears in June, why not wait it out and actually preview what we are buying, before we lay out the cash? It's really the human genome that we are primarily interested in anyway. Perhaps, keeping the customer a little less informed with regard to future developments might be wise?
On the whole proteomics initiative:
Would *anyone* at Celera care to elaborate in *any* meaningful way? What are they planning? Have they even started anything? It seems ridiculous to formally state that Celera is entering into a new research area, without even a tiny nugget of description of their short or long term goals. If you aren't going to follow it up with concrete plans, why even inform investors at all? It all leaves me wondering what they are going to do. Wondering makes me uneasy. I don't think I'm alone�
I'm interested in what others think on these issues. Looking forward to hearing your opinions�
"To PR or not to PR"-- that is the question!
Thanks for listening-- sorry about the length,
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