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September 11, 2000

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Subject:  Re: CRA's Business Model
Author:  Wotdabny

There's been a run of new posters lately, folks asking what's going on with Celera. The truth is: not much that we know of. As anyone who keeps up with the News Links knows, there's quite a bit of compelling news out there -- what secrets Celera is even now unravelling we won't know for some time to come. Everything there is to say about Celera to date has been said, as Dave F. reminds us. So, for those of you wondering why we're not talking much about Celera lately, well, that's why.

I can only think of one thing about Celera that no one's said lately (although I've approached the topic before): Celera can't be analyzed.

Everyone who tries to value Celera comes up with a very different number, and the share price changes frequently and radically. That's because Celera is a company built in a glowing future, and no one knows what that future will be like, or if it'll even arrive.

There has been little news to come from Celera in recent weeks, and in that time investor sentiment has flagged. After the announcement of the completion of the mapping of the human genome, it seems inevitable that there would have been a feeling of downhillness, an after-peak malaise -- and indeed the share price has zagged down twenty-five percent or so. Filling the void of news is an air of "what now?"

Some people are openly questioning the business model in light of the potential developments that have been mentioned, especially those given breath by Dr. Venter, the man who is most directly responsible for Celera's existence and success to date. He mentioned not long ago that, if sufficiently promising drug candidates were discovered (specifically, cancer vaccines), Celera might move on it independently, developing its own drugs, perhaps even doing clinical trials in-house. Respectable analysts came forward immediately after Dr. Venter's statements to take it one step further: Celera would evolve into a pharmaceutical company. Dr. Venter has since clarified: Celera's product will always primarily be information, but that does not preclude interest in potential cancer vaccines. The funny thing is, if you read everything that was said, nothing Dr. Venter volunteered violated the business model -- Celera's always been open to the possibility of expanding into drug development, and with the expertise of the people there, and their opportunity to examine the first information of its kind ever, it's easy to understand why they'd want to keep that particular option open. But it's just an option, one they may or may not exercise. It depends on what happens, on what is or isn't discovered.

Stuff like this drives a certain kind of investor crazy, namely, the sort of investor who believes that a company ought to specify a business plan and execute it -- and that if it fails to do that, it is a harbinger of business failure now or to come. And that investor might be right in certain circumstances. Mature companies in mature industries fit the bill: if Coke's business model were simply, "sell more soda," and it were to fail to increase sales, this investor would be right in pointing out that the model isn't executing well. If Coke were suddenly to veer off course, getting into foot apparel, this investor would be correct in asking what the heck Coke's doing. That sort of thing's just not articulated in the business model of selling more pop.

However, there's a world of difference between this fantasy Coke and the real Celera. Although any company in the world has certain uncertainties about it -- and Coke's no exception -- Celera's essential existence lies entirely in the future. Coke has been sold since Geronimo surrendered in 1886, but Celera, like many companies, is little more than an idea that may poof out of existence tomorrow. To date it has shown steep losses, which it will continue to show for some time to come, as it moves as quickly as possible to create an insurmountable lead: a product that no one else can offer, with potential the world has never seen. This is prerequisite to Celera creating fertile ground for the discoveries that will truly bring the business into being, that will make it a viable, vital enterprise. How important will Celera's product -- the annotated genomes of various critters, including humans -- turn out to be? How much profit will the company make by selling it? What will be the impact of its joint ventures and partnerships? How soon will important discoveries be made? What will they be? How much will they be worth? How much of that will Celera keep? Then what will happen? Nobody knows the answers to any of these questions, not even Dr. Venter. Yet the answers to questions like these will determine the extent of Celera's success, will define what Celera's possibilities become. How big will Celera be in ten years? Its advantages may be wholly co-opted by competitors, and it could go out of business. Or it may not be able to deliver anything but a few more subscriptions, and no breakthroughs may occur during the next decade, in which case it could trade for a fraction of today's price. Or it may grow and expand on certain partnerships and developments, and be worth a few times more or so, and perhaps turn out to be little better an investment than the market generally -- a poor return for the risk. Or it may unravel the cure to various cancers, with the cure to aging itself coming in the next decade, and be more richly valued than Pfizer. No, really. Not many companies with a $5-6b market cap have that last scenario as a distinct and reasonable possibility. Then again, few companies have the potential Celera has, or are as well positioned: Celera has enough cash to continue to expand indefinitely on the interest its money is earning; its incestuous relationship with Applied Biosystems gives it a formidable edge; its intellectual capital and computing power are unparalleled. If any company can create fertile ground for discoveries that will redefine human life in terms we choose for ourselves -- terms that may someday exclude words like disease and death -- it's Celera.

That's the potential, so great it's hard to imagine the implications. But the point is that no one knows. People are out there trying to determine the value of the university and corporate subscriptions, accounting for each new business relationship, dividing current sales by price, sorting out its returns versus the risk-free rate, and yet none of these things matter one jot in the face of the promise Celera offers, the ultimate prize it could win -- or lose. Celera, with almost all of its business yet to come through an uncertain but potentially world-changing discovery process, can't be measured by any metrics. Welcome to Rule Breakerville.

My crystal ball's in the shop, so all I can offer is this: if you choose to invest in Celera, you should know that it may go to zero. Tomorrow. It may also reach for the stars. Determine your tolerance for risk, and invest accordingly.

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