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Celera
A Holiday Stocking Stuffer for All

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By tomheadrick
December 26, 2000

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As I have taken time to think more about what I wrote a week ago in a post titled "It's Just My Opinion" there are good things about this company too. Try this mental exercise; suppose Celera had not sequenced the human genome (I know that's a departure from reality, but so was their stock price 8 months ago so what the hey) but suppose the human genome had been sequenced by the Public International Consortium and no one else, and then Celera came along with no supercomputing capacity, no bank of sequencers? What form would this company exist in? Would it exist as a software developer building tools for database building and sequence comparison? What sort of competitive sustainable advantage (CSA) would that be? Given the current landscape of companies that fit that profile, e.g. Lion, Genomica, DoubleTwist, do any of them have some sort of CSA over the other? It is difficult to identify one at this point. Celera would be another player in that universe of tweener's. Is Celera's CSA in the supercomputer and sequencer's? In part, yes.

What were they thinking?

I remember reading my first annual report from the then named PE Corp. In it were words from the VP of research at Amgen, he was quoted in the report saying the technology of Celera is exciting and the people working there and the strong backing they had from PE would assure them a position of leadership in life sciences information. Amgen put a little of their money where their collective mouth was by being a early access subscriber. What did Amgen have to gain by lending their professional reputation out like that? Word on the message boards is that Amgen has scrapped their internal genomics program. Why would they be doing a complete 180 from giving CRA some sort of endorsement to scrapping their genomics program. Is it possible they're outsourcing their internal genomics program to Celera? Is the move by Scott Paterson from Amgen's proteomics department to Celera's more of that same transition? Or is Amgen scrapping their internal protein informatics department also?

There was an article some weeks ago that was posted on the Celera board that linked you to an interview with Sorin Istrial from Celera who was hired from Los Alamos. In the article he emphasizes that it's the informatics department of Celera to approach a client with the goal of Celera becoming their dedicated IT provider of informatics and LIMS. Is this possibly what's happening between Celera and Amgen? Is the task of provisioning most or all of a client's IT requirements such a large project given the unusually large amounts of data, data management and still somewhat lacking expertise of how to compile, curate and assign relevance to it, and customize it for a client, that to casual observers of these relationships we are not able to appreciate what is really being built between Celera and a client. That idea might be extended to better understand the duality of the subscriptions AHP made with Incyte and Celera. Perhaps AHP is looking for potential targets from EST's with Incyte and LIMS from Celera?

Week after week I read interviews of bioinformaticist's at Bioinform and everyone of them agree that the industry will suffer from data overload for the next 5 years. The field lacks people and tools to manage all this information. Is Celera's differentiation in their ability to manage and work with all this raw data? Has their own sequencing of the human, mouse and fly given them such a hands-on orientation with the data that it has lead to a sustainable advantage as a result? It is still the common belief that the pharma/bio industry is knee deep in potential targets and what they need is a way to better manage and develop this ocean of data.

Did I ever tell you about my high school football coach?

When I was a few years younger I had the dream of building my own business. My high school football coach comes from a financially well-healed family. They are business owner's and minority owner's of other companies as well. One day I decided to approach him for some start-up capital, he seemed a logical choice, he has acted as a seed money venture capitalist before. Well, I pitched him with my idea and he bit. I'll never forget the words he spoke to me after he read my prospectus and said ".....Tom, I want you to keep a copy of this prospectus and each annual report you submit to me over the years. Every year I want you to go back and read this original prospectus and see if or how your business has changed from this original plan." Words I will never forget.

Last night I picked up my book titled "Essays by Warren Buffett" and on page 91 of the book Mr. Buffett starts out, "I was recently studying the 1896 report of Coke (and you think that you are behind in your reading!). At that time Coke, thought it was already the leading soft drink, had been around only a decade. But its blueprint for the next 100 years was already drawn."

The 1999 annual report of PE Corp is, I think, the earliest point where one can get a full head of information about what the blueprint for Celera is for the next few decades. In the "Forward Looking Statements" section, Celera tells us that "Potential initial customers are limited in number and belong to a single industry.....and for the next few years it will derive a significant portion of its revenues from fees paid by pharmaceutical companies and larger biotechnology companies for its information products and services. Certain universities and research institutes have been in discussion with Celera about becoming subscribers.

Celera, in that report, goes through much labor to talk about polymorphism data. In fact most of the report is about polymorphism data and individualized medicine. They go on, "A central part of this mission is to identify and catalog these single-letter DNA variations-called SNPs. As genes and SNPs are identified and made available to researchers, our understanding of disease will significantly broaden. We will enable a new approach to pharmaceutical development that is more systematic and less random. We will develop tools that will help physicians better diagnose diseases based on their genetic component. And further into the future, we will help to shape a new kind of medical practice that is largely preventive and designed to better treat existing disease." In another paragraph they come right out and say, "Additional members of our staff are important to development of information, tools, and services required for implementation of its business plan, including Dr. Sam Broder, VP and Chief Medical Officer."

Examining these two paragraphs one should come to the realization that Celera new going into this that the database provisioning business model is/was limited. Their blueprint for the next 100 years is about individualized health/medicine.

Bread crumbs along the trail

The 1999 Annual Report

What we know: One hundred thousand people die each year in the US alone due to pharmaceutical drug side effects.

What we lack: Drugs that are targeted to specific genetic profiles, so adverse reactions become a thing of the past.

The Celera Genomics Solution: A comprehensive set of information on genetic variation that will allow scientists to develop individualized approaches to treatment.

Celera mapped the human genome to find our SNPs. The computing power behind the WGS technique is one reason while they feel confident that their gene discovery and polymorphism assay services will be successful. Coupled with a masterful PR blitz that caused Wall Streeter's to hyper-Venter-late, Celera actually "made" a Billion dollars along the way. Atta boy.

September 1999: Celera Genomics and Gemini Research Limited (a wholly owned subsidiary of Gemini Holdings plc) today announced that they have entered a collaboration to discover genes and genetic polymorphisms associated with common, chronic, age-related diseases. The collaboration combines Gemini's pioneering clinical genetics approach with Celera's DNA sequence information and computational gene discovery capability. Gemini's unique method of gene function elucidation involves linking genetic differences in a defined population to variations in some 1,500 clinically significant "risk traits" collected from large numbers of identical and non-identical twin subjects. The research will focus on those genetic regions ("loci") which Gemini has previously identified as likely to harbor genes that influence defined risk traits and hence the ultimate manifestation of disease.

March 2000: Celera and City of Hope collaborate to study SNP/Breast Cancer correlation. "This research collaboration with City of Hope should add significant value to our polymorphism information," said Sam Broder, M.D., chief medical officer of Celera and former director of the National Cancer Institute. "We hope that this collaboration will enable clinical investigators to develop better ways to prevent, diagnose, and treat breast cancer."

November 2000, Celera/Hosp. for Sick Children: "Access to Celera's database products should facilitate scientific discovery by allowing researchers at The Hospital for Sick Children to concentrate on identifying disease-causing genes, which opens the door for improved diagnosis and potentially new treatments for disease. We look forward to collaborating further with Celera in the future," said Dr. Lap-Chee Tsui, HSC's geneticist-in-chief, a professor of Molecular and Medical Genetics at the University of Toronto and holder of the H.E. Sellers Chair in Cystic Fibrosis at The Hospital for Sick Children.

Affiliated with the University of Toronto, The Hospital for Sick Children is the largest pediatric health science center in Canada. Its mission is to provide the best in family-centered, compassionate care, to lead in scientific and clinical advancement, and to prepare the next generation of leaders in child health. The synergy between the hospital's Research Institute and its patient care professionals leads to breakthroughs in treatment and ultimately, prevention of childhood disease and injuries.

Apri1 15th, 2000: On The Motley Fool Radio Show, Dr. Venter says they intend to convert the information to help everyone. Says they have 6 billion potential customers. Says they are sequencing proteins in tumors to develop individualized therapies (City of Hope). States further that in 2-5 years consumers will be signing on to Celera.com. Create the opportunity to prevent predisposition. Sidebar: It is beyond my comprehension how they will do this, given it took 300 sequencers and 9 months to do the human genome. Question for scientist's. Is it possible that if you had several reference human genome maps that had the known location on the chromosomes or in base pairs, disease related SNPs, that one might be able to locate the associated disease gene or SNP variation for an individual without sequencing their entire genome. This seems a more logical approach given you can already be tested for the presence of particular genes. (I'm not sure I asked that properly, but I think I got the proper message transferred.

June 27th, 2000: Shortly after the completion announcement of the Human Genome in Washington DC, at a investor conference meeting in Chicago, Il., a Wall Street analyst asks Dr. Venter, "Why did you sequence the human genome?" Venter replies, "This has been the ground work for enabling the medical community and redefining the medical nomenclature. (Remember they sequenced the human genome to locate SNPs).

September, 2000: "The advantages of using the whole genome shotgun technique for sequencing genomes are uniform SNP coverage of the genome and the fact that every SNP is mapped to its exact genome location," said J. Craig Venter, Ph.D., Celera's president and chief scientific officer. "Combining the genetic variation information from Celera's diverse donor pool with the annotated human genome and other publicly available sources should give researchers a better understanding of the variations in the genetic code and should enable pharmaceutical, biotech, and academic researchers to discover improved drug therapies through enhanced knowledge of the genetic basis of disease, drug efficacy and drug toxicity in individuals."

Celera's SNP Reference Database is expected to be the single most comprehensive and integrated source of single nucleotide polymorphisms (SNPs), the major form of DNA variation responsible for human traits, certain illnesses, and variable drug safety and efficacy. SNPs may provide the foundation for new diagnostics, therapeutics, and predictive medicine products. SNPs are also extremely useful tools for the discovery and assignment of function for new genes in population studies. These correlations to individual genetic profiles represent an important basis for future developments in the interaction between consumers, physicians, and solution providers, enabling personalized medicine and health planning.

December, 2000: Tony L. White's company threw open the handbook of life this year by sequencing the human genome. An eventual sequel, as he sees it, is equipping people with their own genetic blueprints. `I can't predict when all this shift is going to become apparent, but I think it's safe to say it's going to be off the charts,` White told a gathering yesterday of the Nashville Healthcare Council. Also, Vanderbilt's Jacobson said the university and Celera are discussing the development of a DNA bank.

20/20 Hindsight

Warren Buffett says that he could recognize Coke's blueprint from observation of the their 1896 annual report. While I've never seen such a document I can not say what it is he saw in that report that lead him to make such an observation. Nor does he state what it is he saw. The only direct reference he makes are some quotes from then CEO, Asa Candler. "We have not lagged in our efforts to go into to all the world teaching that Coca-Cola is the article, par excellence, for the health and good feeling of all the people.", Candler wrote. Adding further, "No article of like character has ever so firmly entrenched itself in public favor." Buffett adds one more quote from Candler, "Beginning this year about March 1st.....we employed ten traveling salesmen by means of which, with systematic correspondence from office, we covered almost every territory of the Union." Buffett then quips, that's his kind of sales force.

Are you telling me that if, in 1896, I came to you with a product of carbonated sugar-water and asked you to be an investor in my new venture and you were to scrutinize my business plan and look for sustainable advantage in that business and asked me,

"Well, Tom, what sustainable advantage does your new venture have?"

and I would respond, "Warren, it's like this. We are gonna sell, sell, sell. Are you in?"

He would have probably then asked, "And just why are people going to buy it, Tom. Just because you show up at their door and make a great presentation of your product doesn't mean they'll buy it, let alone repeatedly for decades to come."

"But Mr. Buffett, Coke is cool and refreshing and sweet to the taste buds. Here, try some."

"Yes Tom, you're right. Coke is cool and refreshing and sweet. But I have to tell you, Tom, in the face of free water being just as cool and refreshing I don't see the economic value of paying for something cool and refreshing when I can drink water for free."

I soon realized Buffett was a tougher nut to crack than I thought so I thanked him for the opportunity and left. When I climbed back on top of my carriage and gave the lead horse a whip I couldn't help but think what a chump that Buffett is for not seeing the real promise of my new product. No vision.

Tom