Genomics shows signs of rebound from steep plunge

September 03, 2006|By Tricia Bishop | Tricia Bishop,Sun reporter

Selling subscription access to genetic information helped shares of Gene Logic Inc. open around $42 on June 26, 2000 - the same day a news conference was held at the White House to announce a completed draft of the human genome.

Six years later, that business model also was responsible for a closing stock price of $1.30, after the company warned its earnings would be lower than expected.

The Gaithersburg biotech is in the middle of learning a lesson many of its peers have already taken to heart: There's little interest in paying for genetic information, particularly when much of it is available free. Other companies that once thought such data subscriptions would make them millions have abandoned them, unable to make a go of it.

While scientists are still heralding genomics - loosely defined as the study of genes and their functions - as the key to revolutionizing medicine, companies have stopped calling it a precursor to untold profits. It's a statement that tripped up multiple businesses after executives snared billions in investments.

But weak results led to suspicion about the value of documenting the genome, as well as the potential for financial returns from biotechnology. That industry has seen investment drop to $20.1 billion last year from a high of $38 billion in 2000.

Though money is starting to flow again, it's at a much slower, more reasoned pace.

The skepticism hit Maryland especially hard. More than 350 biotechnology companies reside here, and economic development officials link their financial futures directly with the health of the state's. The valuations of such companies have dropped markedly since 2000.

"There's nothing kind of magic about [genomics], except for the fact that they engendered a heck of a lot of hype," said Charles Duncan, a biotechnology analyst with JMP Securities in New York.

Less than a decade ago, Rockville's Celera Genomics Group and a consortium of scientists led by the National Institutes of Health in Maryland were racing one another to document the genome. They promised it would transform medicine by providing a treasure map to genes that drugs could then target.

Both factions - government and industry - agreed that it would likely take years for products to materialize based on the data.

But that message often got lost in translation to the public. That's because many business executives claimed that money could be made immediately by selling the code to drugmakers.

Caught up in the excitement, investors poured billions into the life sciences, regardless of whether the recipients were in the genomics field. The fervor was similar to that which fueled the dot-com boom.

In March 2000, Gene Logic's stock traded at $144 a share, and Celera's hit a high of $247.

But by the time a draft of the map was announced three months later, Wall Street had begun to have a change of heart. Biotech stocks had been dropping since the spring, and they continued to do so even as the heads of Celera and the NIH project stood with then-President Bill Clinton to announce the mapping feat.

"It's almost like when we landed on the moon. Once it was done, people said `big deal,'" said Craig Rosen, one of the founders of Rockville's Human Genome Sciences Inc., or HGS, which claims to be the first official genomics company.

In March 2000, HGS stock reached $112.63. Three months later when the historic announcement was made, it closed at $71.69. A year later, shares sold for $57.55. Two years later: $12.71. And during the past year, the company's stock has averaged about $10.50.

It seems investors had realized that scientific advances weren't going to translate to immediate returns. "A lot started off as genomics companies selling database information, and then large pharma didn't really know what to do with it," Rosen said. "That's the difference with a service company. If you provide a service, you can't make customers use it."

As a public consortium, data from the NIH genome group was available free in the public domain and soon companies that focused on subscription databases dismantled their programs. Celera began shifting gears in 2002, finally exiting from databases last year.

Delaware's Incyte Pharmaceuticals did the same and now focuses on drug development, which can take a dozen years and hundreds of millions of dollars to bring a product to market. Celera tried as well, but failed. Today, it's focused on creating devices to diagnose disease and discovering proteins for use by other drugmakers.

However, HGS kept drugs its goal from the start when the company was founded in 1992. Last month, it announced plans to begin final stage clinical testing of a Lupus drug that is based on gene information. If approved for sale, the drug would be among the first genomics treatments to make it to market.

But HGS tried selling certain subscription data as well. The difference is, it wasn't dependent on the income, said Rosen, who has since left the company to spin out a new one called CoGenesys Inc.

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