The Best of the Best
size=2 ptsize=”10″>Companies Poised for Growth in 2000
and Beyond
Inside the beltway the true impact of the
phrase,”…It’s the economy stupid,” is stuff that legends are made of. Who knew
from that campaign battle cry back in 1992 what the payoff would be for the then
candidate Clinton? In the biotechnology circles, another prophetic phrase is
starting to slowly resonate amongst investors, creating a simmering excitement
around many companies: “It’s all in the genes.” This phrase will grow louder and
louder as scientists complete the unraveling of the entire human genome within
the next several years. It will resonate in the laboratory, it will be magnified
by the media, and ultimately companies on the ground floor of this exciting new
era in genomic technology will profit tremendously.
| “It’s all in the genes.” |
Within a year, scientists
may have a first draft of the entire human genome, uncovering genes that cause
every major disease known to mankind. This wealth of information will ultimately
change the way companies approach drug development and the way doctors treat
patients. As the Internet created an entirely new economy with unlimited
potential, the unmasking of the human genome will create tremendous opportunity
and wealth for those companies involved. Genomic technology is on the threshold
of a new frontier, and several companies are already reaping the benefits. In
the biotech industry, the word “gene” will do for companies what the phrase ”
.com” did for businesses involved in e-commerce. On Dec. 2, 1999, scientists at
the National Institute of Health announced the complete sequencing of human
chromosome 22, a first time accomplishment. That day, several gene- hunting
companies saw their stocks reflex up 30%-40% just on the news and the potential
of what could come. The reaction was Internetesque and the best is yet to come.
Many of the companies I’ll recommend have already been talked about in past
articles.
The Gene Industry
Within this growing sector of the biotech industry, there are three
categories of companies, each with unique yet complementary technology. All
three are vital for turning the process of finding genes into the process of
creating treatments that save lives and generate revenue.
color=#008000>
The Gene Collectorscolor=#0000ff>
This group of companies is in the business of
finding gene targets for the development of pharmaceutical products. This is the
library component of genomic technology. These companies have the capability of
identifying unknown genes and gene products, storing them in a database, and
creating revenue from licensing intellectual property fees. Many other
biotechnology and pharmaceutical companies will need these gene collectors as a
source of gene targets for a variety of diseases. These companies will prosper
over the next several years as the entire human genome is unfolded. The leaders
in this field are several companies I’ve already mentioned, but would like to
revisit.
Celera Genomics [ CRA>CRA], the genomic division of
Perkin-Elmer, was recently spun off in April and is in the race to sequence the
entire human genome. Their approach is a little different than the boys at the
NIH. However, they’re in the process of compiling a huge library of gene targets
for drug development and are poised to prosper over the next several years. The
company’s stock recently hit a new high in early December despite having no news
or profitability, and should go much higher as the race to identify the entire
human genome nears completion.
Incyte
Pharmaceuticals [INCY>INCY] is also in the business of identifying genes
and creating a database of genetic information. The company sequences new genes
and clones them for use as potential drug targets. Larger pharmaceutical
companies will need a company like this. Recently, Incyte announced an expansion
of its collaboration with Pfizer to accelerate its gene identification process
in order to patent potential drug targets. The company’s stock price hit a high
of 41 earlier in the year. However, it lost a patent infringement case in
September to Affymetrix [AFFX>AFFX], causing the price to fall to 18. Since
then, the stock has come back nicely to close in the mid- 30’s. The shares, like
those of Celera Genomics, will continue to climb as more genes are discovered.
The
Infrastructure
This subsector of
companies supplies the nuts and bolts lab technology to other companies in the
business of identifying and developing gene targets. These are the Cisco Systems
of the genomic industry. As Cisco supplies the infrastructure for the Internet
to flourish, these companies supply the technology for gene hunting labs to be
successful. As this entire field expands, these companies will be poised to take
advantage of the growth on the horizon.
Affymetrix [
AFFX>AFFX], a company I previously discussed, is the leader in supplying chip
technology used to process genetic information. Their technology allows other
companies to search for and decipher new genes on the human chromosome.
Affymetrix’s Genechip system is the company’s backbone technology. The company
is the Cisco Systems of the gene industry and its potential is limitless. The
stock price hovered around 25 in January. However, it took off in July and
reached a high of 127 as investors started to take a closer look at the gene
industry. It recently closed at 113 and has had an exceptional run this year.
However, the run has only started and this company will continue to grow in the
year 2000.
Curagen [
CRGN>CRGN], another infrastructure company, develops gene-identifying
software technology for other companies to license once genes are discovered.
This technology is used to develop potential pharmaceutical agents once a new
gene is discovered. Its stock price was stuck below 10 at the beginning of this
year. It recently closed at 39 3/4, receiving a nice boost in early December
when the news of the sequencing of human chromosome 22 hit the wires. Like
Affymetrix, this company will continue to grow as the entire genomic field
grows.
Abgenix
[ABGX>ABGX] is a company with exciting growth potential. This company has the
unique technology to produce pure human monoclonal antibodies that can be used
as potential pharmaceutical agents. When gene targets are discovered, this
technology is essential to the process of developing viable drug products from
these gene targets. Abgenix has developed an extensive array of alliances with
other companies eager to use its technology to assist in the development of
potential drug agents. Two of its most recent high- profile alliances involve
Human Genome Sciences (HGSI) and Chiron (CHIR). As more genes are discovered,
Abgenix’s technology will be in high demand. The stock price has skyrocketed
almost 300% for the year on continued enthusiasm over its technology and
potential growth. I believe it will continue to grow given the demand and the
discovery of new genes.
color=#0000ff>Companies That Have It All
| “The unmasking of the entire human genome…will change the landscape of the current biotech climate dramatically.” |
This subgroup consists of
those companies that have all the technology components in- house. These
companies not only have the ability to identify new genes and gene targets, but
possess the technology to convert these new genes into potential
pharmaceuticals, ultimately testing them in clinical trials. Everything is under
one roof. Companies in this category have the capability of taking the process
from a newly- discovered gene all the way to a revenue- producing drug. They
aren’t limited to one disease, but can develop potential drugs for all diseases.
The potential revenue streams are multifocal, from gene licensing to
collaborations, to end- product revenue.
Millennium
Pharmaceuticals [MLNM>MLNM] is the ” diamond” in this sector. This
company is in the process of creating a gene database as a source of potential
drug development. Its technology is in all areas of disease, from cancer to
obesity. It has several products in the clinical pipeline and has multiple
alliances with other, larger companies. There’s no limit to this company’s
potential and its positioned itself to take full advantage of a soon- to- be-
sequenced human genome.
The stock price had been stuck in the 30’s during the
first half of the year. However, since July it’s hit a high of 110 and recently
closed at 106. The shares will continue to climb due to evolving discoveries
(the most recent involving the granting of a patent for a key protein involved
in obesity), increasing awareness of its growing position in the gene industry,
and continued alliances. They also have several compounds in the pipeline based
on their genetic discoveries. This is one company to buy.
Human Genome Sciences [HGSI>HGSI], like Millennium
Pharmaceuticals, has all the technology to find a gene and transform it into a
revenue- producing drug. Its presence is felt in all the major diseases and the
company’s made several high- profile gene discoveries this year. It has several
products in clinical trials to treat a variety of blockbuster diseases and is
building an impressive gene/gene product library. It, like Millennium, is poised
to be a leader in gene-based therapy beyond 2000.
The stock has ballooned
300% for the year, recently closing at 129. It’s been riding a nice crest since
July and I believe this will continue.
The
Final Word
These are exciting times for
scientists and investors in many of the companies I’ve mentioned. Like the
Internet companies of the early 1990s, these companies aren’t well- known, have
no foreseeable profitability, and aren’t focused on by investors. Back then, it
wasn’t time for the AOLs to rise to the top. However, after 1995 something
changed the landscape: Investors know their story now. The unmasking of the
entire human genome within the next several years will change the landscape of
the current biotech climate dramatically. Those companies on the ground now will
be thrust into the spotlight.