Posted on 11-2-2003

Gene Revolution Costs Investors Billions
By Paul Elias, Associated Press

SAN FRANCISCO -- Government-backed scientists will fete themselves in April
during a monthlong celebration of the marvels of the human genetic code.
They'll toast the much-hyped map of life, which genome researchers believe
will lead to cures for diseases and greatly enrich biotech firms.

But as the National Human Genome Research Institute unveils its plans for
putting the gene map to work helping humankind, it will need to forgive
investors for not sharing in all the excitement. The genomics revolution
has indeed led to a few medical breakthroughs -- but it has cost investors
billions of dollars with few returns.

Understanding the human genome is expected to lead to the greatest
evolution in medicine since the introduction of antibiotics, said the
institute's director, Francis Collins, counseling patience for anyone
seeking cures and profits. The genomics revolution has certainly led to a
few medical breakthroughs
since Collins' government-supported gene hunters and their archrivals at
the J. Craig Venter-led Celera Genomics simultaneously unveiled their maps
in June 2000. As it turned out, those maps included much terra incognita --
thousands of genes were uncharted. After much more hard work, the gene
wizards now say the code is substantially complete. Already, some
diagnostic tests have resulted from knowing the location and function of
some of the thousands of genes buried within the miles-long strands of
genetic material balled together in every cell of the human body. As a
result, some people susceptible to breast cancer or osteoporosis are
leading healthier lifestyles. And a few companies have had some success
developing hardware and software that sifts through the genetic strands,
most of which is useless garble, to find meaningful genes -- on Thursday,
IBM Corp. and deCODE Genetics Inc. of Iceland said they would jointly sell
deCODE's gene-mining software to drug makers, biotech firms and other
companies in hopes of ringing up about $100 million in sales over a
three-year period.

But all of this is small potatoes. The big payoff -- powerful
disease-fighting medicines -- has yet to
materialize.

Collins and other genomic scientists still firmly believe cures can be
found by slogging through the estimated 30,000 to 60,000 human genes to
identify mutations that cause disease, or genes that somehow protect
against illness. But they now warn that it may take a decade or more to
turn today's fairly crude maps of life's secrets into detailed
topographical charts. Their advice comes too late for the investors who
sunk billions of dollars into money-losing genomics companies, many of
which are dramatically altering their business plans, or closing down
altogether.

The 23 publicly traded genomics companies tracked by the investor
newsletter BioCentury dropped in value a combined 71 percent last year,
making it one of the hardest-hit sectors of 2002. In comparison, the
American Stock Exchange biotech index dropped 40 percent, and the Nasdaq
Stock Market fell 30 percent. "There was a certain amount of excess belief
that it was going to lead to instant solutions to human health," Dr. Robert
Stein, president of Incyte Corp., said of the human genome's decoding. A
gene-hunting pioneer based in Palo Alto, Incyte is hurriedly recasting
itself as a drug maker after replacing its management team and laying off
250 workers. Its stock trades around 4 a share, far off its high of nearly
190 three years ago. Last month, the firm formally dropped the word
Genomics from its name. "Obviously, we are not the only genomics company to
move into drug discovery," Incyte chief executive Paul Friedman said as he
pitched the new plan to investors at a recent San Francisco health care
conference.

It's hard to understate the changes that have occurred to genomics
companies since Collins and Venter jointly presented their teams' genome
maps on the White House lawn. Even genomics leader Celera is all but
abandoning the field and attempting to remake itself as drug maker. The
company fired the flamboyant Venter, and has made a significant
transformation during the last 18 months, said President Kathy Ordonez.
Stock in the Rockville, Md.-based Celera peaked at 276 a share in February
2000, meaning investors had plowed a combined $14 billion into the company.
The company is now valued around $725 million. Celera laid off 16 percent
of its workers in June, two months after Ordonez took over.

Having the human genome was an incredibly crucial step, she said, but
understanding what it means and translating that knowledge into medicines
is the key to profitability. Besides, much of what the companies tried to
sell was freely available via the Internet.

In retrospect, most observers have concluded that business models founded
on the idea of making money from restricted databases of pre-competitive
genomic information were ill-conceived, and most have failed or undergone
major restructuring into drug development companies, Collins said in the
e-mail interview.