The rich mystery of the human genome

By Martha Slud
CNNfn Staff Writer

Celera Genomics Group hopes to profit from sequencing the human genome by charging researchers a fee for access to the information

NEW YORK (CNNfn) -- The unraveling of the human genome has been dubbed the Holy Grail of the drug industry, a discovery that holds the secrets to how human beings live and die. And for Wall Street -- which is keeping a close eye on this scientific watershed -- the mysteries of the body's genetic makeup may hold the potential for great riches.

In the past year investors have become infatuated with genomics -- the study of the structure and function of genes -- sending shares in many young, yet-to-be-profitable biotechnology companies soaring.

The volatile sector has caught the attention of many investors who believe that genomics discoveries have the potential to revolutionize the way doctors diagnose disease and scientists find innovative new treatments for everything from cancer to Alzheimer's disease to depression.

Many investors who got their feet wet in the stock market through investments in another tumultuous sector -- the Internet -- are also attracted by the razzle-dazzle computer technology behind genomics.

Companies such as Celera Genomics Group, a Rockville, Maryland-based firm that says it has completed a "rough draft" of the human genome by processing reams of data through its supercomputers, more closely resemble high-tech firms in many ways than traditional biotech or drug companies.

Drug companies get in

Major pharmaceutical companies meanwhile are quietly making their own investments in genomics. Drug makers, many of whom have launched their own genomics units, have entered strategic partnerships with gene-hunting companies such as Celera Genomics, Incyte Genomics Inc. and Millennium Pharmaceuticals to tap into their voluminous databases of genetic information.

For the drug industry, the hope is that once the genome is charted and read, scientists will have a greater understanding of mutations in genes that can cause illness. Then they can develop more potent drugs that are custom designed for a patient's individual genetic profile -- potentially opening the floodgates of drug discovery.

Drug makers eventually hope to get new medicines to market quicker through more effective clinical trials of medications that better target specific groups of the population based on similar gene types.

Research into the human genome "impacts everything we're doing in the entire discovery pipeline" of new medicines, said Nicholas Dracopoli, executive director of pharmacogenomics -- the application of genetic research to new drug development -- at Bristol Myers-Squibb, one of the largest U.S. drug makers.

Drug makers are betting genetic research will allow them to make medicines more effective by tailoring them to a patient's genetic profile

"The elucidation of the genome sequence will allow you to develop a much better molecular understanding of the cause of disease," he said. "If you understand the molecular basis of the disease, you will ultimately be able to develop much better pharmaceuticals."

Other opportunities

Study into the genome also has created opportunities for many other types of companies, said Todd Nelson, a genomics sector analyst at Merrill Lynch in New York.

Nelson said one sector that likely stands to gain for the long term is so-called genetic "pick and shovel" companies, such as PE Biosystems Group or Qiagen, which make the equipment needed by genomics companies to sequence and assemble genes.

"The content that flows out of the human genome will create demand for their products," he said.

Also hoping to benefit from a new age of custom-designed medicine are diagnostic companies, which see major opportunities ahead in genetic-based screening of diseases. Gene-based diagnostics tests already have been developed for infectious diseases such as HIV and Hepatitis C.

Industry experts caution, however, that the practical application of much of this genomics data may be years away.

Now that the genome is charted, scientists will work on translating the billions of human DNA sequences into an in-depth understanding of how genes function within the body. Only then will they be able to broadly apply this knowledge to the creation of new medicines.

Discoveries without profits?

The publication of a rough draft of the genome "is fairly significant, but it's also just the beginning," said Frank DiLorenzo, a stock analyst at S&P Equity Group in New York who covers the biotech industry. "It's sort of like having the words in the dictionary, but you don't really what they mean. You can't put them into a sentence or a phrase or anything."

It likely will take as long as a decade for the first true, genomics-based drugs to come to market, predicted biotechnology pioneer George Rathmann, a co-founder of industry bellwether Amgen Inc. and now chairman of the young biotech firm Hyseq Inc.

"It's a running start. It really is," he said. "But if anybody thinks 10 minutes after you've identified the problem, you'll have something to give a patient, you won't. It may take 10 years 'til the time you have a therapy."

Many observers also question how companies involved in genomics research, such as the high-profile Celera, will be able to turn their scientific discoveries into profits.

Those fears were crystallized in March when President Clinton and British Prime Minister Tony Blair sent shivers through the spines of many biotech investors by suggesting that companies should make their genomics research publicly available.

Their comments sparked worries that many of these companies will not have patent protection for their discoveries, triggering a meltdown in the value of many biotech stocks. Many stocks have not recovered.

Stocks already volatile

Celera's recent stock performance

Genomics stocks, as many investors have learned, are not for the faint of heart. Celera stock, for example, has surged from a low of about $7 a year ago to as high as $276 earlier this year, before settling back to about $126 in recent trading.

Stock in another genomics firm, Human Genome Sciences Inc., has wildly gyrated from a low of $19.75 a year ago to as high as $232.75 earlier this year. It is now trading at about $141 per share.

Many investors who got in on the ground level of these stocks are sitting on hefty profits, but those who bought at the stocks' highs may be waiting for some time before their shares return to their earlier peaks.

Wall Street for months has been anticipating the announcement that the rough draft of the genome has been completed. In recent weeks the biotech sector has enjoyed a run-up in advance of the news -- helping many stocks regain some of the ground they lost this spring.

Analysts say that now that this landmark announcement has been made, investors will be turning their attention to what comes next.

"I think what investors will focus on is the companies that are best poised to take advantage of the information," DiLorenzo said.

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