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Here's my comment on the WSJ article which I first saw on the CRA board. Overall a good article. Some on CRA board didn't like because of a few comments that might be taken as negative about CRA, but in reality the article is about INCYTE, not Celera. How many of the positive articles that have been issued about CRA mentioned or quoted Incyte? Also, I suspect that many of the positive Celera articles have been written by East coast writers covering an East coast company. The WSJ article may have been written by a West coast writer, based in WSJ's Page Mill Palo Alto, Silicon Valley, CA offices. I remember the old articles about Bay Networks (MA) vs. Cisco (CA). You tend to talk to those you have better access to.

Randal Scott, for instance, is never going to map the whole human genetic blueprint. He isn't trying. But a company he co-founded, Incyte Pharmaceuticals Inc., has been pursuing gene-decoding with an eye to its usefulness to drug companies, and is now in position to tap the rich commercial value in this data.

Mostly a true statement. Incyte, however, initially talked about mapping the genome when Celera started talking about it, but they evidently changed their mind later and dropped that effort.

Incyte is especially far ahead in decoding the most commercially promising genes, the 15,000 to 20,000 that are thought most likely to be medically relevant. Unlike full-scale gene mappers, the company doesn't spend any time on the rest, nor on the vast reaches of barren DNA between genes. Now, says the research chief at drug maker Pfizer Inc., George Milne, "Incyte has built itself a privileged position. It will be one of a very small group with very large patent resources."

Pfizer is a subscriber to both Incyte and Celera. I think this is evidence that pharmaceuticals will subscribe to multiple vendors. Imagine how many biotechs and pharmaceuticals subscribe to only Nature or Science. I'll betcha that all subscribe to BOTH.

The business isn't a sure bet. For one thing, the validity of gene patents has yet to be thoroughly tested in court. Still, Incyte's big patent portfolio makes it a darkhorse rival of Celera Genomics Group, whose president, J. Craig Venter, is the world's most celebrated gene-hunter.

This is a negative statement about Celera? Calling a competitor a "darkhorse".

Celera is expected to be first to decipher the chemical structure that makes up the entire human genome... Yet Celera's business prospects are murkier.

Many CRA supporters say this is an ignorant statement. This is actual spot on. CRA's business prospects ARE murkier at this time. They've signed up a few early access subscribers, so it's immediate business prospects are not as clear as Incyte which has signed up 18 of 20 top pharma. Now, I feel that CRA is a riskier business. But riskier means HIGHER potential reward in my mind. As the Motley Fool stated in their buy report, CRA was the riskiest investment that they've made. If CRA's business prospects were not murky, then it would be a slam dunk, obvious investment!

Dr. Scott... acted instead like an efficiency-obsessed factory foreman, building a gene-finding assembly line and constantly trying to squeeze more productivity out of it.

Whenever possible, he used computers instead of postdoctoral scientists to do the repetitious steps of lab testing and sifting results...he had engineers take them apart and make them more productive. He hired a company to build a new model that was faster still.

That's one of the things about Incyte that has suited them well. I know many have commented about based on their own knowledge or experience, that other companies could only be sequencing at X rate or X number of genes patented, etc. But how many companies do you know who would take gene sequencing machinery from the acknowledge leader (AB) and then, working with MD, totally redesign them to improve their output? It would be like Dell redesigning Intel microprocessors cuz they were too slow for Dell's purposes.

And he catered to drug-company customers, listening to their priorities and getting their advice. All the while, he avoided publicity.

Many shareholders in the past wish that Incyte had touted themselves more. A higher share price can be important in keeping and attracting key employees.

Equally important is Incyte's business plan: Selling access to the genes to all comers and relatively cheaply, aiming to turn a profit on volume. That strategy is nothing new in other markets, but it is at odds with the approach of most gene-hunters, which seek high royalties on just a few sought-after genes. Incyte has so far won the business of 18 of the world's 20 largest pharmaceutical companies.

Again, an example of how more defined incyte's business plan is. Now, if HGSI, for example, is successful in developing drugs, it will be HUGELY successful. Higher risk, "murkier" business prospects, but much higher potential reward.

A National Institutes of Health official says the agency is concerned that DNA-sequence patents, such as those issued to Incyte, could potentially be used to restrict researchers' access to important genes and inhibit research. But the agency, to date, has had no disagreement with Incyte over terms of access to its patent portfolio, the official adds.

Interesting comment. Perhaps Incyte's lack of publicity has been helpful. Also, maybe they've been working behind the scenes with academia and government scientists.

Although the meagerly funded Incyte could afford only a few sequencers, Dr. Scott made the most of them. One of his tricks was to run the machines in three shifts, 24 hours a day. He also halved the time it took a machine to finish its routine by doing one step-separating DNA under fluorescent light-prior to loading the device. He formed specialized teams like the ones in a corrugated-box factory where he had worked during college: one team to prepare DNA samples, one to run the sequencer and one to sit at computers scanning the data.

At the end of his assembly line stood patent writers, who cranked out dozens of sketchy applications each week as place-holders, describing only a fragment of a gene until Incyte's scientists could decode its entire length. With this system, Dr. Scott and Incyte soon developed a catalog of decoded genes, on which they immediately applied for patents and which they offered to drug companies.

The companies, however, weren't interested. Once again, Dr. Scott was in the shadow of the prominent Dr. Venter.

Much of high technology is nuts and bolts kind of stuff. For instance, AMD and Intel have been in a race to develop the "fastest" chip. Intel, however, has always been in the lead in figuring out how to produce smaller and faster chips efficiently....manufacturing has always been big with them. I like how Incyte has thought about the nuts and bolts of their operation.

But Dr. Venter's backer, Human Genome Sciences, was watching Incyte closely. One day in 1993 its chief executive, William Haseltine, came by Incyte's headquarters building in Palo Alto -- without invitation, according to the Incyte's top executives. An Incyte scientist, Jeffrey Seilhamer, says he saw Dr. Haseltine at the window and motioned him in, but declined to answer his questions about how many sequencers Incyte had.

Dr. Haseltine, who contends that he did have an invitation, says it's normal to check out the competition, adding that "what I saw was a poorly organized, messy facility that was pathetic compared to what we had put together."

Amusing story. My guess is that Haseltine did talk to some lower level Incyte person and that that lower level person wasn't going to 'fess up when upper management heard about it.

Then, unexpectedly, a move by Human Genome Sciences helped Incyte win customers among drug companies. Human Genome Sciences sold exclusive rights to its discoveries to a single company, Britain's SmithKline Beecham PLC. Suddenly, excluded companies wanted access to Incyte's data.

Open to All
They wanted sole access, of course. Drug companies don't cooperate much. But unlike Human Genome Sciences, Dr. Scott refused to sell any company exclusive rights. Better, he argued, that drug makers share the costs of Incyte's enterprise, so Incyte could build a definitive database far more quickly and they could have equal access to it.

And there would be another benefit: Incyte's catalog could grow into a kind of intellectual-property trust, and if drug companies wanted to develop a gene-based medicine, they wouldn't have to get licenses from numerous patent owners scattered hither and yon. Subscribers would have added protection because they had to agree not to sue each other over data they used or contributed.

Ah, the eternal battle of open vs. closed standards.

To expand that catalog faster, Incyte hired some engineers from PE Corp., the Norwalk, Conn., maker of the DNA-sequencing machines. The engineers installed laser scanners and customized software, boosting the machines' output threefold. They also began helping another manufacturer design a faster sequencer. And they built a robot, nicknamed Zippy, to purify samples, replacing 30 technicians and slashing costs.

Again, many commenting on what Incyte's previous capablilities were assumed that they were limited by what ABI publically stated their standard equipment was capable of in the past. As this shows, Incyte was redesigning standard equipment to achieve superior results.

Speedier Machines
Incyte took special requests. AstraZeneca PLC wanted a library of bacterial genes, so Incyte built one. A former head of biological science at AstraZeneca says half of the drugs in its research pipeline now trace, at least indirectly, to Incyte's data.

This statement from AstraZeneca confirms the following from the 10/12/98 issue of F-D-C Reports (The Pink Sheet).....

"Disputing cynicism about the impact of genomics, Ringrose [President of BMS PRI] reported that almost 60% 'of the targets that we have at Bristol-Myers Squibb now come from genomic databases'."

It just goes to show how important genomics is to the drug discovery efforts of pharmaceuticals such as Astra and Bristol Meyers (another Incyte subscriber).

PE formed a gene-hunting subsidiary, Celera Genomics, and lured none other than Dr. Venter to run it...A PE executive told analysts Celera would put Incyte out of business.

Dr. Scott, stunned, responded by throwing his patent operation into overdrive. Three teams, including 60 Ph.D.s, sifted and categorized the genes as best they could. One team ranked them according to probable medical value, one scoured the literature for clues about their functions, and one wrote the patent applications, complete with computer-generated comparisons of the genes with others in the database. In a sprawling basement office, computer printers spewed out paper; some patent filings were 12,000 pages long.

Andy Grove has written about inflection points and only the paranoid survive. I think this demonstrates that Incyte, located only a few miles from Intel, has taken this to heart. It's a good thing they did. At the time, the number of NEW subscribers to Incyte's databases slowed down. I think many pharmaceuticals thought about switching over to others or thought about living with inhouse applications and the public databases. The recent acceleration in agreements with NEW companies like Biogen and Corixa, demonstrates that growth is back on track.

And in November, Pfizer gave Incyte more than $50 million -- an advance on license fees it eventually expects to pay -- plus the support of 7,000 Pfizer scientists to try to complete the patenting of the most promising genes within a year.

As one of the premier pharmaceuticals (and a Rule Maker), this recent agreement is important validation of Incyte's approach.

Chance for Royalties
For Incyte, the eventual payoff could be large. Each time a subscriber to its gene database finds something it wants to study further, it orders a physical copy of a gene. An Incyte "clone-by-phone" factory in St. Louis ships it overnight, and the order triggers a license.

If the customer makes nothing out of it, Incyte gets nothing. But if a company ends up turning that gene into a drug or diagnostic product, it will owe Incyte a royalty of 1% to 5% of sales. If just a small percentage of the 30,000 licenses Incyte has granted so far bear fruit, it could collect many millions of dollars in royalties.

There is no guarantee for any of this, of course. Genes could turn out to be inadequate drug targets. At best, making drugs from the information will take years.

Again, an example of how Incyte's business prospects are less murky than other genomics. It's a less "risky" business model. BUT, the potential reward could be LESS. For example, Amgen demanded a great portion of the profits with its partners and is now the largest biotech. It just goes to show what a few molecules can do. Early on however, Biogen, accepted small royalties for its products licensed to larger pharmaceuticals. It helped to pay the bills and was a less risky business model. It wasn't until they came up with their own drug for MS, where they retained most of the profits, that they really hit the big time. So Incyte is going for lots of singles and will probably do real well; others are going for home runs and could do AWESOMELY or strike out.

The 53-year-old Dr. Venter, far from conceding that Incyte has an edge in the commercial exploitation of gene data, says he doesn't even consider the company serious competition. "As the real scientific data comes out, Incyte's stories will be exposed for what they are," Dr. Venter says. "It's like saying a jar full of pennies is equivalent to the Bank of America."

Whether that harsh assessment is on target will be better known in a year or two. Meanwhile, Dr. Venter makes one concession about Incyte's Dr. Scott. "He is a bright guy; he followed up on all our ideas," Dr. Venter says. "He got it long before anyone else did."

Sounds like the early Steve Jobs talking about Microsoft's products and Bill Gates.
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