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No. of Recommendations: 14
The recent MF buy of CRA has refocused my attention on the genomics companies. For some excellent information on such companies, check out the following from the RS Medical Conference of 11/30 to Dec. 2. Both Celera and Incyte gave excellent presentations.

http://www.webevents.broadcast.com/robertsonstephens/ondemandconference1199/ondemand.asp Check out day 3 for Incyte and Day 2 for Celera.

Celera stock has certainly been outperforming Incyte. While I hesitate to ignore the opinions of those supporting CRA (as indicated by its superior stock performance), the info presented at this conference certainly doesn't indicate that Incyte is now a "bit player" per those supporting Celera.

The Motley Fool buy report on Celera makes a strong case for CRA, but I must say that when I read it, I could substitute INCY in many places that they say CRA.

First of all who is the Top Dog and First Mover? The report notes that CRA wasn't a first mover but that INCY and HGSI were first, before Celera even existed. This is important and I'll come back to that later. The report further says that being first to use the shotgun approach may be what matters most and that Celera "already leads the human genome "race".

Is CRA the top dog? Well they have certainly demonstrated that their approach is SPEEDY. They will certainly be able to sequence quickly many organisms, including those that may be involved in human disease. Certainly agricultural targets are available, another huge opportunity.

Does the company have a sustainable advantage gained through business momentum, patent, visionary leadership or incompetent competitors? Well, on this point I think that Incyte has the advantage in terms of the human genome. As noted, Incyte has filed patents representing 50,000 full length genes. Many of these applications were filed YEARS ago and are just now getting issued. They currently have about 386 issued patents, and more than 500 total accepted and issued patents, about 5 times more than anyone else. And the gap is widening.

Incyte says they have 130,000 cloned genes in the freezer. They know these sequences. There are estimated to be about 150,000 genes. Incyte has essentially the sequences on every gene!

CRA's CURRENT speed at sequencing may be faster than anyone else's but in terms of the human genome the race for intellectual property over these genes was over even before CRA existed.

The MF report says that CRA's only head on competition is the Human Genome Project. It ignores the following statement from an Incyte press release earlier this year. (check out www.incyte.com)

"We now have identified the 5' and 3' ends of approximately 110,000 human genes. Our goal is now to have sequenced, mapped and filed for intellectual property on the novel and most commercially relevant genes by the second half of the year 2000."

For some reason the press and the MF report ignored this goal of Incyte's.

Well they have 130,000 clones and have filed on 50,000. With the PFE agreement they are well on their way to finishing what they started years ago. INCY can provide not just raw sequencing data but also clones to their subscribers. As I understand it, CRA has no clones available.

The MF report on CRA discusses how CRA will sell its expertise on the sequenced information, how to manage, analyze, distribute, etc. Incyte does this already! And they've been doing it for ages. While they have been sequencing, they've been making money on providing software to analyze this data.

Momentum. Well CRA certainly has it. Both company and stock price. And for organisms other than the human genome, I see it being very successful. But Incyte is not a laggard. With THEIR patents they have several moats around their business.

What about backing? The MF report notes the $100 million in agreements with companies such as AMGEN and PFE. Well, Incyte has that and more. They have committed revenue of $200 million. They have agreements with AMGN, PFE, and 20 plus more companies, representing companies who spend 75% of the R&D money spent by big pharma. They generally have 3 year agreements ($3 to $15 million per year) and they have NEVER had a company not renew their agreement. In fact, each renewal generally comes with increased/expanded services.

Incyte now has 20,000 royalty bearing licenses that have been issued to various companies based on their subscribers. According to Incyte, one company says that 60% of their drug targets are based on Incyte's database.

I am quite excited about CRA. But the MF report too easily dismisses the competition from Incyte. CRA has lower committed revenues than Incyte. They are speedy, but they started late. The first mover Incyte has many advantages. They aren't just sequencing now; they are successfully mining that data and selling it others.

But why has INCY stock languished? I think it's because of their increased investments and their lawsuit with Affymetrix (AFFX). As noted they announced last year that they would also accelerating the sequencing of the human genome. This increased their expenses so that they started to lose money. Just like CRA is now! Yet, because Incyte had been making a steady profit, many investors bailed out. Well, they're just about done with their increased investments, and with new money from PFE, they'll be complete their patent effort and be profitable in the second half of 2000.

Lawsuit with AFFX. Incyte is much more than sequencing. One area they've invested in is in technology competitive with AFFX gene chips. Based on recent preliminary patent/legal decisions, it looks like AFFX may win there, but we won't know the final ending for a year or so. But this lawsuit has little to do with their database business. At worst, it will mean that a promising growth area won't happen for Incyte.

If you want to invest in pure genomics, you have to invest in both CRA and Incyte. Incyte's early start and patents gives them the current lead in the human genome. CRA's current speed means huge potential in other organisms and in human SNPs, etc. For those familiar with "Gorilla" investing, the strategy would be to buy both and wait and see what happens.
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