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DoubleTwist is Done Living Dangerously


But will it survive another year as a bioinformatics business?


By Aaron J. Sender


By the time you read this, DoubleTwist may very well have already crashed and burned. For more than a year now industry insiders have been playing the how-much-longer-will-DoubleTwist-last game. Now it looks like the end is really near for the bioinformatics software portal company: In the last year DT withdrew its IPO, failed to find suitors to offer enough cash to cover investments, slashed its staff from more than 200 to 60, and overhauled its management, sweeping the most seasoned staff out of the executive suite.

“For me it’s a real concern where DoubleTwist will be at the end of this year,” says one customer with a perpetual license to the company’s Clustering and Alignment Tools (CAT). “Who’s going to want to buy a product from them right now, knowing that they’ve gone through such massive layoffs and turnover?” he says.

Since CAT developer John Burke and his team jumped ship last year, customers have been complaining about the product’s support. “The quality of the people there supporting the product now is inadequate,” says the customer, who requested anonymity. Affymetrix, which had been using CAT to design its chips for two years, switched in December to an alternative clustering-alignment tool, Electric Genetics’ stackPACK.

What’s it worth?

Following Genomica and NetGenics, which both were acquired after massive layoffs recently, DoubleTwist looks suspiciously like a company that is grooming itself as buyout bait.

DoubleTwist execs, not surprisingly, insist that any speculations about the company’s demise are exaggerated. Not only is DT not about to collapse, but it is on the road to profitability, according to Robert Williamson, who took the helm as CEO when John Couch was ousted in January. Williamson declined to be interviewed for this story, but in a recent e-mail to GT’s sister publication BioInform he writes, “The company is on track to achieve cash-positive operations this year thanks to our dedicated customers and low-cost structure.We are well positioned to remain a leading competitor in the market for high quality genomic data and bioinformatics tools.”

It’s hard to tell if Williamson is sincere, or just desperate to avoid giving any hint that DT management might be taking its final breath — to do so would surely jeopardize his chances of recouping losses through a buyout.

It’s no secret that since missing the IPO boat, DoubleTwist has been seeking a buyer. But with about $80 million invested in the company, DT execs “haven’t been able to get the valuation they believe they deserve,” says Doug Brutlag, who until the January layoffs was DoubleTwist’s chief scientist. “So they decided they would try to make a profit instead.”

The question remains, what is Double- Twist worth? And just what would a buyer get out of a DT acquisition?

The answers to both questions seem to be “not much.” DoubleTwist declined to reveal its current financials, but according to figures made public in its IPO registration, as of the end of September 2000 the company had $24.1 million in the bank and $4.8 million in revenue for the year. Nobody would go on the record with a current valuation, but sources close to the company say DoubleTwist is not likely to fetch more than single-digit millions.

Money for nothing

Why? Consider what a buyer would get: DoubleTwist’s most saleable product is CAT, which assembles ESTs into full-length genes. It’s unclear how much revenue the tool currently brings in, but according to DoubleTwist’s SEC filing, it accounted for 72 percent of the company’s revenues. More than 30 customers currently hold licenses to CAT, which lists at about $250,000.

With alternatives available elsewhere — Electric Genetics’ stackPACK and Paracel’s TranscriptAssembler, for example — it’s unlikely that a pharmaceutical company would lap it up. “Not when they can license it for a fraction,” says Geospiza CEO Todd Smith, who once worked for DoubleTwist’s previous incarnation, Pangea Systems. Relying on an in-house tool would require an internal support-and-update team. “That’s why you license it,” says Smith. “You want someone else updating it.”

DoubleTwist’s other product is a genome annotation database, Prophecy, which also has 30-plus customers. The database has about 500,000 SNPs and 100,000 sequence tag sites mapped to more than 32,000 bacterial artificial chromosomes, organized into contigs. The list price of Prophecy is $1 million, but it’s often sold at a 50 percent discount. The question is, why would anybody purchase DoubleTwist’s when similar databases, such as EBI’s Ensembl, are free?

How much is that doggie in the window?

The most likely buyer of DoubleTwist, or its software should the company dissolve, would be another bioinformatics company looking to beef up its portfolio at bargain-basement prices. One candidate for such a deal would be the company that has become the old-age home of bioinformatics software, Pharmacopeia subsidiary Accelrys. Accelrys has already taken in Molecular Simulations, Synopsys, and Oxford Molecular. “We’ve pursued an acquisition strategy over the last few years and will continue over the coming years,” says COO Mike Stapleton. If there is a bioinformatics company up for grabs, Accelrys has looked at it.

Another possible suitor would be InforMax. The Gaithersburg, Md., bioinformatics biz has been developing its own clustering tool but has yet to release it. “If they wanted to put up a clustering tool in GenoMax [acquiring CAT] would be the way for them to get it quite easily,” says Tania Broveak, managing director of Electric Genetics. “It would be very logical for them to pick it up.” Indeed, with $60 million in its coffers, snatching CAT would not be a stretch for InforMax.

Hitachi is another possibility. The Japanese giant has been vying to get into the bioinformatics market and has exclusive distribution rights of Double-Twist products in Asia. Hitachi renewed that agreement in September giving DoubleTwist cash up front, indicating that it must believe it could sell the products at a profit.

Double jeopardy

DoubleTwist has long been the company everybody loves to pick on. Academic purists have ridiculed its over-the-top publicity campaigns. And when the company announced in May 2000 that it identified with “high confidence” 65,000 genes in the human genome project’s draft sequence, many in the bioinformatics community accused it of hyper-marketing. “Science by press release,” is what Cyrus Harmon, then CEO of Neomorphic, called it. Making claims to the press without publishing the methods was considered bad form.

DoubleTwist got its start in 1992 as a consultancy for a new company called Incyte. Founders Joel Bellenson and Dexster Smith built Incyte’s EST database and established Pangea Systems to develop bioinformatics tools. By 1997 the company raised $10 million in VC funding and things began to change. “Companies in that space make $2 million to $5 million dollars and these investors put in a big chunk of change,” says Broveak, who was a consultant for Pangea at the time. “They wanted something that had big-bang potential. And looking to sell more or different tools wasn’t really motivating for them.”

By 1999 the dot-com IPO frenzy was at its height. Several of Pangea’s investors had just made a killing off of Internet-based offerings, including Netscape. Anticipation of the human genome’s completion was building. Transforming Pangea into a genomic portal would position it smack in the middle of two hot sectors. But first the company wanted a hip new dot-com- worthy name. Hence DoubleTwist.

The portal needed wide appeal, so the company began marketing it as a window to genomics not just for biologists but for the health care masses. The goal became to get sticky eyeballs, as dot-commers called repeat visitors. In characteristic dot-com strategy, DT gave free basic access to users in hopes of someday turning them into paying customers.

VC funding flooded in and by the time DoubleTwist filed for its IPO in September 2000 it had raised over $65 million and was hoping to raise another $86 million through its offering. Then-CEO John Couch threw millions into PR, advertising on highway billboards in Silicon Valley and Research Triangle Park, expanded quickly to more than 200 employees, bought the historic I. Magnin department store in Oakland to house them all, and accumulated a deficit of $53.5 million.

Then, faster than you can say double trouble, the market turned sour, the IPO window closed, and the company suffered the fate of its dot-com compatriots: heavy early capitalization with no easy exit plan.

DoubleTwist is no Rosetta, for which Merck coughed up $620 million in stock last year. Rosetta was a bioinformatics firm that happened to have a technology platform that can allow a drug company to eliminate compounds early: one potential failure diverted from development and the acquisition pays for itself. And because it missed its IPO opportunity, DoubleTwist is not even a Genomica, which used its cash as bait for acquisition by Exelixis.

If Williamson can follow through on his promise to lead the company to profitability by cutting fat and making money instead of raising it, there’s still a chance for investors to get a respectable amount of their cash back. Unfortunately, all indications are that Double-Twist has already started cutting into the meat, eliminating crucial support staff and spurring customers to abandon it for competitors.

Either way, investors can forget about breaking even, observers agree. “You’re not going to make back your 80 million bucks off of selling a few bioinformatics tools,” says Broveak.

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