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Friends in Low Places

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The bad news is, good news for the biotech sector doesn’t necessarily translate to an uptick for the genomics industry.

A group of investors believes the biotech sector is ready for a turnaround — so much so that they have launched a new fund called InvestBio. “This remains one of the big growth sectors,” says fund co-manager Libbe Englander of Diversified Biotech Group.

But genomic-tools companies are Englander’s exception to the rule. “If you look at the performance of the genomics companies as a sub-sector, it’s particularly abysmal,” Englander says bluntly. By her estimates, the biotech industry as a whole is down 40 percent (from an unspecified high); genomics, however, is slogging along at minus 70 percent.

The major problem, Englander says, is what has become same-old, same-old to genomics vendors: where’s the profit? Even truly useful tools can’t bring in the revenue — after a couple of years, the industry sprouts competitor technologies, cutting the prices so low that no one’s making money. “It’s very difficult to create a high-margin tool,” Englander says, pointing to business models that relied on chip design and genome sequencing, two promising technologies since commoditized.

The companies that populate Englander’s portfolio, not surprisingly, lean heavily to therapeutics. Many genomics leaders were prescient a few years ago when, seeing that tools wouldn’t take them too far, they shifted to Plan B, drug discovery. But even that hasn’t swayed Englander, who contends that while biotech companies have successfully made the switch to developing and producing drugs, “to jump from a tools company to a drug company is a different set of skills.”

For now, most genomics companies are keeping each other company in the market doldrums. And those ever-important friendships — like the Hyseq and Variagenics merger — may be crucial to waiting out the storm. But at the same time, the skepticism of investors like Englander will force genomics companies to come up with a much more convincing Plan C: one with products (tool or therapeutic) that can generate high profits over an extended period of time. That, we know, is easier said than done.

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