SAN FRANCISCO, Jan 8 – Investors are expected to take a “back to basics” approach to genomics during 2001 as they seek companies that are generating revenues from fully developed technologies, Rob Olan, a life science technology analyst at JP Morgan H&Q, said Monday.
“In general, the atmosphere is going to be less euphoric,” Olan told GenomeWeb at the start of the JP Morgan H&Q healthcare conference. “Companies that are more established will do better.”
Over the past year, enthusiasm over genomics allowed several bioinformatics companies and toolmakers with minimal revenues and few revenue-generating deals to raise millions of dollars in the capital markets.
Now, many of those companies will have to use the cash they raised to create a viable business model that can help them to survive the downturn.
“Last year, companies went public that had clever ideas that were not commercially viable yet,” said Olan. “Now, with the cash they raised they can either reinvent themselves or perfect themselves.”
Olan said that companies would have to employ a “get-real strategy.” For some, this will mean that they buy companies with “less sexy” albeit more established product lines.
“Like the Time-AOL deal, [some companies may] take advantage of valuations to become a real company,” Olan said.
For example, some bioinformatics companies might look to merge with or acquire companies that are developing chemical modeling or LIMs software.
Consolidation in other areas, such as microarrays, is also expected, Olan said. He said other companies were likely to follow in the footsteps of Affymetrix, which acquired Genetic MicroSystems last Februar y, and Packard Bioscience, which bought GSLI Life Sciences in August. And new players in the microarray game will also face difficulties raising money as well as a stiff barrier to entry if they hope to compete head on with Affymetrix.
“If a company is going to compete with Affymetrix on a cost basis, they will need an alternative platform,” Olan said. “Some of the efficiencies associated with glass slides they’ve probably maximized.”
In addition, database companies, such as Incyte and Celera, are also likely to begin expanding into drug discovery in order to expand their revenue base and to capture a bigger piece of the growing genomics sector, Olan said.
Olan added that hints that some companies might not survive the downturn would likely appear during 2001, although few companies will actually go bust.
“A number of companies have too much money to go out of business,” he said.