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QA: Smart Money Says Don’t Be Another Oracle

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Jonathan MacQuitty, president of Abingworth Management, oversees the venture capital company’s investments in life sciences, which include Aurora Biosciences, Entelos, Pharmacopeia, and Solexa. He has served on the board of the Biotechnology Industry Organization and was an industry insider for years before heading to the finance side. GT’s Meredith Salisbury chatted with MacQuitty to get the skinny on what the genomics investment world looks like right now, and where it’s heading.

A lot of industry watchers say we’re in a heavy period of M&A activity — take the DeCode/MediChem and the Lion/NetGenics acquisitions, for instance — and that we’ll see more of that in the months to come. Why is that?

MACQUITTY: People who started with platforms, like DeCode, that were focused on very specific areas have decided that they need to broaden their platform. If you have something that’s useful, you’ll find that people beat a path to your door. The trick here is to do something useful — whether you make a tool that you end up exploiting or whether it goes in someone else’s toolbox. As companies become more successful, they become more integrated.

Now if we take bioinformatics as a category, for example, it’s fair to say that in that area there were companies started that weren’t particularly unique. ‘We’re going to outsource the IT departments for biotech and pharma’ — that’s fairly hard to do. If you’re really unique, you wind up with one customer. It’s been hard in bioinformatics to come up with a story that’s both unique and broad. There are plenty of broad and there are plenty of unique, but they tend to be individual, handcrafted, customization jobs. There are exceptions to that, there are people who have very strong proprietary positions that are truly unique.

But there are a lot of people who are trying to be the Oracles of the biotech industry. It almost becomes a service business rather than a product business. It doesn’t mean that one can’t make money, but it’s not as attractive as a product business. Service businesses are very hard to scale in a venture capital field.

Steve Newby’s GenomicsFund.com, which sticks to genomics stocks, has been branded as the worst-performing fund in its category. With prospects like that, should anyone be investing in genomics now?

MACQUITTY: It’s the perfect time to invest. If one looks back in any financial sector, often the perfect times to invest are when everyone else has given up. There’s still tangible business value going on in the genomics business sector — it just requires companies to concentrate on the real business value they should’ve been concentrating on in the first place.

Any very specialized fund, whatever sector of the entire financial universe it invests in, one can pretty much guarantee it has the most volatility. This simply means that the sort of conventional wisdom is that the party’s over in genomics, and it’s time to move on to the next party. Of course there is an underlying real business need for genomic information and genomics capability. Not all genomics companies are good, nor are all genomics companies bad.

How do you keep up to date in this industry?

MACQUITTY: Fortunately we have a lot of technical advisors who understand this sort of thing in blistering detail, and that allows me to float along at a much higher altitude. [We rely on] people we’ve done business with who are using the tools: discovery, target discovery, lead identification.

What’s your advice for people in the industry, or people looking to invest in it?

MACQUITTY: [For the companies], grow real businesses, do real things, produce real value. There’s no better support than information, products, and results.

For people thinking of putting money in, this could be the best of all times. If you go back and look 20 years ago, monoclonal antibodies were the magic bullet. Ten years ago nobody liked monoclonal antibodies. And now, of course, they like them again. It’s when people lose interest that one comes across the most interesting bargains.

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