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TRENDSPOTTER: Next Wave of Genomics Portends Big Investment Challenges

Europe is nearing the end of its summer holiday season, and investors and biotech companies are idling, reviewing events from the past year and fine-tuning plans for the coming months.

The first half of 2001 saw some interesting deals. There was Bayer’s $1.5 billion alliance with Curagen to discover new metabolic targets, and Merck’s acquisition of the bioinformatics company Rosetta, which cost $600 million at a 100 percent premium that reflected the enormous strategic value of bio  IT.

And on the expression-profiling and differential-display front, Europeans can be content knowing that they at least are second behind better-known US firms Millennium, Celera, and Human Genome Sciences.

But there is a new game on the horizon at which Europeans are looking to dominate—proteomics.

Although there currently are many start-up initiatives focused on proteomics, the hurdles for entering the burgeoning business are extremely high, enterpreneurs and executives are finding.

Take, for example, Geneva Proteomics, which started off in March 2000 with $110 million in seed funding and an interesting consortium of investors. As you can imagine, not very many venture capitalists are able and willing to finance such large sums on their own. Compared with the $2.5 million to $15 million average cost of the typical genomic or bioinformatics investment and you see why only big firms—like Fidelity Management & Research—could take part in this deal.

Geneva Proteomics received $43 million for the deal from Novartis, one of the biggest pharma companies in Europe, and IT company Compaq not only bought into the deal financially but also with a huge part of the hardware.

European proteomics start-ups looking for seed money can also look to public funds that are available in Europe—GPC Biotech, Medigene, and Switch Biotech come to mind.

The big question on investors’ minds is when, exactly, will those large start-ups see an acceptable return on investment? I have some serious doubts that investors will ever see a competitive rate of internal return on this kind of investments.

For example, $5 million in seed money gives the investor 50 percent of the shares in a company after it goes public. After five years, the market cap of that company is $50 million. 

A $100 million investment, therefore, needs a market cap of $1 billion after five years. How many companies can do that?

I am curious to know if investors’ enthusiasm for this new field will remain at this level, and whether companies will develop smarter and cheaper ways of discovering novel drug targets.

Gunnar Weikert is the CEO of Inventage, a Dusseldorf-based venture capital fund. Until recently he was global head of physiomics at Bayer, where he negotiated blockbuster deals with Millennium, Lion Bioscience, and CuraGen. You can e-mail him at [email protected] .

TrendSpotter is a weekly column that focuses on how trends in politics, patent law, and the US and European markets affect the genomics industry. The column appears every Friday.

To access previous columns just enter the word "Trendspotter" in the archive search window on the homepage.    

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