LIFE IN the genomics world changes quickly. A company can be a market darling one quarter, announcing a handful of deals and promising strong revenue growth and future earnings, then fall from favor just a few months later. Conversely, a company that appears to be failing to gain investor attention can suddenly make a breakthrough announcement that triggers a reversal of fortune.
That’s what makes emerging sectors so exciting – and the art of predicting so difficult.
Take for instance the SNP sector and the four publicly traded companies that GenomeWeb regularly covers: Sequenom, Nanogen, Third Wave Technologies, and Orchid Biosciences.
Over the past year they have each had their ups and downs. Recently their strategies have also started to diverge with Sequenom making a push into drug discovery and Third Wave Technologies making headway in the diagnostics arena.
Ultimately, the question on everyone’s mind is which of the companies will make it, which will be acquired, and which will fade into obscurity? Based on the following, how would you place your bets?
Sequenom: One year ago, Sequenom, the maker of the MassArray SNP analysis system, wasn’t talking about drug discovery. But recently, the company put up $238 million in stock to acquire Gemini Genomics, a move executives said would help the company to identify drug targets. One week later, Sequenom announced a collaboration with Morphochem, a German chemistry company, to discover and develop drugs for type 2 diabetes and cancer.
The recent announcements have done little to reinvigorate the company’s share price, which now trades at around $14.50, down from a 52-week high of $51.90 reached last summer.
Meanwhile, the San Diego-based company has been showing some earnings strength from its products, more than tripling its first-quarter revenues to $5.2 million, from $1.6 million the previous year, on sales of the MassArray system. The company also narrowed its losses and beat Wall Street’s earnings expectations.
So, just as earnings appeared to be on the right track, Sequenom forged a new path, generating a new question: Will Sequenom succeed in developing blockbuster treatments?
Nanogen: San Diego-based Nanogen has recently undergone an organizational reshuffling, appointing a new CEO and a new CFO over the past few months. And, according to Nanogen, the recent hiring of Vance Randy White to steer the ship reflected its plan to accelerate the move into clinical diagnostics.
Now, Nanogen, which had only $229,000 in product sales in the first quarter of the year, will have to demonstrate market acceptance of its NanoChip microelectronic chip technology, which is generally considered to be more expensive and complicated than the competition.
However, some analysts are optimistic that NanoChips may be able to find acceptance as a robust niche technology. Also, NanoChips may gain greater acceptance down the line as microarrays and microfluidics converge, and the value of their innovations are realized.
Given this assessment, perhaps Nanogen would make a nice acquisition target.
Third Wave Technologies: Talk about a change of fate. One year ago, Applied Biosystems ended a deal to acquire the Madison, Wis.-based maker of the SNP Invader technology. Then market conditions prevented the company from going public.
In January, when Third Wave finally launched the offering, it met a cold reception in the market. The company’s share price, which entered the market at $11, steadily fell to a low of about $5. Since hitting rock bottom, however, Third Wave has turned around and is now trading back in the $10 range. What happened?
For one thing, while most companies are talking about getting into diagnostics, Third Wave is already making headway. Back in May, Third Wave signed a deal with California’s Kaiser Permanente Regional Laboratory Services to use the Invader diagnostic system for routine clinical procedures. One week later, the Japanese government chose Third Wave to provide assays for analyzing at least 120,000 SNPs in 768 patients. That work is likely to lead to new diagnostic tools. Plus, Third Wave has said it is planning to launch virology diagnostics in late 2001 or early 2002.
The revenue forecast is also rosy with annual sales expected to nearly triple to $30 million this year from $11.2 million in 2000.
Orchid Biosciences: Private Investment, Public Equity, or PIPEs, are commonly used financial tools for publicly traded companies that need to raise money during market downturns. Rather than go out into a hostile market, companies opt to sell their equity at a discount to private investors.
PIPEs can give investors access to cash, but some market watchers are skeptical, warning that hedge funds interested in flipping the stock for the higher market price tend to invest in the offerings, ultimately driving down the stock price.
Recently Orchid, which in October cancelled plans for a $126 million follow-on public offering, announced that it had secured commitments for $33.3 million in a round of private financing. The company hopes that by selling 450,000 shares at $6, below the company’s current share price of about $7, it can shore up its cash reserves. Those reserves dwindled by $16 million in the first quarter to $50.8 million, a rate that would cause Orchid to blow through its cash in one year’s time.
With enriched cash reserves, Orchid, which reported revenues of $5.6 million in first-quarter 2001, compared with $3.5 million in the year-ago quarter, will now have to prove its strategy.
According to Orchid, the company now plans to launch several new SNP genotyping products and to pursue partnerships with laboratory equipment manufacturers to install its SNP genotyping technology on their platforms. Orchid has such deals with Applied Biosystems, Amersham Pharmacia Biotech, and Perkin Elmer Bioscience. The company also has a GeneScreen forensic and paternity testing arm that can provide near-term revenue. Are more deals in the wings?
Jennifer Friedlin is the managing editor of GenomeWeb. You can e-mail her at [email protected] .
Trendspotter is a weekly column that focuses on how trends in politics, patent law, and the US and European markets will affect the genomics industry. The column appears every Friday.
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