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Despite Investors Doubts, AGTC Founder SaysBioinformaticsisStillaSafeBet

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David Stone, a founding partner with Applied Genomic Technology Capital Funds, said he hasn’t lost his enthusiasm for the burgeoning bioinformatics sector, despite indications that investment in new genomics and bioinformatics companies may continue to slow in the coming year.

Although analysts such as Rob Olan at JP Morgan H&Q have cautioned that the bioinformatics and genomics investment atmosphere would be “less euphoric” in 2001, Stone doesn’t see this as cause for concern.

Olan said that investors would shy away from startups as they seek companies that are generating revenues from fully developed technologies.

Stone agreed that “just being a genomics or bioinformatics company isn’t going to be enough” to attract funding in the post-genomic era. “You’ll have to describe how you’re going to make a sustainable business,” he said.

However, he added that such shifts are typical of cycles in the capital markets for any new sector: “Anyone who can stake a reasonable claim to be in the sector can get funded. Then, after a while, the investors begin to understand the technology and the market better and they start asking more appropriate questions about how exactly they’re going to make money.”

“We just made our first bioinformatics investment last month,” he said, “so I wouldn’t say we’re slowing down.”

Stone pointed out that though the funding stream may slow a bit, there’s no risk within the sector for a repeat of the dotcom boom/bust scenario. “In the 17 years I’ve been following biotech, companies have neither been created nor destroyed at the speed or scale of the Internet cycle,” he said.

He noted that underlying genomics and bioinformatics investing is a worldwide life sciences R&D budget of around $60 billion that grows at about 15 percent a year. “So that market that the companies are trying to sell into is real. Those dollars are out there,” he said.

Indeed, last summer’s announcement of the completion of the rough draft of the human genome will be a tough act to follow. But even without the buzz, Stone said, “the demand for bioinformatics products is only going to increase.”

While Stone agreed with some analysts’ predictions that 2001 will see more consolidation and M&A activity within the sector, he remarked that acquisition is not always a bad thing. He cited Affymetrix’s acquisition of Neomorphic as one example where acquisition served as “an alternative to raising capital/seeking liquidity by other means.”

As the sector matures, he said, the best companies will be able to show growth in revenues and, eventually, growth in profits. Then, he said, they’ll be able to raise money “the old-fashioned way — on the basis of their financial results.”

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