As genomic information and bioinformatics software provider DoubleTwist filed a registration statement for an initial public offering to raise $86 million, questions about its business model continued to swirl in the genomics industry.
Simply put, experts differ on whether DoubleTwists business model will succeed now that the human genome is essentially available to the public.
One analyst, who requested anonymity, said that DoubleTwists planned IPO might run into difficulties because the market for bioinformatics is competitive and limited.
This is intensifying as content providers such as Incyte Genomics, Celera Genomics, and CuraGen are providing bioinformatics tools with their proprietary data, said the analyst. Another wrinkle to this is Incytes July launch of a new public website that is an attempt to rival GenBank and other genomic resources on the Internet.
The size of the market makes it difficult for a bioinformatics company like DoubleTwist to get a good valuation, said the analyst. The company might be better off remaining a private company and seeking a buyer as a way to command a high price.
Cyrus Harmon, president and CEO of Neomorphic doesnt think the issue of public versus private data is as important as it was before the draft of the human genome was finished.
Now to a large degree, the genome is out there and the tools to add value to that information and to effectively utilize that information are at this point more important than: do you have 3 million ESTs in your database or do you have 6 million ESTs in your database? said Harmon.
Hes not sure that DoubleTwist has either the right analytic tools or the value-added information to be successful, but he thinks the business opportunity exists to serve this space. In fact, he thinks that DoubleTwist is now more of a threat to Incyte than vice versa.
I do think that theres so much more information thats out there that companies like Incyte that attempt to have a franchise business on a single proprietary set of information are the ones who are going to run into more problems over the long haul, said Harmon.
DoubleTwist CFO Ward Wolff responded that the company deals with these issues in its prospectus where it recognizes Celera and Incyte as competitors.
We do feel we have a unique role to play, to be an aggregator of various types of information and data that really leverages off the public data but also enhances it through our own algorithms and some of our software capability. That puts us squarely competitive with Incyte and Celera, said Wolff.
Details on the number of shares to be sold, the price range, and the issue date have not yet been announced, Wolff said.
The environment for bioin-formatics IPOs has been pretty strong as evidenced by the public offerings of Compugen, Lion Bioscience, and Rosetta Inpharmatics last month.
Compugen, which raised $50 million, priced its shares at $10, the low end of its range. Those shares have risen more than 50 percent. Lion Bioscience, which raised $182 million, began trading at $39 and is now up 164 percent. Rosetta Inpharmatics IPO generated $101 million. After pricing at $14, its stock increased about 136 percent.
DoubleTwist joins InforMax, NetGenics, and Genomica on the list of bioinformatics companies in the IPO queue.
Lehman Brothers is the lead underwriter for the DoubleTwist offering, with co-managers by Dain Rauscher, Thomas Weisel Partners and Fidelity Capital Markets.
The Oakland, Calif.-based company expects to use the proceeds from the IPO to enhance its existing products and develop new ones, expand its sales and marketing activities, and for general corporate purposes. This includes working capital, technology enhancements, and possible acquisitions or investments in companies, technologies, or assets that complement its business.
DoubleTwists customers include more than 30 pharmaceutical company, biotechnology companies, and academic institutions, including Affymetrix, Ariad Pharmaceuticals, Bristol-Myers Squibb, Eili Lilly, Hitachi, Merck, Millennium Pharmaceuticals, and Monsanto.
The companys product line consists of DoubleTwist.com, an online research environment; Prophecy, a proprietary annotated human genome database; GeneForest, an annotated human gene index; and its Clustering and Alignment Tools software. The company sells subscriptions to its products through its website and licenses components of the under-lying technology platform for use behind the companys firewall.
As of the end of June, the company had 149 employees, 71 research and development, eight in business development, 44 in sales and marketing, and 10 in customer support.
For the first six months this year, the companys net losses widened to $16.4 million from $4 million for the same period a year earlier.
In 1999, DoubleTwist posted a net loss of $11.4 million compared with $8.7 million in 1998. Total revenues in 1999 decreased $0.7 million, or 16 percent, to $3.6 million from $4.3 million in 1998.
The company did not disclose earnings on a per share basis nor did it provide second quarter figures. DoubleTwist announced the filing of its registration at 5:44 on September 1, the Friday of a three-day holiday weekend in the US.
In the first six months of 2000, total revenues increased $0.9 million, or 50 percent, to $2.8 million from $1.9 million for the same period in 1999.
License fee revenue increased $1.2 million, or 110 percent, to $2.3 million for first half of this year from $1.1 million for the same period in 1999. The increase in license revenue was due to an increase in sales of Clustering and Alignment Tools and included a large sale to a Japanese distributor.
Subscription revenues increased to $0.2 million for the six months ended June 30, 2000 from zero for the same period in 1999, due to the launch of the DoubleTwist.com web site.
Services and other revenues decreased $0.5 million, or 56 percent, to $0.3 million for the first six months thus year from $0.8 million for the same period in 1999. The decrease was due largely to the completion last year of a grant funded by the US National Institutes of Health. The company expects subscription revenues to increase as a percentage of its total revenue as it continues to commercialize DoubleTwist.com, Prophecy, and GeneForest.
Product development expenses increased $4.5 million, or 172 percent, to $7.1 million for the six months ended June 30, 2000 from $2.6 million for the same period in 1999. The increase was due primarily to an increase in headcount, equipment depreciation, and third-party consulting expenses related to the development of the DoubleTwist.com web site.
Sales and marketing expenses increased $4.9 million, or 277 percent, to $6.7 million for the first six months from $1.8 million for the same period in 1999, due primarily to additional headcount in sales, marketing and customer support, as well as an increase in marketing expenses related to the launch of the website.
DoubleTwist has mainly funded its operations through private placements, which have raised aggregate net proceeds of $65.7 million through June 30, 2000