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Investors Start Putting Money Where the Genome Is; New Funds to Focus on Genomics

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scientists may be years away from developing genomics-based medical treatments and therapies, but the hype surrounding the news that researchers finished sequencing the human genome has generated a cash windfall for the burgeoning genomics sector.

Over the past few weeks, two venture capital firms and a major retirement fund have announced the establishment of multi-million dollar funds dedicated solely to the genomics sector. And a handful of start-ups, many of which are bioinformatics companies, are expected to raise millions more in the capital markets over the next few weeks.

“Public markets respond to these announcements,” said Jason Reed, a research analyst specializing in bioinformatics at Oscar Gruss. “As a result, money will become more available.”

Recently, Noubar Afeyan, a founder of Celera, announced the establishment of the Applied Genomic Technology Capital Fund, the first venture capital fund exclusively devoted to investing in genomics. Afeyan said he is planning to raise $200 million for AGTC, which might earmark as much as $50 million for the bioinformatics sector.

Wei-Wu He, a Human Genome Sciences veteran, told BioInform that his new company, Emerging Technologies Partners, planned to raise $25 million to $30 million to invest in bioinformatics, data mining and genomics tool companies.

“We’re interested in picks and shovels,” He said.

And the California Public Employees’ Retirment System unveiled the Calpers California Biotechnology Fund, a $500 million investment fund that will make private equity investments in the genomics, bioinformatics and therapeutic agents.

Even in Europe, the genomics buzz is catching. One day after scientists announced the completion of the human genome, Fleming Asset Management, a subsidiary of Britain’s Robert Fleming, said it was launching a new life sciences fund. The open-ended fund, which will target companies that can speed up drug development, will welcome investors with as little as $5,000 to participate.

As for public offerings, bioinformatics companies such as Paradigm Genetics, Orchid BioSciences, and Genomics Solutions have recently gone public, while Rosetta, Genomica, and Netgenics have all filed with the Securities and Exchange Commission for upcoming issuances. The rumor mill is also rife with speculation that Compugen of Israel is also gearing up for a share offering on the Nasdaq.

Reed said companies such as InforMax and DoubleTwist, which filled out an S-1 statement in March before deciding to postpone its offering due to market volatility, might also reconsider floating shares in the current climate.

GENOMICS TO ACCOUNT FOR BIGGER SLICE OF VC PIE

Over the next few years, as genomics companies start using the human genome map to hunt for treasures that could revolutionize medicine and science, investment experts expect that an increased amount of venture capital will be dedicated to genomics.

“We expect to see an increase in the amount of money being put into genomics,” said Afeyan of the AGTC fund. “We alone are planning to put $200 million to work in the sector over the next two to three years.”

Venture capitalists estimate that of the anticipated $40 billion in venture capital outlays in 2000, one percent will go to genomics. One sure sign that the genomics sector will grow is that insiders, such as scientists and biotechnology specialists, have started to put their own money into genomics and are investing across companies, Reed of Oscar Gruss said.

Yet, while the genomics industry seems poised for a major growth spurt, Afeyan said that challenges remain. During the last two years, the venture capital community pulled resources out of the healthcare sector in favor of investing in internet companies. This will make it more difficult to sell potential investors on the virtues of investing in biotechnology-related companies.

“When people declare themselves out of the healthcare investing market, it’s not very easy to then turn around and say, ‘We’re back in it,’” Afeyan said.

And, despite rising hopes that genomics will be the next big thing, some investors are cautious of the hype.

Sam Colella, managing director of Versant Ventures, likened the current appetite for genomics to the previous frenzy surrounding artificial intelligence.

“It scares me a little when people start talking about genomics because it sounds the way it did when people used to speak about artificial intelligence,” said Colella, whose $250 million fund invests in 30-40 companies throughout the broader healthcare sector. “A lot of people specialized in artificial intelligence but it was just another part of IT.”

Colella’s way of thinking might prevail in the longer term, especially if the current volatility in the genomics sector continues.

GenomicsFund.com, a mutual fund that specializes in the genomics industry, is off 9.9 percent since its inception in March, compared with a 6.2 percent increase in the S&P 500 and a 17.8 percent drop in the Nasdaq.

And Burrill & Company, a private merchant bank focused on life science companies, reported an 8.4 percent drop in its genomics index so far this year, with market leaders Celera, Incyte and Gene Logic leading the downturn.

 ­--Jennifer Friedlin and Matthew Dougherty

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