Celera primes for key change

THE BALTIMORE SUN

In some ways, it seems like an odd time for Celera Genomics Group to switch gears and become a drug company.

The competition is intense. Investors are skeptical after some highly promoted biopharmaceuticals failed to work. And pharmaceutical companies that often bankroll development of small-company drugs are balking at paying big money for anything that hasn't shown promise in human trials.

But the Rockville company is changing strategies largely because it must.

Celera used cutting-edge computers and brilliant scientific minds to sequence the human genome, unraveling the sequence of DNA that pilots the development and genetic destiny of the human body. Along the way, it achieved rock-star status among investors and made some of its executives, including former President J. Craig Venter, rich.

But new Celera President Kathy Ordonez, named last week, confronts a different reality. The strategy of selling databases of information about the genome to scientists hasn't yielded a profit; the company's stock is trading in the $15 range, a dramatic comedown from its high of $138.50 in June 2000, when the genome's sequencing was announced at a White House press conference; and while many analysts believe developing drugs is a better strategy than solely selling information designed to discover them, there's no guarantee Celera will succeed.

"It's bombastic and arrogant to imply and suggest that, because we've completed the human genome, because we have advanced technology, that we're going to miraculously cure disease," said Aaron Geist, a Robert W. Baird & Co. analyst who downgraded his recommendation on the stock last week and no longer recommends that investors buy it. "Diseases are not cured in quarters."

Even Ordonez's appointment as president was greeted with disdain by some on Wall Street, who had expected Celera to name an executive with drug-development experience after Venter resigned in January. Ordonez has none. But during an interview sandwiched between meetings last week in her Rockville office - still devoid of all but the furniture, computer and phone Venter left behind when he vacated it - Ordonez seemed to take the criticism in stride.

"I think I can figure out how to build a strategy," she said, noting she had done so in previous jobs, including as chief executive officer of Roche Molecular Systems Inc.

There, she oversaw 800 employees in three countries, as well as the commercialization of a tool now used worldwide to replicate small fragments of DNA for research, crime lab and medical diagnostic tests.

Though she did her undergraduate work in chemistry and physics and doesn't consider herself a scientist, Ordonez has authored scientific papers and holds five patents. Her background also includes working with regulatory agencies in various countries, including with the U.S. Food and Drug Administration, though the experience comes largely in medical diagnostics and not in medicines.

Ordonez, 51, has been with the company as head of Celera Diagnostics since December 2000. The diagnostics unit is a 140-employee joint venture between Celera and its sister company, scientific tools maker Applied Biosystems of Foster City, Calif. The unit is charged with finding and developing molecular "markers" that can be used to diagnose medical conditions and diseases, as well as to tailor medicines to individuals based on their genetic makeup.

Ordonez said she was surprised when Tony White, chief executive officer of both Celera and its parent company, Applera Corp. of Norwalk, Conn., called her on her cell phone, interrupting a business meeting, to tell her he was thinking about her for the job.

White initially had considered only candidates with drug-development experience but said he changed his mind.

He had found, in general, that pharmaceutical company candidates tended to be accustomed to slow decision-making. Candidates from biotechnology companies tended to be scientists with little business experience or "serial entrepreneurs" not particularly good at science.

Some on Wall Street have interpreted the change of heart to mean that White had to settle for Ordonez after key candidates turned down Celera, a conclusion at which White bristles. "If it were to give the appearance that Kathy is a compromised choice," he said, "that's inaccurate."

For now, Ordonez will continue to run both Celera and Celera Diagnostics, splitting her time between Rockville and Alameda, Calif., where the diagnostics unit is based.

The complexity of Ordonez's task is apparent even in a quick visit to Celera Genomics Group's Rockville headquarters, where about 600 of its 820 employees work. The first floor still houses 200 of the sequencing machines used to decipher the order of the human genome. But Celera now leases or owns only about 75 of them for its own work, spokesman Robert Bennett said.

Most of the 75 machines, and all the rest, are sequencing key parts of the genomes of 40 people as part of a parent-company project to identify regions of genetic variation among individuals. The variations could be important for developing diagnostic tests, as well as products that Applied Biosystems could sell to researchers, doctors and scientists.

On the second floor, specialized computers help characterize proteins that could be useful as drugs.

In the lobby, a large poster advertises Celera's South San Francisco drug-discovery arm and features a picture of two smiling lab workers. The poster trumpets the 630,000-plus drug compounds in the unit's library, its 100-plus chemists and biologists and its ability to test experimental drug candidates against cancer cells in the lab.

A corner of the poster contains Celera's slogan, "Discovery Can't Wait."

Wall Street agrees. With investors clamoring to know which drug candidates are showing promise and when they will move into human testing, Ordonez is under the gun to prioritize the efforts at Celera. She also must be careful not to jump-start a brain drain.

"We have some of the brightest people in the world, many of whom were brought here for a different task," Ordonez said. But currently, she added, they're "going in 20 different directions."

One part of the strategy already is decided: The marketing of Celera's databases of genomic information - which drug company scientists use to research genomes, genes and proteins - has been shifted to sister company Applied Biosystems in exchange for royalties.

In her first few days, Ordonez already has identified six or seven areas in which a strategy needs to be quickly defined. Among them: how the company's patents should be handled and which drug candidates already discovered in Celera's South San Francisco laboratories should be priorities. Celera's most advanced eight drug candidates are in animal testing.

In the proteomics lab, its most advanced studies focus on pancreatic cancer and non-small-cell lung cancer.

Ordonez has yet to determine whether Celera's new mission of solely focusing on drug discovery is a good fit with all the employees it already has, or how much new talent must be hired.

Such tasks, however, are only the very first steps in developing a drug, a generally failure-ridden process that takes years and hundreds of millions of dollars.

It remains to be seen whether the sequencing of the human genome and the computerized tools now available to scientists will help speed up the process, said Stephens Inc. biopharmaceuticals industry analyst Jason Y. Zhang.

"Today, there's no technology I see that will speed up clinical development of a drug," Zhang said, referring to the years of FDA-required human testing that follows lab work. "The bottleneck is not going to be solved by a genomics company."

Celera's Rockville neighbor, Human Genome Sciences Inc., for example, carefully chooses drug candidates using its own extensive database of genes and proteins. But the company recently announced that it would drop the development of one drug designed to protect cancer patients from the ravages of chemotherapy because the drug didn't appear to work well enough.

Analysts say failures like these have dampened investor appetite for snapping up biotechnology and genomics-company stocks, making raising money through public offerings more difficult. (Celera reported a fiscal third-quarter loss of $28.5 million before a one-time charge and said it had $909 million in cash at the end of March).

Another option for young companies, selling big drug companies the rights to unique molecular "targets" - with which drugs might interact like a key in a lock - is generating diminishing returns, Zhang said. That, he said, is because the number of drug-discovery companies and discovered targets is growing.

"The value of a new target is really not going to be that much," Zhang said. "Two years ago, you could sell one for $30 to $40 million. Today, if you can get $3 [million] or $4 million, you're lucky."

But last week, Ordonez was optimistic that, if any company could harness new technology to find drugs, it would be Celera.

"What we're talking about is all new technology," Ordonez said, "and no one's done it."

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