7-Business: Clinton-Blair human genome initiative causes gene stocks to plunge
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----------------------------- GENET-news -----------------------------
TITLE: A call for sharing of research causes gene stocks to plunge
SOURCE: New York Times, USA
by Alex Berenson and Nicholas Wade
DATE: March 15, 2000
-------------------- archive: http://www.gene.ch/ --------------------
A call for sharing of research causes gene stocks to plunge
President Clinton and Prime Minister Tony Blair of Britain said
yesterday that the sequence of the human genome should be made freely
available to all researchers. The statement led to a sharp sell-off
in the stocks of biotechnology companies, which hope to profit by
creating drugs based on genetic data.
The White House quickly said it did not intend to hurt the fledgling
biotechnology industry, but investors who have made biotechnology
stocks the darlings of the market were unconvinced. In frantic
selling, they wiped away tens of billions of dollars in market value
from the industry. Genomics companies, which are racing to produce a
database of human DNA, were hit hardest, with some off more than 20
The drop was not confined to the biotechnology sector. After briefly
passing 5,000 in morning trading, the Nasdaq composite index, which
is heavily weighted in technology stocks, fell steadily. The index
closed at 4,706.63, down 200.61 points, its second-largest point loss
For investors, the drop is noteworthy, because biotechnology and
Internet companies have led the stock market so far this year, while
most other stocks have languished. Despite falling almost 13 percent
yesterday, the Nasdaq biotech index remains up almost 30 percent this
year, thanks to investors' belief that a new wave of drug discovery
and gene therapy is imminent.
Because of the rapid run-up, the stocks are expensive by all
traditional valuations. The joint statement from Mr. Clinton and Mr.
Blair, which said the genome data "should be made freely available to
scientists everywhere," served as a spark for excitable investors.
Dr. Roy Whitfield, chief executive of Incyte Pharmaceuticals, which
shed 28 percent of its market value during the day, said investors
failed to distinguish between genome sequences and gene sequences.
The genome, referring to the total human DNA, has no commercial value
and cannot be patented. The genes, which occupy only 3 percent of the
genome, can be. Researchers can work on the sequences of patented
genes in academic work and have to pay license fees only if they wish
to sell an invention based on the sequence.
The two leaders' statement, which was eight months in the making, is
an outgrowth of the longstanding rivalry between a public consortium
of American and British academic centers and the Celera Corporation
of Rockville, Md., to complete the sequence of the human genome.
The consortium, largely financed by the National Institutes of Health
and the Wellcome Trust of London, is posting its findings daily on a
Web site open to all. Celera, a unit of the PE Corporation, promises
to make its version of the human genome freely available when it is
finished, probably this summer. Celera plans to patent some genes,
but its principal business plan is to operate a database of the human
and other genomes, charging fees for use of the programs that search
and analyze the genetic data.
The statement was intended to codify the government position in the
rivalry, that the human genome sequence should be made publicly
available to all researchers, but it appears to have been interpreted
as a challenge both to Celera's intellectual property rights and to
those of other genome and biotech companies. A White House official
said neither challenge was intended, noting the statement explicitly
endorsed intellectual property protection for patents based on genes.
The statement cuts across a complicated two-way rivalry between the
public consortium and Celera, and between Celera and its two chief
rivals, Incyte Pharmaceuticals and Human Genome Sciences. Both the
consortium and Celera aim to sequence the human genome, which means
determining the order of the three billion chemical units in the DNA,
the genetic information possessed by each human cell.
The strategy of Incyte and Human Genome Sciences is to focus on the
genes themselves, patenting as many as possible. The genes, the
programming instructions that operate the cell, are hidden in the
DNA, with no obvious signposts, and are hard to find even when the
genome sequence is known. Incyte's stock fell $53.50, to $143.50,
while Human Genome's stock fell $29.04875, to $123.51625. Meanwhile,
Celera fell $39.75, to $149.25. The government statement adds to the
tension between the public consortium and Celera, which last week
announced that it had effectively broken off merger negotiations.
Celera and its president, Dr. J. Craig Venter, have long been at odds
with the leading scientists of the public consortium, chiefly Dr.
John Sulston of the Sanger Center in Britain and Dr. Robert Waterston
of Washington University in St. Louis. Before merger talks broke off,
the public consortium proposed that both sides abandon what it called
"the current antagonism and excessive competition."
The initiative for the statement issued today is believed to have
come from the Wellcome Trust, a medical-research charity, in London.
Dr. Michael Dexter, Wellcome's director, said the trust's concern was
over the general ownership of the genome, which in his view "is
mankind's, and should not be owned by any one company, individual or
Denying that the statement was aimed at any person or company, he
said the raw sequence -- the string of chemical units making up the
genome -- was not patentable and that the trust "would fight any
patents based on sequence if they obstruct academic work and
progress." Dr. Venter, however, indicated that he thought Celera was
a target of the statement, but unfairly so.
"We are puzzled by the statement and we think it represents the lack
of insight and the confusion that has been generated out there," he
said. "Our business is not in patenting the genome or tying it up."
Dr. Venter reiterated his previous position that Celera would make
available the sequence of the human genome when it was finished, and
said the onus was on the rivals Incyte and Human Genome Sciences to
make their data public. "I agree with the President and Tony Blair
that Incyte and H.G.S. should publish their data," he said.
Both Dr. Dexter and Rachel E. Levinson, a senior official at the
White House Office of Science and Technology Policy, said the joint
statement acknowledged intellectual property rights. Ms. Levinson
said nothing in the statement challenged existing patent law. She
said she was "very concerned and upset" about the reactions on Wall
Street. She said that Dr. Neal Lane, the White House science adviser,
believed the statement would not affect Celera because of Celera's
known intent to publish the human genome sequence.
Dr. William Haseltine, the chief executive of Human Genome Sciences,
said he agreed with today's statement because raw genomic data "has
no practical use," an observation that he termed "the biggest untold
secret of the human genome project." When researchers with the public
consortium published the first DNA sequence of a human chromosome in
December last year, he said, "No new medical discoveries were made
and no new genes were found."
The reason, he added, was that the computer programs for finding
genes were still far less efficient than the method pursued by his
company, one based on short DNA sequences called "expressed sequence
tags" or E.S.T.'s.
The E.S.T. approach exploits the fact that humans may not be able to
spot the genes in the genome but human cells surely can. They
regularly make transcripts of the genes whose information is needed
to synthesize the cell's various proteins. Researchers can capture
and analyze these transcripts, known as messenger RNA, and from just
a small portion of their sequence can identify the corresponding part
of the gene from which they come. These little snippets of genes --
the E.S.T.'s -- are the basis of gene-searching approaches used by
Human Genome Sciences and Incyte. The Patent and Trademark Office has
issued some patents based on E.S.T.'s alone, but any such patents
seem likely to be weaker than patents based on full-length genes.
According to figures released by Human Genome Sciences, Incyte leads
in the human gene patent race with 353 United States patents issued,
followed by Human Genome Sciences (114 patents), SmithKline Beecham
(60), the United States government (49), the University of California
(46) and Massachusetts General Hospital in Boston (45).
The biotechnology companies have yet to prove their ability to
translate their research into revenues, much less profits. Yet these
stocks helped drive the Nasdaq composite to an 86 percent gain last
year, the best performance by a major index ever in the United States.
By traditional valuation standards, the Nasdaq is extraordinarily
expensive, leaving some analysts worried that it is overdue for a
sharp drop. The average Nasdaq stock trades at well over 100 times
expected 2000 earnings, and some large Internet and computer stocks
trade at unheard-of price-earnings multiples of 500 or more.
A drop in the biotech and computer highfliers could shake the broader
stock market, analysts said, which has already been rattled by the
Federal Reserve's recent increases in short-term interest rates,
analysts said. For the year, the Dow Jones industrial average is down
more than 14 percent, and the Standard & Poor's 500 index is off 7.5
percent, while the Nasdaq is up 16 percent.
Douglas Cliggott, United States equities analyst at J. P. Morgan,
called the market "very fragile" because the stocks that are driving
it higher are already so expensive. "We see the kinds of price-
earnings multiples that the Nasdaq's trading at as being absolutely,
positively unsustainable," said Mr. Cliggott, who turned cautious in
Yesterday, broader indexes followed the Nasdaq down. After spending
most of the day up, the S.& P. slipped 24.47 points to 1,359.15, a
1.8 percent drop. The Dow industrials fell 135.89 points, or 1.4
percent, to 9,811.24. Analysts who have dared to be bearish have been
wrong for the last five years. Byron Wien, chief United States
investment strategist for Morgan Stanley Dean Witter, said the Nasdaq
was very volatile and that investors might shrug off this decline as
simply a buying opportunity. "We've had bad days in the Nasdaq
before, and they've snapped right back," Mr. Wien said. "What we have
to see is whether the 'buy the dips' mentality is broken."
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