For Subscribers

Get the complete article now!

TWST: Let’s begin with what investors need to know about the various subsectors of life sciences. What’s key to an understanding of terms such as informatics, bio-informatics, etc?

Mr. Harris: I believe that the life sciences industry encompasses many different subsectors, each of which has its own unique set of economic characteristics and drivers. At UBS Warburg, we have chosen to break the life sciences sector into four distinct segments. The first is traditional biotechnology, which is comprised of companies that are focused on making products. These products or drugs are used to help treat or cure diseases. The second group under the broad heading of life sciences is life sciences tools. This segment is comprised of companies that are making equipment, reagents and other tools that are used by scientists in the drug discovery and development process as well as in diagnostics. The third category we call life sciences genomics. This segment is comprised of companies that are looking at genes and proteins to establish pathways and to determine function. This information is then sold to biotechnology and pharmaceutical companies to help them in the drug discovery and development process. For example, this information might help a pharmaceutical or biotechnology company determine what is an appropriate drug target. What these companies are selling is primarily information. The fourth group is comprised of bio-informatics companies. These are companies that are selling systems and software that are used by life sciences researchers to manage the vast amount of data that is being created. Systems and software also help to retrieve and access the vast amount of data that is being created by the genomics and proteomics revolution.

TWST: Are there any other companies in this subsector that you would highlight?

Mr. Harris: You can’t really talk about this space without mentioning Affymetrix (Nasdaq:AFFX). They’re the leader in the micro-array marketplace. As I mentioned, they have a market cap of about $1.9 billion. That stock has come under a lot of pressure recently, again, due to the pressure on the whole group. Also, they recently announced the recall of some of their gene chips, which they had found to be defective, and the marketplace is taking them to task for that. Having said that, this is a company that did $200 million in revenues in 2000 and is projected to do $290 million in 2001 and I think will achieve profitability in 2001 of about $0.35 a share, which would be the first full year profit in the company’s history. So that’s always one to watch because they are 10 times larger than the next competitor in the gene chip space.

TWST: What part do these kinds of companies play in healthcare funds these days?

Mr. Harris: First of all, they are mostly in biotech funds. I mean, that’s where you find the biggest concentrations in ownership because it takes a certain amount of work and real detailed analysis to understand the companies, due to their complicated technologies. In terms of weightings in the broad context of a biotechnology fund, I would say they are still on the relatively small side, because most funds still have the majority of their assets in the big product companies.