Aurora Essay, Research Paper

Aurora Biosciences Corp. (ABSC)

April 21, 2000

This is one of those picket and shovel companies in the Biotechnology sector. ABSC designs and develops drug discovery technologies and services. Aurora Biosciences is developing a system using fluorescent assay technologies and ultra-high-throughput screening systems (UHTSS) to allow researchers to overcome many limitations of traditional drug discovery processes.

Aurora’s functional genomics technology can successfully analyze over half a billion discrete cells derived from 20 million independent GenomeScreen(TM) clones in one day. It’s GenomeScreen(TM) technology acts as a search engine to rapidly scan the genome of living, human cells to find genes associated with specified diseases or physiological processes. ABSC has technology capable of searching through expansive libraries of compounds to identify those that might lead to new medicines. This enables Aurora to rapidly identify commercially relevant genes, and to directly develop screens for drug discovery, faster and more efficiently than existing methods. To date, Aurora has filed for patent protection on over 100 previously unknown gene sequences, including their use for compound screening, human diagnostics and drug discovery.

Genome, what is it?

ge+nome – set of chromosomes: the full complement of genetic information that an individual organism inherits from its parents, especially the set of chromosomes and the genes they carry.

A genome is the complete collection of an organism’s genetic material. The human genome is made of about 50,000 to 100,000 genes located on the 23 pairs of chromosomes in a human cell. A single human chromosome may contain more than 250 million DNA base pairs, and it is estimated that the entire human genome consists of about 3 billion base pairs. Genetic information is found in each cell of the body, encoded in the chemical deoxyribonucleic acid (DNA). The ultimate goal of genomic mapping and sequencing is to associate specific human traits and inherited diseases with genes at locations on the chromosomes. The successful completion of the genome project will provide a better understanding of the organization of human genes and chromosomes. It promises to revolutionize both therapeutic and preventive medicine by providing insights into the basic biochemical processes that cause many Human diseases.

Celera (CRA) will soon reveal the sequence of the genome. When completed it will steer to a new great scientific challenge. The big commercial challenge after the completion of the genome will be to understand the function of the genes identified. (This market will be colossal) Aurora stands at the crossroads of this challenge by conducting the gene discovery while at the same time assigning function information to the genes.

With their GenomeScreen technology, they’re in the business of discovering what genes actually do. So a challenge to sequence-based patents would likely heat up demand for Aurora’s technology. (Ok, it gets complicated here so just bare with me) Currently, about 20% of discovery programs are based on genomics. In fact, it has been predicted that virtually all new discovery programs will be genomics based in a few years. A major challenge for the pharmaceutical industry is to determine which of these targets is significant from the drug discovery perspective (meaning $$$). To do this, companies must assign functions to the targets (what it does). Once the target has been identified, you still have to build a screen to find drugs that affect the target, a process which takes up to a year. Aurora’s Genomics and Molecular Biology division has developed a technology to overcome these challenges. The value that Aurora brings to this process is added at all stages, from gene identification to target validation to screening compounds to the compounds themselves. In other words, it does important (cool) stuff that makes the company the good old American dollar bill.

Previous Growth:

Revenue in 1999 was 90% higher than in 1998. Aurora has grown from $2 million in revenue in 1996 to $50 million in revenue in 1999, compared to revenue of $26.5 million and a net loss of $18.7 million, or $1.14 per share, for the year ended December 31, 1998.

Future Growth:

This year ABSC is expected to make $.19 and $.34 in 2001. Last year ABSC made $.01 per share, its EPS growth is expected to be 1750% this year and 82.43% in 2001. From three months ago its earnings have been raised 11.7% for 2000 and 21.4% for 2001. In the past four quarters is has beat expectations by between 18.75% and 54.55%. It is estimated that it s growth for the next five years will be around 50%.

Summary:

ABSC has a proprietary enabling technology, agreements with almost every major pharma co., forecast profitability, high growth, strong management team, track record of exceeding earnings forecast, growth industry, small float leading to great price elasticity, and one positive press release after another and most importantly an explosive market. The future of this company is very bright. This sector is very volatile, this is a long term hold. The price hit a high of $140 a few months and has now dropped to $31 7/8. The reason for the drop was due to President Clinton s comments concerning the Human Genome. Those comments do not affect ABSC, but because the shareholders did not know what Aurora Biosciences does they sold when Clinton said something negative about genomics. He said that when the Human Genome was decoded it would have to be shared. ABSC benefits from genome, it does not sell it.

Strong customer and partner base:

Current customers include American Home Products, Becton Dickinson, Bristol-Myers Squibb Company, Clontech Laboratories, Inc., Cystic Fibrosis Foundation, Cytovia, Inc., Eli Lilly and Company, Exelixis Pharmaceuticals, F. Hoffmann- LaRoche Ltd., Genentech, Inc., Glaxo Wellcome, Merck & Co., Inc., National Cancer Institute, Pfizer, Inc., Pharmacia & Upjohn, Inc. and Warner-Lambert

Disclaimer: (its really good and it took me a lot of time to phrase it just right, so please read it)

I know that the future growth might sound too good to be true and it might actually. And remember these are only ESTIMATES and no matter how conservative I make them sound the company might not fulfill them.

This is not an investment advisory service, it is recommended that you consult with a licensed financial advisor before making any investment decisions. The information herein should not be construed as an offer to buy or sell securities. The information is taken from sources thought to be accurate but there is no guarantee. All due diligence should be done by the reader or their financial advisor.