(FORTUNE Magazine) – Last year Celera Genomics and its president, J. Craig Venter, shook up the scientific world by successfully sequencing the human genome faster than anyone--even Venter--had predicted. But when the hype faded, investors were left with one big question: How could Celera turn its accomplishment into financial gain?

The answer wasn't immediately clear. Venter insisted that the company would attract revenue through its existing business: selling genetic information to universities and pharmaceuticals companies. Not exactly a scheme for tremendous growth, especially given that other biotech firms had already announced plans to convert the new genome data into lucrative drugs. Celera was caught off-guard by its own success--after racing to finish work on the genome, it wasn't prepared to shift gears so quickly. As a result, the stock got hammered, falling 86% from its all-time high of $252 last February.

Now Celera has turned its focus to a logical new business: drug development. The company's knowledge of the genome puts it in position to mine for clues that can lead to new medicines or diagnostic tests. To exploit that advantage, Celera has been hiring high-profile biologists and building a research lab to study proteins, the cellular agents that could hold the greatest promise for new pharmaceuticals. In January it announced a partnership with Compaq and the Department of Energy to build a new supercomputer for analyzing biological data. "Evidence is mounting that the company is going to be a major player in drug discovery," says analyst James Reddoch of Banc of America Securities.

Although other biotech companies have a head start in creating drugs from genomic data, Celera has two big advantages: superior technology and cash in the bank. Its genome success came in part from a new approach for sequencing genes and in part from massive computers able to crunch through data at accelerated rates. Now Celera is focusing those same techniques on drug discovery and protein analysis. And close relationships with sister company Applied Biosystems and Compaq give Celera access to the most advanced machines available.

The company can afford to be patient because of its decision last spring to go out for a second round of financing while still at the top of the market. That created a war chest of $1.1 billion in cash, giving Celera unusual flexibility in launching its drug program. "Our strong capital base will allow us to take drug products further than biotech companies have traditionally been able to," says COO Peter Chambre.

That cash also gives Celera the ability to shop for acquisitions, plus leverage at the bargaining table, a crucial advantage given that Celera isn't likely to get drugs all the way to market on its own (an extremely expensive project, due to the cost of pushing a product through trials and then marketing it to the public). Rather its goal is to find "drug targets"--meaning isolated genes or proteins involved with a specific disease--and then either sell those targets to bigger drug companies for a cut of the profits or form partnership deals. Millennium Pharmaceuticals, for example, has a $465 million drug-target deal with Bayer. Analyst Reddoch estimates that Celera could have a pipeline with as many as 100 targets by 2002.

Some institutional investors have been slow to warm to Celera despite its new model. Many were burned by the stock on the way down last year, and others are waiting for the company to show a profit, something analysts don't anticipate for three to four years. Celera is currently burning through $100 million a year. But its revenue numbers are clearly moving in the right direction: Sales should double this year, from $42.7 million in 2000, thanks to increased demand for the database information.

That's why some observers, like Peter Wen of the Warburg Pincus Global Health Sciences fund, now see Celera as a waking giant in the drug-discovery business. Wen sold Celera last year, but he bought back shares recently because of his confidence in its plan and technology. "When you put smart scientists together with lots of money, state-of-the-art computers, and the accumulated knowledge base, it makes me feel comfortable the value is there," he says. "I don't think there are many companies out there that can match them."