By Adrienne J. Burke
If you want to engage Lion Bioscience’s founder Friedrich von Bohlen in a cocktail-hour chat, ask him about his car. His green 1968 Shelby Mustang convertible is his pride and joy. But if you’ve got time for a conversation that could span the dinner and dessert hours, ask him what he thinks about the future of the bioinformatics industry. The exuberant 40-year-old CEO, who holds an MBA and a biochemistry doctorate, is brimming with ideas, and it takes a vigilant public relations manager to keep in check his impulse for sharing impolitic opinions about his competitors and collaborators. (As you’ll see, even she has trouble keeping a lid on him.)
Among colleagues, von Bohlen is known for his boyish charm, for speeding on the autobahn, for having his mobile phone practically embedded in his ear, and for his nonstop work ethic. The latter, combined with reliable investors and a suite of products that is gaining respect within big pharma, has enabled the company to survive in a market where many others have failed.
Despite having reported a drop in revenues for the quarter ending December 31, 2002, as well as a net loss of $146 million for the fiscal year to date, von Bohlen maintains that he will achieve the goal set at the time of Lion’s 2000 IPO: to break even in March 2004.
On a recent tour of the US, the Heidelberg-based CEO stopped in at Genome Technology’s office for a long chat about how he’ll do that in a year, and why he thinks some others don’t stand a chance.
First we’d like to hear your thoughts on the current bioinformatics market. How has Lion managed to be one of the last bioinformatics companies standing?
[The 1990s] was a time when everyone thought you only had to impress enough and you would sell your software. But then it changed. There was not so much more money to invest in new companies in 2000, 2001. Then pharma companies started to hold back investments. If you have a number of people and you keep that fixed, but the volume and the kind of data is doubling, the pressure gets bigger.
And now something very natural happens: pharma companies for the first time think, ‘What do I really need? What I need is something that helps me to improve my productivity, become faster or better.’ And now they understand [they] have to support processes rather than buy neat tools. And now they go out and there are fewer companies — some have disappeared like DoubleTwist, others have been swallowed like Genomica or InforMax — and they look for companies who can really help them build full systems.
You have seen our recent deals with AstraZeneca, J&J, and Eli Lilly where they made a conscious decision to build a complete R&D informatics department on our technology. The difference between this and other deals is that this is a worldwide license. It’s a conscious decision by top management to say, ‘We don’t know yet exactly how the full picture will look, but we know that the platform has got to be used.’
What I foresee is that instead of 100 companies with single tools you will see a maximum of 10 companies surviving strong, as global players. And these 10 companies will fall into three buckets. One will be the real scientific data providers: MDL … Gene Logic … Incyte … and I’m not so sure about Celera. These are three or four players with real databases.
I would call the second bucket ‘rich tool providers’ — companies that can deliver a broader offering of tools to the industry. Tripos, Accelrys, Spotfire — these are companies that deliver a good blend of tools, tools that make some sense standalone.
And then there’s a third bucket that I call the ‘real integrators’ — data and application integrators. To be honest, I see only Lion there right now. There are other companies that have something in there, like MDL, like Tripos, like IBM, but this is only part of their business whereas it’s our core business.
Our business model evolved from software tool provider into an ERP-like (enterprise research platform) business, a solution provider. The offering consists of two parts: a strong standardized framework — one framework for data integration, the other for application integration — coming along with a strong professional services team because one size does not fit all.
We evolved from a fuzzy tool provider with a strong tool like SRS into a solution provider where we say we’re supportive of the majority of the standard tools.
NetGenics and DoubleTwist are among the companies that would have wanted to be in your “third bucket.” Is Lion the one left standing because it is the one with the best product, or is it that you had deeper pockets — investors with the patience to keep funding you?
It’s all of that and one more thing: We have revenue. Last year we had $40 million revenue. This year is going to be somewhat less because we discontinued drug discovery, but still we are in the range of $30-40 million. This is real revenue. All the marketing stories are nice, but if you cannot sell your products …
Those companies that are going to survive and be strong players are those that are somewhere north of $30-40 million revenue. Those who are below can still play a role. There will be niche players.
What do you think of the acquisition of InforMax by Invitrogen? Does that eliminate a big competitive obstacle for you, or make it tougher since you’re up against Invitrogen now?
InforMax had to be acquired. Their business model had come to an end. Although Vector NTI is a great product, there was nothing else coming out of the pipeline. The money was running out.
I’m not scared … because what Invitrogen wants to do is not reinvent the bioinformatics wheel, but I think they want to add more value to their offering which is kind of chemicals and supply. I think they wanted an add-on offering where you get not only a piece, but you get richer information for your lab.
They have to enrich their offering and get even more information into what they have, so they could be a natural partner or client here for our information integration platform.
And what do you make of the recent management changes at Accelrys?
I have a very explicit opinion on that. I think that although Acccelrys has great tools, it is suffering from overcomplexity. They have acquired too much and have too many different tools. They’re almost drowning in their offering.
When you’re sitting at your desk and you don’t know what to do next, a vision helps you to say, ‘OK, go that direction.’ I think that is missing from Pharmacopeia and from Accelrys. They tried to get structure in these kinds of tools, but they are still a collection of six companies and six companies means six philosophies. I believe a lot is going on internally about who is telling whom what to do, and I think that management has a very difficult task. I think what really would help is someone coming in … who really says, ‘Look guys, this is the vision, this is the mission, this is where we go, and I will decide what’s in and what’s out.’ I would say for Accelrys my recommendation is — you know I don’t take money for this! — less is more.
Is that the philosophy that led you to eliminate the wet lab part of your own business?
It is one of the reasons. You can summarize that — less is more. But why is it more? For two reasons. The biggest problem with the lab — and you’re probably going to be surprised when you hear this — was that the pharma clients said, ‘Who are you? If you are a drug discovery company in the future, why should I buy software from you or take your services? Because you are going to tell me two years from now we don’t serve you any more.’ We had to give a sharp profile to our pharma clients, telling them who we are and who we are not.
The capital markets went down and we were not able to refinance and we had a milestone where we said, ‘If we don’t have a client at this time point that pays us so and so much, then we’ll just stop it.’ The day came, and virtually by midnight we said, ‘OK, let’s execute.’ Of course, this was not the most pleasant moment in the history of Lion, but looking back, it was the exact right decision. Because now we’ve conserved the money we have, and that will allow us to reach profitability and still have a strong cushion.
All I want to say is, we are dangerous in the way we’re in an active mode. And that’s important. In business, you have to be able to stay active because otherwise, you become reactive, like InforMax. And if you become reactive and you’re in a negative market, you’re in a downturn, and then you lose control. And we didn’t want to lose control.
How about a report card on your IBM partnership? Have you gotten any additional business out of that?
I have to be politically correct now. The only business we have gotten out so far is that we have built our external offering provider business, the ASP business, together with IBM, the Lion Hosted Services, and we often market that together. I think it’s a good offering, technologically and functionally, but this is the offering for those who cannot afford an in-house solution. It’s an important offering to round up, but it’s not the core offering.
I think the Lion-IBM relationship will improve. I mean, business-wise it will improve and accelerate when the piece of technology that links SRS or Lion DiscoveryCenter with DiscoveryLink, which is an SQL approach to relational databases, a wrapper, is shipped. It’s in the testing phase now for both companies.
We own the wrapper and only we can sell it, but the IBM people can co-market it.
So we have regular, monthly, high-level business strategy talks with IBM. Carol [Kovac] and I and the top business people have identified numerous joint customers where we think and where we know we can do joint business. But I believe it will materialize at that moment when this wrapper is available, because at that moment their sales and marketing force will really start selling.
IBM has a professional services team, we have a professional services team. This sounds like competition. It’s not. Because their professional services team is about building big compute farms, it’s about storage networks, integrating sites, laptops, whatever kinds of things. Our professional services team is a scientific IT team that’s really going to integrate functionality, like proteomics with assays. But those teams are in a partly consulting and implementation mode. Our professional services team can’t do what they can do, and theirs cannot do what we can do. This is a real value to the client, because now you get two teams that complement each other that really can understand your needs and can really come with offerings and solutions to serve your needs. I think this is the real value of this IBM/Lion offering, but again, this all only gets unleashed when this wrapper is out.
You’ve got a smaller board and a smaller management team these days. This must increase the pressure on your own shoulders. How are you managing?
I think there’s not more burden on the shoulders. On the contrary, I think what has happened in the executive management team and what we call the supervisory board, which is the outside and inside directors, is a clear pathway to more professionalism. Lion started off as really young, excited scientists and support. And now if you look at the executive team, the three executive board members each has more than 10 years’ industry experience. It almost has some old economy flavor. Our chairman used to be a lawyer, which was very important in the beginning. Now it’s a former pharmacy exec. We have fewer people, but I think these people have much more experience.
Last question: Who’s going to buy Lion?
Well, let’s put it this way: Surely a consolidation time in an industry is always an M&A time. I say this really emotionlessly now — it’s not what I hope or believe, but I speak as a CEO with fiduciary obligation to the shareholders. Although we have acquired two companies in the past, Trega and NetGenics, Lion is surely cheapened these days, as many companies are. Since we did our homework, and in particular since we refocused and gained a sharper profile and momentum in the market and launched our new product and professionalized our board, we got more dangerous. It’s a very clear, good offering. But still, being cheap, this is surely a weak situation in terms of protecting against offerings to buy the company.
There is no offering on the table today, I can tell you. But of course we also thought about, ‘What happens if an offer comes? Where could it come from?’ Not that you say hopefully it comes, but we think about these things.
We didn’t found the company to sell it. Some people do but we did not. But we’re not religious on that. Also with the fiduciary obligation, if the offer comes and it’s at a high premium, in these days as a board member you cannot just neglect it. You have the obligation to deal with it.
To be honest, I’m not looking for that, so I don’t say that I think we’re cheap. But yes, we have to think about it. And I think [there are] three environments [we could fit into]. Equipment providers that see information as an important part of their future business, publishers where information is an important part of the business but not that type that we’re dealing with, or horizontal process builders who do not have that domain expertise. These are the three areas that, if something happens, I would expect [an offer to come from] first.
We’re not shopping the company. We have deep pockets. We are active, not reactive. We are dangerous, not harmless. We have a great vision and a great team and I’m really motivated to run the company as it is. Again, not saying that things couldn’t change, but we can stand on our own.