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After a Turbulent 2001, Bioinformatics Firms Still Optimistic for the New Year

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It would be an understatement to say that bioinformatics witnessed its share of ups and downs this year. From the hoopla surrounding the publication of the draft human genome sequence in February to the economic uncertainty of the post-September 11 economy, 2001 brought the field some of its greatest victories as well as its biggest disappointments.

If nothing else, 2001 proved that bioinformatics is evolving as rapidly as ever. The pace of technological advancement has expanded the scope of the field well into functional genomics, proteomics, and predictive modeling. New, lower-cost approaches to supercomputing have given more and more researchers access to compute power that they never would have had in the past. Educational initiatives in bioinformatics are springing up worldwide, promising to meet the growing demand for trained bioinformaticists in the future.

Most notably, the business of bioinformatics passed through a crucial phase in 2001 as firms drastically altered their strategies to keep afloat in the changing economic environment. The lingering euphoria of 1999 and 2000, when bioinformatics companies were able to ride the biotech and dotcom wave to gain substantial funding, steadily dwindled this year, leaving the landscape of players looking very different from that of just one year ago.

 

At the Crossroads

The future of standalone bioinformatics software providers was called into question in 2001 as Rosetta Inpharmatics and Genomica were acquired by Merck and Exelixis, respectively, and other software vendors such as Lion Bioscience and the Accelrys unit of Pharmacopeia expanded their product lines through acquisitions to move further downstream.

Realizing the limited revenue potential of software sales alone, bioinformatics companies broadened their strategies in 2001 by expanding their service and consulting capabilities, building out their product lines to address a wider segment of the pipeline, or moving toward discovery or generation of proprietary content.

But software vendors weren’t the only ones to see problems during 2001. Portal providers found the going tough as well — Entigen recently closed its Australian offices and laid off a number of US employees, while DoubleTwist has yet to follow through on the IPO it filed well over a year ago. Data providers faced their share of challenges, too, as Incyte drastically revised its strategy to focus only on content, laying off more than 400 employees in the process. Celera, meanwhile, continues to expand beyond its data-provider role and into a drug company.

According to Richard Dweck, CEO of bioinformatics consulting firm 3rd Millennium, The struggles of bioinformatics tools companies over the past year only proves that “the market is not ready for off-the-shelf products.” While the demand for software certainly exists and will continue to grow, Dweck thinks it’s unlikely that product companies will be the beneficiaries. Rather, he said, “companies who can tailor solutions to the end-user,” will reap the rewards of the future bioinformatics market.

Steve Lincoln, vice president of product development at InforMax, still sees a role for software providers, but agrees that the risks are higher now for new players entering the market. He views the past year’s troubles as a necessary step in the industry’s path along the “rule of three” pattern that guides the rest of the computer industry — a flurry of startup activity followed by a shakeout that leaves three players holding 90 percent market share. Lincoln foresees 2002 as a key year for players in the market to establish themselves among those top three companies.

Noting that 2001 was disappointing for the commercial side of bioinformatics, Viaken CTO Steve Gardner added, “This is just the calm before the storm. I’m very positive about 2002.”

The hype surrounding the Human Genome Project in 2000 “led us to a place where we got the headlines before we could do what we wanted to do with the information,” he said. With better tools coming on line over the next year, Gardner predicted “widespread adoption of informatics as a primary discovery tool” in 2002.

Part II of this article will appear in the 01-07-02 issue of BioInform.

— BT

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