Skip to main content
Premium Trial:

Request an Annual Quote

In Anticyclic Move, Lion Turns its Back on Drug Discovery to Trim Losses

Premium

Last week, Lion Bioscience became the latest bioinformatics company to tweak its strategy in the wake of disappointing earnings results. But unlike other tool and platform providers who have opted to evolve into drug companies, Lion is taking the opposite tack.

As part of its plan to rein in widening losses, Lion said last week that it is seeking a “strategic partner or investor” for its IT-Driven Drug Discovery unit (iD3). The unit, which operates out of Lion’s sites in Heidelberg, Germany, and San Diego, has been in operation for two years and has already filed for several patents on a lead compound series with activity against an undisclosed nuclear receptor.

But despite this success, in the face of a fiscal year 2002 net loss that more than doubled to euro 54.6 million from euro 23.9 million in the year-ago period, Lion CEO Friedrich von Bohlen said the company was faced with a difficult decision.

“The choice was to go on with [the drug discovery] program and further finance it … or to try to capture the value in other ways and focus on where we think we are really unique and make a difference in the industry, which is the information management business.”

Von Bohlen estimated that approximately euro 20 million of its annual cash-related spending was in support of the discovery program. By the end of the year, Lion expects to have the unit’s activities either funded by or sold outright to a partner. While unable to disclose any details, von Bohlen said that Lion has contacted several potential partners, and “the feedback we got so far was positive.”

Further strategic cost-cutting plans were not disclosed, although cost reductions of 10-30 percent are expected to become “fully effective” in FY 2004. Following a reduction in headcount from 590 to 512 in April, von Bohlen said further layoffs are not planned.

Licensing revenue for Lion’s IT solutions increased by 118 percent in FY 2002, from euro 8.8 million to euro 19.2 million, with R&D-related revenues increasing from euro14.5 million in FY 2001 to euro 21.2 million. Growth in IT sales — along with a “comfortable cushion” of euro 124 million in the bank — was a key factor in the company’s decision to direct its focus on that side of the business as it aims to reach break-even by the end of FY 2003.

“We have decided to focus the company’s activities on the information management and the IT side, period,” said von Bohlen.

 

Banking on Integration

CFO Martin Hollenhorst said that only a “fraction” of Lion’s current revenues is directly related to its iD3 business, and the company is counting on new IT offerings, particularly the Discovery-Center/SRS integration platform that will be available in the fourth quarter of 2002, to drive revenue growth. Lion forecast a moderate increase in sales during FY 2003 of 5-20 percent, but expects growth to increase to 20-50 percent in FY 2004.

Although in the past von Bohlen had touted Lion’s drug discovery capabilities as a selling point for large IT partnerships, he noted that the sale of the iD3 unit shouldn’t impact that aspect of its business. Lion’s ongoing partnership with Bayer, as well as pilot projects at Schering and Nestlé, give it “direct access to the marketplace where companies come and tell us their needs for larger solutions.”

 

Jumping off the Bandwagon

Describing the decision to partner or sell its iD3 unit as “a bold step,” von Bohlen acknowledged that Lion is bucking the trend in a sector that has shifted en masse toward discovery.

But while many companies are morphing into drug companies in response to a smaller-than-anticipated market for their tools, von Bohlen said Lion’s established market share makes it “one of the few companies who have the option at this time not to become a drug discovery company.” The key, he added, is knowing “when you can act anticyclically.”

Industry observers noted that the decision to partner or sell the iD3 unit was probably a good one in light of Lion’s growing losses, although its chances of breaking even by next year will be dictated by the overall health and buying patterns of biotech and pharma.

Gunnar Weikert, CEO of Inventages Venture Capital, observed that Lion’s decision to shift its focus away from the wet lab and toward its IT offerings may be a sign of the pendulum swinging back from the sector-wide stampede toward discovery. Disappointed in the “stupid trend” of platform companies rushing to identify drug targets despite the extremely low probability of bringing a compound to market, Weikert said there’s still a place for “platform companies like Lion who are participating in a broader sense and not putting all their money into one or two projects.” He added that from a risk-sharing and risk-return perspective, “this makes much more sense.”

With further consolidation within the bioinformatics sector a certainty, players who want to survive are now shifting their resources to either side of the platform-versus-discovery fence. Lion isn’t the only pure-play bioinformatics shop to refocus on its software sales — Pharmacopeia is considering splitting its Accelrys software unit from the discovery side of the business, and InforMax, which hinted that it might move toward drug discovery when CEO and founder Alex Titomirov stepped down last October, has since ruled out that possibility in favor of an expanded suite of desktop applications.

Of course, these decisions carry their own risks, and most market predictions for the pure-play bioinformatics sector remain bleak. But Weikert sees a silver lining: He compared the current situation in the bioinformatics market to the early days of SAP, which had a tough time convincing internal IT departments that its solution was cheaper and more effective than their homemade systems. However, he pointed out, the floodgates opened for SAP once it landed one or two key clients. Weikert said he’s confident that bioinformatics firms will see a similar pattern and that pharma will eventually open up, but echoed the question that’s on everyone’s mind: “How long will that take? Two years? Three years? Or more?”

— BT

Filed under

The Scan

Shape of Them All

According to BBC News, researchers have developed a protein structure database that includes much of the human proteome.

For Flu and More

The Wall Street Journal reports that several vaccine developers are working on mRNA-based vaccines for influenza.

To Boost Women

China's Ministry of Science and Technology aims to boost the number of female researchers through a new policy, reports the South China Morning Post.

Science Papers Describe Approach to Predict Chemotherapeutic Response, Role of Transcriptional Noise

In Science this week: neural network to predict chemotherapeutic response in cancer patients, and more.