Incyte has jettisoned the last of its database holdings with the sale of its Proteome subsidiary to Biobase of Wolfenb ttel, Germany.
The deal effectively closes the door on Incyte’s information business, but should open another one for Biobase, which gains access to Proteome’s BioKnowledge Library and LifeSeq Foundation databases — along with an important foothold in the US market.
Financial terms for the acquisition were not disclosed, but Biobase said it financed the transaction through a fund managed by Avida, a private equity firm.
John Keller, Incyte’s executive vice president and chief business officer, told BioInform that the Proteome group “was a small business in the context of our much broader, more intensive focus on drug discovery and development.”
After a drastic restructuring last February in which Incyte gutted its Palo Alto genomics operations, the company retained the Proteome group for its “immediate potential to make a positive cash contribution to Incyte,” Keller said at the time [BioInform 02-09-04]. However, he explained last week, it became clear to Incyte over the last year that Proteome would fit better with “an organization that was fully focused on this space and had complementary products.”
Incyte has not yet begun generating income from its drug-discovery operations, so the data business has served as its primary source of revenue for the last several years. However, a company spokeswoman said that the top-line impact from the sale of the subsidiary is not a concern.
“Revenue is not a metric that’s meaningful for Incyte at this point,” said Pam Murphy, vice president of investor relations. “We are a drug-discovery and -development company, and the revenues have not been meaningful in terms of Incyte’s value as a drug discovery company.”
Incyte has not yet reported its revenues for the 2004 fiscal year, but the company posted $15.2 million in sales for the first three quarters of 2004, a fall-off of nearly 60 percent compared to the same period in 2003, for which it posted $36.8 million in revenues.
Biobase now faces the challenge of turning the information business around financially.
As a privately held firm, Biobase does not disclose its own revenues, but CEO Michael Tysiak said that the company has been profitable for the last two years, despite the general downturn in the biological data market. Proteome, however, saw its sales decrease in 2004 compared to 2003 — a trend that Tysiak attributed to the unit’s secondary role within Incyte. “That wasn’t their focus,” he said, “but I think because we’re focused on it, we’re confident that we can get that up again.”
Tysiak said that Biobase intends to nudge Proteome into the black through cost-saving measures and increased sales of the BKL and LifeSeq products.
“We took over an operation that wasn’t profitable, but it will be profitable this year,” he said.
The acquisition nearly triples Biobase’s headcount of 23 people. Tysiak said that there will be minimal staff reductions, however. “We will work on cost-efficient basis like we do in Germany, so there will be a few changes here, not only in headcount but generally in how we treat costs.” Proteome’s current US management team will be replaced with Biobase management, he said.
Private to Public to Private
The acquisition brings the Proteome subsidiary full circle. In 2000, Incyte acquired the privately held firm for $77 million in an effort to build out its information business. In the ensuing five years, as the market for genomics data took a dive and Incyte overhauled its business model to focus on drug discovery, the Proteome subsidiary stayed put at its Beverly, Mass., headquarters, operating very much as it did since it was founded in 1995.
Now, Proteome finds itself once again in the hands of a privately held firm — one that observers view as a better fit than Incyte.
Proteome co-founder James Garrels, who left the firm after it was acquired by Incyte, told BioInform that Biobase appears to be a “much better environment” for the group. Biobase “is a database company, they understand databases, and they already sell compatible databases to the academic and the pharmaceutical communities, so I think the products will mesh together well.”
David Rubin, CEO of Cognia, which distributes Biobase’s products in the US along with its own offerings, said that Proteome’s databases complement those of Biobase with little or no overlap. “The key thing is how much strengthened [Biobase’s] Transpath interaction databases are going to be, which makes a much more solid, competitive product immediately in the market,” he said. “We sell Transpath and it’s extremely high quality, but this adds a lot more content to it, and that’s really one of the things that the customers want.”
Rubin said that Cognia will maintain its distribution relationship with Biobase.
“The philosophy of [Proteome and Biobase] is pretty much the same,” said Tysiak. “We concentrate on high-quality databases that are manually annotated in the biological area.” Biobase is known primarily for its Transfac line of transcription factor databases. The company also sells Transpath, a database of signal transduction pathways, and BRENDA (the Braunschweig Enzyme Database), which it exclusively licensed from German firm Enzymeta in 2003.
Proteome’s BKL, which includes six separate volumes of annotated protein data, and LifeSeq, which includes human genomic sequence and gene-expression data, will be integrated with Biobase’s products to improve ease of use for customers of both firms, Tysiak said.
Moving forward, he added, Biobase intends to continue expanding its product line, especially in the areas of interaction data and signal transduction. The company will expand further by acquiring additional databases “with a good name,” Tysiak said, and through new internally developed products and new content for existing products.
“We always want to be ahead of the competition,” he said. The Proteome acquisition, he added, will help position the firm as the “number-one supplier of biological databases.”
But recent history — and a growing base of competitors — may stand in the way of Tysiak’s goal. As Incyte’s own decision to dump its information business proves, the commercial market for biological data has diminished considerably since it peaked during the Human Genome Project. Meanwhile, even as the overall market has waned, numerous vendors have emerged to meet demand for interaction data, pathway data, and other types of “post-genomic” information.
“The market is not easy,” Tysiak conceded, “but customers are looking for high-quality products, and that’s the niche that we are in.”
Garrels agreed. “There’s a definite market there,” he said. “It’s not like the genomic databases any more. These are heavily annotated databases, and that’s a type of work that is intensive.”
While publicly funded genomic and protein databases have rendered many commercial offerings all but obsolete, Garrels said that academic resources “haven’t really filled the niche of ... high-quality databases generated from literature surveys.”
Biobase is not alone in the annotated-database arena, however. Tysiak cited Ingenuity, Jubilant, and other pathway database firms as the primary competitors for its newly expanded business. Biobase’s strategy for staying competitive, he said, will be “expanding the pathway database significantly.”
Cognia’s Rubin said that competition in the pathway database market isn’t as fierce as it might seem from the growing number of players in the space. “It sounds like there’s a lot,” he said, “but when you go out and talk to customers, our sense is that no one’s absolutely hit the sweet spot yet, and it’s really wide open for competition.”