Nearly a year after it first announced it was putting its bioinformatics assets on the block [BioInform 04-25-05], Lion Bioscience this week said that it had found a buyer in BioWisdom of Cambridge, UK.
Privately held BioWisdom, a developer of custom biomedical ontologies that it calls "intelligence networks," has agreed to pay up to €4 million ($5 million) for Lion's bioinformatics business. The terms of the agreement call for an upfront payment of an undisclosed amount, and a "variable payment" based on the performance of the business over the next year.
The deal eliminates some of the risk associated with buying a business with a five-year track record of declining revenues. Lion's bioinformatics business generated revenues of €4.2 million for the first three quarters of its 2005/2006 fiscal year, which ended March 31 — less than half of the €8.6 million it posted in the first three quarters of its previous fiscal year.
For its 2004/2005 fiscal year, the most recent for which full-year figures are available, the bioinformatics business posted revenues of €9.7 million, compared to €19.4 million in the prior year.
But BioWisdom is confident that it can turn the business around, and has projected that it will be accretive on a cash and earnings basis within a year, although company officials declined to disclose projected revenues for the business.
"Part of the acquisition was to de-risk the whole package to balance the few customers for a bigger product down to a much more distributed base of customers."
Gordon Smith Baxter, CEO of BioWisdom, said that the company is preparing to announce a new customer win shortly that will "indicate a return to growth" for Lion's flagship SRS data-integration business.
"We're pretty comfortable we'll be paying the €4 million," he said.
BioWisdom has identified two ways in which SRS will benefit its business. The first is as an "infrastructure" component for its current business model, in which the company works with pharmaceutical partners to extract data and assemble it into "intelligence networks" to improve decision-making. So far, the company has applied its technology primarily in safety assessment, biomarker discovery, animal model selection, and identifying alternate indications for compounds in the pipeline or on the market.
Currently, BioWisdom is focused on "building the healthcare intelligence brand," Baxter said, but going forward, "we're very interested in then pursuing the chemical intelligence space, as well as the biological commercial intelligence space. We think Lion's technology takes us a step in that direction and it gives us the ability to do that at an enterprise scale."
Baxter said that BioWisdom management identified SRS as "the state-of-the-art data integration platform," and said that the technology is of interest to the company "because you can't extract intelligence if you don't know where it is, if you don't have it visible to you in some form."
BioWisdom therefore plans to extend the capabilities of SRS "to add the kind of biomedical context and commercial context that we can get from different types of data sources at the back end, and different types of cognitive technology at the front end, so we can appeal to a wider audience than the genomic/informatic/early discovery scientists — we can move out to more corporate, commercial decision-making."
But BioWisdom also plans to continue selling SRS as an off-the-shelf product, and has pledged to continue supporting the broad SRS customer base.
This strategy is a departure from the company's current business model, but a necessary one, Baxter said. "We have seven out of the top 10 pharma and they're significant deals," he said. However, he said, relying on a small number of high-profile customers exposes the company to a high degree of risk. "So part of the acquisition was to de-risk the whole package to balance the few customers for a bigger product down to a much more distributed base of customers."
BioWisdom has raised £6.9 million in venture capital since it was founded in late 2000. The company's investors include Finsbury Life Sciences Investment Trust, NIF Ventures Limited, Merlin Biosciences, and MB Venture Capital.
The company claims Pfizer, GlaxoSmithKline, Johnson & Johnson, Eli Lilly, Roche, and AstraZeneca as customers, while there are more than 300 customers for SRS, comprising large pharmaceutical firms as well as academic customers and small biotechs. Baxter said that BioWisdom has a few customers that use both technologies, "and the feedback is that this is a smart move."
Due to the terms of the purchase agreement, BioWisdom doesn't plan to fully integrate its technology platform with SRS for another year. There is a new SRS release slated for later this year, which the company will support, but because the agreement with Lion pegs the final purchase price on the commercial success of the product, "we have to be careful that we ensure we're looking at SRS performance and not some hybrid," Baxter said.
However, he added, "we will be talking to customers about potential improvements, and we would expect a new version to appear next year."
This new release would be "a completely different kind of animal," Baxter said. "It would integrate the SRS technology but have a different feel, a different interface, and different positioning."
It's likely that the integrated product would also have a different name, he said.
Meanwhile, the corporate integration process has already begun. Although Lion is headquartered in Heidelberg, Germany, the bioinformatics group is based in Cambridge, UK, so staffers from the neighboring firms have been going back and forth between the two offices, Baxter said. Around 20 people remained in the Lion bioinformatics group, and they will join BioWisdom's 26 employees. "There are no redundancies planned," he said.
Eventually, the two groups will consolidate in a single office, but Baxter said those plans have not yet been finalized.
Meanwhile, Back in Heidelberg
With the sale of the bioinformatics business out of the way, Lion said that it plans to focus on its "future business," although company officials declined to provide details of what this business entails.
When Lion first proposed to spin out the bioinformatics group, it planned to structure its continuing operations as a holding company that would manage Lion's cash holdings, intellectual property estate, and other assets, as well as invest in new life science companies.
Earlier this year, however, the company said in a statement that it was in the process of evaluating a "new business model" for its continuing operations [BioInform 02-03-06].
Peter Willinger, chief financial officer for Lion, told BioInform this week that "we have very clear ideas how we want to proceed and how we want to position the company in the life science market," but said that the company could not disclose further details at this time.
"We have very concrete ideas, but we are still evaluating them," he said.
Willinger is now the sole member of the company's management board, following the resignation of Thure Etzold as CEO as of April 4.
As for the ultimate purchase price of the bioinformatics business — for which some bidders had proposed up to €10 million [BioInform 01-06-06] — "we would have taken more money," Willinger said, admitting that there were some "disappointments" over the last year as the firm hit a few obstacles in closing the sale.
In the BioWisdom agreement, he said, "the price is one part of the deal, but the deal as it is structured we feel quite comfortable with."
Lion held €7.8 million in cash and cash equivalents as of Dec. 31, plus €14.8 million in marketable securities.
— Bernadette Toner ([email protected])