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Citing Weak Demand from End Users, Genomica Slashes Staff, Revises Strategy

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Last week, Genomica laid off 100 of its 150 employees as part of a change in strategy “to reflect observable developments in the market environment for life science informatics products,” said CEO Teresa Ayers.

The company plans to expand its current business model to include hardware, content, and data generation solutions. “Our initial target market for third-party enterprise software is not developing fast enough to build stockholder value within a reasonable timeframe,” Ayers said in a statement.

But according to some in the industry, the demand for bioinformatics software is as strong as ever, with plenty of room for growth. “We’re bullish about the depth of the market,” said InforMax CFO John Green.

Green noted that before the events of September 11, “we were not seeing any change in terms of market trends. Despite the soft economy in other sectors we saw strong demand.” Citing the $38 billion raised by biotech companies last year through both IPOs and venture capital funding, combined with the large investment in genomics research at academic research institutes, Green said, “There’s plenty of money and they need to spend it on tools such as ours.”

The only change InforMax has seen since September 11 has been “some shifting on the timing of decision making,” Green said.

Some industry observers see Genomica’s woes as proof that the pure-play tool provider model is not sustainable.

Indeed, a number of companies in the sector have recently added consulting practices to their offerings — such as InforMax, Accelrys, and Silicon Genetics — or have moved toward drug discovery — such as Celera and Inpharmatica — in an effort to ensure viability.

According to Mike Clulow, an analyst at UBS Warburg, Genomica’s troubles may be due in large part to a lack of customized services.

Clulow highlighted contract and consulting work as one area of bioinformatics that should remain secure even as the economy slows. “Each pharmaceutical company thinks that they’re unique, so they’re going with more consultative customized work rather than turnkey solutions,” Clulow said.

This point certainly hasn’t been lost on IT vendors. “Things are pushing forward in bioinformatics whereas in a lot of other markets it’s contracted lately,” said Matija Siljak, a principal with IT consulting firm Olotek, which recently said it plans to add bioinformatics clients to its current base of financial and electrical engineering customers.

Siljak said he’s confident that there will be plenty of demand for his company’s skills. “The amount of programming that needs to be done in this space far exceeds the number of players that exist in the field today,” he said.

From an IT point of view, the life sciences market is easily outperforming other vertical markets. Despite expected layoffs at Sun Microsystems and Compaq, both companies expect their life sciences units to remain intact. Storage vendor EMC, which expects to lay off approximately 2,400 people by year end, has also targeted the life sciences as a safe haven in the slowing economy. “We see this market growing dramatically,” said Roberta Katz, marketing manager of EMC’s life sciences group. “If anything, we’ll be investing more in the life sciences.”

Genomica spokesman Derek Cole said the company intends to “move away from selling to the end user” and seek more partnerships with hardware and content vendors. The company expects to operate near cash flow breakeven through 2002 as a result of the restructuring.

Genomica had $115.5 million in cash and cash equivalents at the end of June and revenues of $464,000 for the second quarter of 2001. Net losses for the period totaled $5.8 million.

Genomica also announced plans last week to adopt a stockholder rights plan to protect shareholders in the event that an unsolicited attempt is made to acquire the company.

— BT

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