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Commercial Informatics Sector Shakeout Continues in 2003; Public Sector Strong

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The shakeout in the commercial bioinformatics market that began in 2002 gathered momentum during the past year, leaving the sector a bit smaller in December than it was in January. BioInform covered 12 consolidation events during 2003 (see box, p. 5) — an average of one per month, and around three times as many as occurred in any other year since 2000. [BioInform 04-07-03].

Running counter to the shrinking investment environment for informatics firms, however, federal funding agencies increased their bioinformatics budgets for 2003, making public-sector bioinformatics the biggest success story of the year.

There was also a silver lining to the cloudy commercial climate: the sector seems to be trimming down to better reflect the size and buying patterns of the marketplace. Larger, publicly traded informatics firms such as InforMax and Lion Biosciences ran into trouble when they grew too quickly, and the rest of the sector seems to have learned from their experiences. With VC funding tight, startup bioinformatics firms are touting organic growth and pitching their wares to niche segments of the market, while the technologies of several firms who shut their doors during the year were reborn in the form of new, leaner, businesses pledging to succeed where their predecessors had failed.

It remains to be seen whether this new austerity will prove effective through 2004. Certainly, many privately held first-generation bioinformatics firms — such as Gene Codes, DNA Star, and Silicon Genetics — have proven that rapid growth is not a prerequisite for success in the bioinformatics market. If smaller is indeed better when it comes to survival — both in terms of company size and product portfolio — those pinning their hopes on another bioinformatics IPO in the next few years may be disappointed, and larger firms like Accelrys and Lion will have to work even harder to prove their relevance in 2004.

Strategic Shifts from the Usual Suspects

The strategic contortions of publicly traded bioinformatics firms during 2003 served as an effective indicator of the market’s rapidly changing demands. Celera, moving closer to drug discovery, lowered the price of its database for academic users, and said it plans to exit the database business completely by 2006. Incyte also lowered the price of its database in a bid to target struggling biotech firms, but the company said in November that it may sell the information business as it continues to focus on its own makeover into a drug company [BioInform 11-10-03]. A decision on the future of the information business unit is expected before the end of the year.

Gene Logic, meanwhile, took a strategic left turn by acquiring contract research firm TherImmune in April. Although the company expects TherImmune’s capabilities to help grow its business in the longer term as gene expression data works its way into clinical trials, the move was a short-term disappointment: Due to a slowdown in database renewals and a soft CRO market, Gene Logic reduced its pro forma revenue predictions for the 2003 fiscal year by 10 percent, and in November laid off 50 database developers.

On the software side of the market, falling revenues prompted Compugen to transfer its Bioccelerator product line to Biocceleration Ltd. in August, and the company is now considering the divestiture of other tools and products to improve its balance sheet. Accelrys, meanwhile, revised its licensing model to attract more business, and launched an R&D center in Bangalore, India, to take advantage of lower development costs there. Most dramatically, Lion cut back its staff to less than 200 people during the year, and just bid goodbye to CEO Friedrich von Bohlen (see Q&A, p. 9).

Big Blue Behemoth

Despite the struggles of bioinformatics tool vendors, the year was a success for at least one industry player: IBM, which first threw its hat in the life sciences IT ring in late 2000, emerged as the official 800-pound gorilla of the sector during the course of 2003.

By expanding beyond its hardware focus, extending its partnership network, and embarking upon research collaborations with organizations like the Mayo Clinic and the Institute for Systems Biology, IBM secured a strong foothold in both the academic and commercial bioinformatics communities during 2003. While the company still faces heavy competition in the database market from Oracle, and from HP and Sun in hardware, its professed strategy of selling solutions, rather than spec-ific technology packages, through its professional services organization seems to have taken hold. The company’s life science team numbered over 1,200 people at last count, making it very difficult for other vendors — whether they sell hardware, software, or services — to compete.

That’s not to say that other IT players didn’t make their mark in bioinformatics during the year. Apple emerged as a high-performance computing player as more and more research labs turned to its Xserve server to build bioclusters [BioInform 11-24-03]; Oracle’s latest database, 10g, included a number of features specifically for the bioinformatics market [BioInform 09-15-03]; and even Microsoft stuck its toe into the life science waters through a research partnership with the Fred Hutchinson Cancer Center [BioInform 06-16-03].

Public-Sector Progress

For non-commercial bioinformatics, the “official” end of the Human Genome Project in April signaled the beginning of a new era of large-scale, publicly funded, bioinformatics-driven biology research projects, such as the $36 million ENCODE (Encyclopedia of DNA Elements) initiative, which aims to identify all of the functional elements contained in 1 percent of the human genome.

The National Institutes of Health pledged its support of bioinformatics in a number of ways during the year, most notably in the “roadmap” it announced in September, which set aside $14-$17 million to create several National Centers for Biomedical Computing. The National Human Genome Research Institute identified computational biology as one of the key “pillars” of the house it used as a visual metaphor to represent its own research priorities in the coming years [BioInform 03-31-03] and the National Institute of General Medical Sciences appointed Eric Jakobsson as the first director of the Center for Bioinformatics and Computational Biology and the head of the NIH-wide BISTI (Biomedical Information Science and Technology Initiative) consortium — a position that was vacant for four years.

The NCI also demonstrated its commitment to bioinformatics by launching a nationwide bioinformatics grid, called caBIG (Cancer Biomedical Informatics Grid) to improve the bioinformatics capabilities in NCI-supported research centers.

Public-sector support for bioinformatics is also on the rise in Europe, as indicated by the recent EU grant to build the Biosapiens genome annotation network (see story, p. 1).

Best of Times, Worst of Times

With public-sector bioinformatics on the rise, and a continued fall-off in the commercial market, the end of 2003 marks a turning point for vendors looking to transform the field’s research developments into commercial products.

Taking products beyond the R&D stage, however, often proves tough. Furthermore, as well-funded publicly available tools continue to advance, commercial firms will find it even more challenging to compete without adding demonstrable value to their products.

The result may be a smaller but wiser bioinformatics sector.

— BT

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