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Competition Cranks Up as Compaq to Invest $100M in Life Sciences Start Ups

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Compaq Computer’s competitors downplayed the significance of its recently announced plan to make $100 million in direct and indirect investments in early-stage bioinformatics and genomics companies.

But the move will undoubtedly raise Compaq’s profile as the first computer company to use such a strategy to try to increase its dominance in the growing genomics sector.

Compaq of Houston wants to generate growth for new companies by providing financial resources as well as early access to its AlphaServer systems, StorageWorks systems, solutions, and services. Its best-known customers are Celera Genomics, MIT’s Whitehead Institute, and the Sanger Centre.

Compaq’s first investment will go to the Cambridge, Mass.-based Applied Genomic Technology Capital Fund, a venture capital fund that specializes in genomics and bioinformatics companies. Terms of that investment were not disclosed.

Some bioinformatics end users feel that Compaq’s strategy is a good way to get close to new companies to keep abreast of developments in the field. One bioinformatics director at a major pharmaceutical company said the next big innovations in bioinformatics are likely to come from small start-ups, where novel ideas can be generated more easily. Compaq’s investment will push along bioinformatics at some point, but it’s going to take a long time before it has any affect, said the director, who requested anonymity.

Predictably, Compaq’s competitors – IBM, Sun Microsystems, and SGI – saw Compaq’s move as a validation of their strategies and saw no reason to change their approaches to the sector. All of the companies plan to continue to invest in the area, although Sun and SGI declined to say how much they would invest in their life sciences businesses.

Caroline Kovac, vice president of IBM Life Sciences, said she was not surprised to see Compaq take this direction. The real challenge with these investments is to bring value to the marketplace and create partnerships, she noted.

According to Kovac, Compaq’s effort is different from IBM’s strategy in that IBM may make equity investments but will also invest in partnerships, such as the one it formed with Incyte Genomics to supply data integration software for Incyte’s new software platform.

Kovac said IBM wants to get its technology into companies directly through early access to technology it develops. “It will be access to integration capabilities, partnerships on services, hosted infrastructures, all of these other kinds of special programs for leasing and financing of equipment,” she said.

Siamak Zadeh, director of marketing for life sciences at Sun, said Compaq’s announcement was notable because investing in a venture capital fund is generally done to increase returns on investments. He felt the plan would not help to strengthen its foothold in the life science sector. Investing money is the easy step, he said, but a company distinguishes itself by how it empowers its partners.

Zadeh pointed to Sun’s recently announced partnership program that involves CuraGen, DoubleTwist, Incogen, Lion Bioscience, and Rosetta Inpharmatics as an example of his company’s efforts.

Rounding out the competitive picture, SGI said it is not afraid of its big competitors that are putting such large sums into the market.

“We have and will continue to invest heavily into this market since high performance computing in the sciences has always been one of SGI’s core competencies,” said Dan Stevens, SGI’s marketing manager for sciences.

Compaq Counters

Ty Rabe, Compaq’s director of high performance technical computing solutions, responded that Compaq has quality partners and customers, citing Celera, Whitehead, Sanger, and some supercomputing centers. He added that the new investment initiative is an addition to Compaq’s existing efforts.

Compaq is not just looking for a return on its investment, said Rabe. Its main goal is to expand its business and market share in this field by selling more services and products.

“We felt we needed a more aggressive mechanism for reaching smaller companies,” said Rabe. He explained that Compaq wants to be close to small companies in their planning stages rather than just at the time when they are ready to purchase hardware. Compaq, through partners like AGTC, thinks it can help entrepreneurial companies that have an expertise in biology but not necessarily in information technology, he added.

Rabe said Compaq has had success with this kind of investment strategy, namely through a similar program it initiated with Internet service providers in March.

Noubar Afeyan, managing partner of AGTC, said that Compaq’s plan is good news for bioinformatics and genomics companies.

“It’s my view that the models that are going to be needed for such an explosive opportunity like applied genomics are going to look more like the high tech industry frankly than the biotech industry,” he said.

Afeyan explained that the speed of development and product introduction is very fast in the high tech sector, compared to the traditional pace in the biotech industry where large amounts of money are needed and regulatory and clinical hurdles have to be cleared.

AGTC has about $100 million in capital under management and expects to reach its goal of $200 million in the first quarter next year, said Afeyan. His ties to Compaq go back to when he was chief business officer at PE (now known as Applied Biosystems), when the relationship between Compaq and Celera was formed.

—Matthew Dougherty

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