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Lion Trims Down, Shapes up to Ensure Survival in the Bioinformatics Jungle

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As one of the last remaining pure-play bioinformatics companies, Lion Bioscience is an endangered species. But according to CEO Friedrich von Bohlen, the company has taken the right steps to make sure it doesn’t get voted off the informatics island any time soon.

Over the last year, Lion jettisoned its drug discovery business, laid off nearly 40 percent of its staff, dramatically restructured its product offerings, and streamlined its senior management team with the goal of narrowing its focus on what it has defined as its core business: Data and application integration.

Following the company’s decision to drop its iD3 drug discovery unit in September, von Bohlen noted that the move would help Lion dedicate more resources to its strengths in life science informatics. Since then, the company has refined its strategy even further. “Our business model evolved from software tool provider into an ERP [enterprise resource planning]-like business, a solution provider,” von Bohlen told BioInform last week. “Why should we write another docking software? Why should we write another expression profiling software? Why should we write another GUI like Spotfire has?” Just having these tools, doesn’t help, he said, “because you have to bring them together.”

In the last few months, Lion has made good on the first step in this strategy — expanding the user base for its flagship SRS integration technology through global licensing deals with large pharmaceutical firms. Since January, Eli Lilly, Johnson & Johnson, and AstraZeneca have purchased global SRS licenses to integrate biological data across their distributed research groups.

But in order to transform von Bohlen’s vision for Lion’s future into reality, these wins must lead to broader licensing deals for additional components in the company’s revamped product line. This strategy hinges on the newly launched Lion DiscoveryCenter (LDC), a blend of SRS and the DiscoveryCenter cheminformatics integration technology Lion picked up in its acquisition of NetGenics. So far, Bayer and Schering have licensed LDC — Bayer through its existing collaboration with Lion, and Schering through a license for the technology it already had with NetGenics. Though these companies are “the usual suspects,” von Bohlen noted that “they had the choice, and they chose it, so I think it’s a good first step.

“What would you say if they didn’t do it?” he asked.

LDC is at the very heart of Lion’s growth strategy. Using Microsoft as an analogy, von Bohlen likened LDC to the Windows operating system because it integrates the data, “but you don’t see it as the user.” Just as Microsoft’s Word and Excel applications run on top of Windows while allowing users to cut and paste information between them, Lion’s upcoming Target Engine and Lead Engine application suites will plug into LDC and provide users with integrated bio- and cheminformatics analysis capabilities, he said. Of course, as Microsoft has proven, it really helps to have that operating system in place first.

Von Bohlen said that Lion will sell LDC by making it easy for biotechs and pharmas to build an integration infrastructure step by step: Users can upgrade from an SRS license to an LDC license just by paying the difference between the two, he said, and the additional LDC components can simply be added to the existing SRS system. Acknowledging the pharmaceutical industry’s skepticism about new informatics products, along with sales cycles that can take six to nine months or more, von Bohlen noted, “We don’t expect a big rush [for LDC] tomorrow.” However, he said, “I would be surprised for anyone, at least in biology and chemistry and pre-clinicals, to not invest in it over time.”

It’s a Wrap

Lion could get an additional sales boost in the near future when it rolls out the wrapper it is writing to link SRS with IBM’s DiscoveryLink middleware. The two companies began a partnership in December 2001 to develop and co-market a combined DiscoveryLink/ SRS integration product. Now, over a year later, von Bohlen said the wrapper “is in the testing phase for both companies” and will be on the market “shortly.”

When the wrapper is shipped, it is expected that both companies will see immediate benefits: Lion can leverage IBM’s enormous sales and marketing force to pick up some SRS licensing revenues; while IBM will finally be able to link the flat-file data that makes up the majority of biological databases into the relational DiscoveryLink system, possibly increasing sales of the middleware technology.

The two companies have also agreed to share the professional services component of any deal that involves the combined SRS/DiscoveryLink product. While the partnership has been essentially on hold pending the release of the wrapper, von Bohlen said he’s confident that it will “improve and accelerate” as soon as the technology is available.

Lonelier at the Top

In addition to focusing its product line on its integration strengths, Lion recently streamlined its management structure as well. The company’s executive team has shrunk from five to three since the beginning of the year, with the departure of CSO Jan Mous in early January and of CIO Reinhard Schneider at the end of February. Lion will not replace these positions, von Bohlen said, and the company is also considering reducing its external supervisory board from six to three members.

One reason behind the leaner executive structure is the staff cuts that the company experienced as a whole over the year. “The company reduced from something north of 500 to north of 300 people, so you cannot cut the company by so many people and not affect the board. That sends at least a psychological signal to the outside world,” said von Bohlen.

The smaller management team is also in line with what von Bohlen described as the “maturation of the company.” While Lion started out in 1997 as a group of “young, excited scientists,” each member of the executive team now has more than ten years of industry experience — “almost some old economy flavor,” he quipped.

These changes at the top make up what von Bohlen described as “a clear pathway to professionalism” as the company strives to meet its goal of breaking even by March 2004. Recognizing the enormity of this challenge in the current economic climate, von Bohlen said this goal is “driving everything now” at the company.

Some industry observers doubt that the company will be able to reach break-even in a year without making further cuts, but von Bohlen said that Lion is on track with its sales targets so far this year to meet that goal.

Of course, a lot can happen in a year, and Lion is one of many biotech and informatics companies trading below their cash holdings — making it a potential acquisition target for a larger player looking for a good deal (see table, p. 4). Von Bohlen acknowledged that despite its measures to ensure growth in the coming year, Lion “is in a weak situation in terms of protecting against offers to buy the company.”

However, he noted, “There is no offering on the table today.” More importantly, he added, “We’re not shopping the company….We have a great vision and a great team and I’m really motivated to run the company as it is. Again, not saying that things couldn’t change, but we can stand on our own.”

— BT

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