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Outlook for Bioinformatics Market Improves During 2004 with Return of Pharmas, VCs

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It appears that the commercial bioinformatics sector has passed through the darkest days of a precipitous downturn that it entered over two years ago, witnessing far fewer consolidation events during 2004 than it saw in previous years — accompanied by several more pharma deals and VC funding rounds.

Compared to 2003, in which BioInform covered 12 company closures, mergers, and acquisitions — an average of one per month — only four such events occurred in the informatics sector during 2004: Agilent’s acquisition of Silicon Genetics, Accelrys’ acquisition of SciTegic, BioImage’s acquisition of SciMagix, and the closure of Paracel.

Meanwhile, the sector has begun attracting venture capital funding again — effectively ending a two-year drought — with at least five informatics firms securing a total of $37.5 million in financing during the year: Biomax raised €2.3 million ($3.1 million), Aureus Pharma raised €3 million ($4 million), Teranode raised $2.6 million, Integrated Genomics raised $1 million, and Inpharmatica raised £13.9 million ($26.8 million). In addition, OVP Venture Partners of Kirkland, Wash., teamed with Amgen Ventures in November to add $11.8 million to a pool of funding available to Accelerator, a biotechnology incubator affiliated with the Institute for Systems Biology. OVP cited computational biology and bioinformatics as key investment areas that it will target under the partnership.

Finally, the year ended on a high note on the sales front, with several large-scale deals in the fall reversing the recent trend among pharmaceutical companies to choose “build” over “buy” when implementing company-wide informatics systems. In October, GlaxoSmithKline signed a data-integration agreement with GE Healthcare and GeneticXchange based on GeneticXchange’s DiscoveryHub software and spanning its genetics, discovery, and pre-clinical development R&D groups. GSK followed this in late November, when it signed an agreement giving several thousand of its chemists access to InforSense’s KDE (Knowledge Discovery Environment) workflow technology. A week later, Merck and Ingenuity announced an agreement to deploy the Ingenuity Pathway Analysis software across Merck’s entire research staff via the company’s intranet.

These deals cap a year in which pharmaceutical firms signed 21 software deals with informatics companies (see table, p. 8), compared to 13 such deals in 2003 [BioInform 12-22-03].

Lonely at the Top

But these signs of optimism weren’t enough to keep some of the sector’s most visible players from tweaking their strategies — and rotating their management teams — to remain competitive.

Lion Bioscience witnessed more than its share of upheaval during a year in which its landmark five-year target discovery deal with Bayer expired, and CEO Friedrich von Bohlen departed in January only to return 10 months later as chairman of its board. Von Bohlen’s return followed the resignation of Lion’s two co-CEOs and three board members in October, due to the company’s inability to pay for its liability insurance. By mid-November, Lion announced its decision to delist from Nasdaq, reshuffled its management team once again, and announced plans to reduce its staff of 142 by more than half over its next fiscal year.

Lion ends 2004 organized as a “holding structure,” with its core staff remaining at its Heidelberg, Germany, headquarters. The company’s bioinformatics business area will focus on the company’s flagship SRS product in Cambridge, UK, and its cheminformatics activities will be based in Cambridge, Mass.

Compugen, meanwhile, stopped marketing its LEADS bioinformatics platform during 2004 in an effort to redirect its resources toward the discovery of therapeutic proteins. In November, CEO Mor Amitai announced his plans to resign before the end of 2005 so that the firm can appoint someone “with more experience in pharmaceutical product development and commercialization” in line with the company’s new downstream-oriented strategy.

In September, Compugen solidified this strategy by partnering with Diagnostic Products, a Los Angeles-based firm, to co-develop diagnostics based on biomarker candidates that it has discovered. Compugen is entitled to milestone payments as well as royalties on the sales of any diagnostic products and also has the right to develop any biomarkers for therapeutic purposes under the agreement.

Accelrys entered 2004 as the software subsidiary of Pharmacopiea, and closed the year as the sector’s largest standalone informatics firm. Soon after its mid-year spin-out from Pharmacopeia, Accelrys delivered on its promise of building out its product portfolio through a strategy of in-licensing, internal development, and acquisition — highlighted by its $21.5 million cash-and-stock acquisition of workflow software provider SciTegic in September.

Accelrys did not disclose future revenue projections for SciTegic, but CEO Mark Emkjer said that the company’s revenues — which were $86 million in 2003 — should “approach” $100 million following the acquisition.

Accelrys’ share price, which debuted at $11.98 following its spin-off in early May, dropped to a low of $5.49 in September before climbing again after the SciTegic acquisition. At press time last week, Accelrys was trading at $7.83.

Gene Logic, meanwhile, has turned to a former Accelrys exec to rescue its faltering information business. In the fall, the company hired Dennis Rossi, most recently vice president of life science marketing at Accelrys, for the newly created position of senior vice president and general manager of genomics and information services. Rossi has been charged with jump-starting Gene Logic’s database business, which was stagnant during 2004.

Gene Logic CEO Mark Gessler said that the management change was made “to restructure our business model under new leadership and to improve our performance significantly,” and follows a six-month assessment of “key issues” responsible for the company’s disappointing performance during the year, he said.

Sequence Analysis is So 2000

A number of emerging bioinformatics technologies came into their own in 2004, expanding the field well beyond its roots in sequence and gene expression analysis. Companies selling pathway analysis software and data — such as Ingenuity, Ariadne Genomics, GeneGo, Jubilant Biosys, and others — saw demand for their products gain momentum in the pharmaceutical market during the year.

GeneGo announced a licensing agreement for its MetaCore pathway database with Bristol-Myers Squibb in August; Ariadne announced a licensing agreement for its PathwayAssist software with AstraZeneca; Ingenuity claims Millennium, GlaxoSmithKline, Wyeth, SurroMed, and Aventis among its customer base, and Jubilant Biosys said it has 19 licenses with pharmaceutical companies worldwide.

Accelrys’ acquisition of SciTegic underscored another hot area in the informatics market in 2004: workflow software. A number of companies, such as InforSense, Incogen, and TurboWorx, are marketing products in this area, and more recently, open source versions of these tools, such as the European Bioinformatics Institute’s Taverna, have also begun to emerge.

“The concept of workflow is really catching on in the marketplace right now,” Christian Marcazzo, vice president of business development at InforSense, told BioInform in September. “The industry is aware that writing Perl scripts isn’t a viable way forward anymore.” Marcazzo said that the company’s revenue is “significantly up … and we see our business growing.”

These companies are keeping a close eye on Accelrys following its acquisition of SciTegic, however. Accelrys has promised to keep the solution open to third-party vendors, but some observers are skeptical that SciTegic will be able to remain vendor-neutral as a subsidiary of a company with software of its own to sell.

Another hot area for software development in 2004 was not exactly new. Proprietary proteomics software packages like Mascot from Matrix Science and Sequest from Thermo Electron have dominated the protein informatics market for years, but 2004 marked a rise in open source alternatives. A number of open source packages to identify peptide sequences using tandem mass spectrometry data — such as X! Tandem, from Beavis Informatics, and OMSSA (Open Mass Spectrometry Search Algorithm), from the National Center for Biotechnology Information — were released in 2004, and a team of researchers in Germany is planning to release another open source mass spec analysis package called OpenMS in the spring. Another package, called Proteomic Toolkit for Protein Identification and Quantification, or ProToPIQ, was released by SAIC Frederick, an NCI Frederick contractor, as an add-on to Thermo’s BioWorks software package, and SAIC also has plans to release the source code for the software.

Why the rise in open source development? Lewis Geer, an NCBI developer who leads the OMSSA project, told BioInform that the demand for open source alternatives to commercial packages was driven by a desire for transparency — not cost. “People wanted software that wasn’t a black box,” he said. With commercial packages, “they don’t really understand what the algorithms are doing and it’s affecting their results.”

Cheminformatics also emerged as a new opportunity for public-sector informatics development during 2004. While cheminformatics software has traditionally been a commercial exercise, the launch of the NIH-funded chemical genomics screening initiative as part of the NIH Roadmap for Medical Research has driven a new level of interest in chemical informatics among academic research groups. NCBI has already launched its first resource in this area: PubChem, a database designed to serve as a repository for the chemical structures of small molecules along with information on their biological activities. Other public sector efforts, such as Harvard’s ChemBank, are pursuing similar approaches, while other research groups are developing LIMS and other informatics tools to handle the new onslaught of chemical data.

Whether this activity poses a threat to commercial cheminformatics efforts — even as the bioinformatics sector is experiencing a long-awaited turnaround — remains to be seen.

— BT

 

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