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Reed Elsevier Leads 13.9M Financing for Stake in Inpharmatica, Footing in Pharma

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Reed Elsevier has made a move into the bioinformatics sector as part of a broader strategy to expand its information services for the pharmaceutical market.

The publishing giant’s VC arm, Reed Elsevier Ventures, was the lead investor in a £13.9 million ($26 million) funding round that Inpharmatica closed last week. Reed Elsevier contributed nearly £3 million toward the London-based bioinformatics firm’s third round of financing. Other investors included Abingworth, Advent, Gilde, GIMV, and 3i.

Inpharmatica, which has raised a total of £48 million since 1999, is “an example of where publishing is going,” said Kevin Brown, a partner at Reed Elsevier Ventures.

The deal marks a departure for Reed Elsevier Ventures, which has invested around £60 million in 10 portfolio companies since it was established in late 2000, but has so far limited its investments to general-purpose content-management startups. These were “general horizontal technologies that were all about trying to deliver better electronic products to our customers,” Brown said. “The [publishing] business itself was migrating to providing much more online revenue, and that meant that there were a lot of things going on in terms of how we build and deliver our products.”

More recently, however, the venture arm has been staking out more “disruptive sectors” in an effort to broaden its reach in the marketplace, Brown said.

“We’re the largest provider of scientific and medical content in the world, and the fast-growing part of that business is selling into the life sciences industry, and better serving our corporate partners within pharma and biopharma, rather than being so focused on libraries and students,” he said. “We see pharma companies that have very large budgets, and in a number of areas they are underserved from an information perspective.”

Reed Elsevier’s intention to target industry rather than its core base in academia may explain Inpharmatica’s allure: As one of the few bioinformatics database firms to remain commercially viable despite the flood of freely available content from the human genome project, the company serves as an effective model for publishers facing a similar economic threat from open access publishing. The same pharma customers willing to pay for genomic and proteomic data — as long as it’s packaged in a user-friendly format — may also be willing to pay for other types of information available in the public domain.

Inpharmatica generates nearly $10 million a year through sales of its PharmaCarta informatics platform, which includes the Biopendium annotated protein database along with the Chematica module for lead identification and the Admensa module for predictive ADME and lead optimization. The company also has an early-stage internal drug discovery program focused on nuclear receptors.

“What they’ve done with their information-driven approach to drug discovery is to harness all the public domain information that’s out there, curate it and capture it, and then structure it in a way that you can apply algorithms to it … to drive more efficient decision making,” Brown said.

That approach, he added, “is something that we can learn from as a publisher in terms of where information providers need to go.”

The MDL Connection

Reed Elsevier Ventures and Inpharmatica had a pre-existing — albeit indirect — relationship through Reed Elsevier’s MDL Information Systems subsidiary, which signed a deal with Inpharmatica earlier this year to distribute the Biopendium database [BioInform 03-01-04].

This arrangement played a role in the recent funding round “in the sense that it got the initial introduction,” said Patrick Banks, CFO of Inpharmatica.

Brown said that the partnership with MDL “meant we had people within the group who knew about the company, could help with due diligence, and could help us much better understand the market and the potential for the informatics side, rather than for the drug discovery side.”

Reed Elsevier’s interest in the informatics side of Inpharmatica’s business ultimately led to the financing round, despite an economic climate that both sides characterized as hostile to bioinformatics companies.

“It’s the bit of the business that every VC says, ‘Shut it down as quickly as you can,’” Banks said. “That’s where most VCs come from — they’re only really interested in companies that have got a late-stage product.”

Reed Elsevier “approached it from a different angle,” Banks said, “With a greater marketing effort — which they can bring to the table — and with their detailed knowledge of the market, they knew [the company] was worth a lot more than any VC was currently valuing it at.”

Inpharmatica will use the funding to productize certain aspects of the PharmaCarta platform — particularly the newer, more downstream aspects of the platform within the Chematica and Admensa components. Brown said that the company also plans to hire “one or two” salespeople to bolster its marketing efforts for these upcoming products.

Biopendium is currently sold as part of PharmaCarta, and also as a stand-alone product that is either installed behind a company firewall or accessed from the web in the form of Biopendium Online. “Biopendium itself is unique and could certainly have the competitive edge for several years,” said Brown. “And we also see that there are other parts of the PharmaCarta platform — particularly going further down the chain into discovery and optimization — that we believe could potentially be productized over time and sold as distinct products in the same way that Biopendium is, and that that could provide further upside for the bioinformatics part of the business.”

Banks said that Inpharmatica expects to begin rolling out some of these products “in the not-too-distant future.”

The company will also use the money it raised to bolster its internal discovery program. Banks said the company expects to begin out-licensing the first candidates from its nuclear receptor program by early 2006.

Banks acknowledged that the hybrid platform/discovery model hasn’t proved successful for other firms in the sector, but noted that potential investors, customers, and other observers “can’t judge our business model based upon the fact that there have been two or three or four other companies that have failed in that business model … In the three and a half years that I’ve been here, we’ve grown revenues from about $1.4 million to just under $10 million, we’ve broadened the platform, and that’s in a period when many, many other bioinformatics companies, toolkit companies, have been either shutting down, bought out for their cash, or just moved straight over to discovery because they know they can’t compete.”

While pharma has been “a bit slow” in adopting in silico technology, Banks said, “the more technologically advanced companies that we’re talking to are clearly interested in the technology, so the revenues on the platform side of the business will continue to grow, I’m confident of that.”

Reed Elsevier shares some of Banks’s confidence, but isn’t overly enthusiastic about the prospects for the bioinformatics tool sector when it comes to future investments. “I’m not sure we’d make another straight bioinformatics bet,” said Brown. “Inpharmatica is a company that stood out for us in that space, but …I think the next investment we make in health is likely to be in a different part of the health value chain.”

— BT

 

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