Based largely on the pharmaceutical industry’s need to beef up diminishing drug pipelines and the rising amount of genomic and proteomic data, financial services firm UBS Warburg recently estimated that the market for life science informatics would grow at a compound annual growth rate of 30 percent, from its present level of $1 billion to $3.8 billion by 2005.
The firm’s findings, published in its report, Life Science Informatics: The Next Quantum Leap in Drug Discovery, are based on a definition of informatics that includes bioinformatics, cheminformatics, and other information technology developed either in-house or by third parties for use in the discovery process.
Michael Clulow, one of the authors of the report, said the broader definition was necessary to account for the current trend of integration across the previously separate disciplines involved in the drug development process.
Clulow cited Pharmacopeia’s acquisition of Oxford Molecular and subsequent consolidation of its software units as well as Lion’s merger with Trega as examples of intra-industry consolidation that should become more frequent in the coming years. This trend will serve to blur the line that currently separates bioinformatics and cheminformatics providers, Clulow said.
This move toward the “one-stop shop” should also lead to an increase in acquisitions of informatics companies by tools and content providers, such as Affymetrix’s acquisition of Neomorphic and Celera’s acquisition of Paracel.
As the drug discovery bottleneck shifts from data acquisition to data analysis, tools and content providers will “have to make a heavy investment in informatics to make that conversion from data to knowledge,” Clulow said.
The consolidated life science informatics market envisioned by UBS Warburg will grow over the next five years in line with the biopharmaceutical industry’s increase in R&D spending and the larger share of discovery dollars devoted to IT. The report estimates that biotech, pharmaceutical, chemical, and agriculture firms currently spend 7 percent of their discovery R&D budget on IT and projects this portion to increase to 17 percent by 2005 as in silico discovery begins to take hold.
The report also predicts that third-party tool vendors will command a larger share of the informatics market — increasing from 9.7 percent in 2000 to 47.9 percent in 2005 — as in-house informatics efforts in the pharmaceutical industry decline.
Based on the pharmaceutical industry’s recent trend toward outsourcing in sales and marketing and clinical trials, Clulow said that UBS Warburg expects the same to happen in discovery. However, he noted that the burden is on informatics vendors to convince pharma to abandon its internally developed systems in favor of third-party solutions. In this sense, Clulow said, the main competition most informatics companies face is potential clients’ in-house informatics departments.
“The predominant install base of bioinformatics applications are home-grown applications,” Clulow said. “So the challenge for third-party vendors is to replace that install base by proving that an independent third-party application is better because it’s more focused and allows the biopharmaceutical companies to spend their resources and time on what they do best.”
Third-party vendors with the best chance of gaining a foothold in the biopharmaceutical sector will be those who shift away from a technology license-based business model to a more collaborative approach, “where you combine bodies with the technology to effectively outsource a component of the drug discovery process,” Clulow said.
In order to reach their potential $1.8 billion portion of the informatics market by 2005, UBS Warburg recommends that third-party vendors move away from simply selling software and look toward collaboration, enterprise-wide installations, and consulting.
“Pharmaceutical companies want this stuff, they really do, but they need some hand-holding. The onus is on the industry to shift the model away from where they were,” Clulow said.