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Software Vendors are Hungry for a Piece of the Burgeoning Bioinformatics Consulting Market

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In recent months, a number of bioinformatics software vendors have expanded their business models to include consulting services. Since March, InforMax, Pharmacopeia’s Accelrys software subsidiary, and NuGenesis Technologies have added a consulting practice to their offerings. These companies join IBM, which is building a life science consulting practice within its Global Services organization, as well as hardware and software consultants such as Blackstone and 3rd Millennium, that have already built successful businesses focused on the genomics and bioinformatics community.

Clearly, these new entrants in the bioinformatics consulting business see an opportunity for additional revenue as they seek a clear path to profitability. In the current economic climate, a list of service contracts is an appealing feature for an investment community wary of anything but a sure bet. But as the field gets increasingly more crowded, will these companies find sufficient demand for their services?

Justin Saeks, an analyst with Frost & Sullivan, sees plenty of room for new players in the consulting market. “I think there is definitely a demand for this,” said Saeks, “Maybe equal to or more than the software sales, depending on whether you include hardware with IT consulting.”

A Frost & Sullivan study conducted for IBM predicted that life sciences companies would spend nearly $6.5 billion on IT services by 2004.

One reason for the surge of interest in the field is the maturation of data-generating technology, which has left biotech and pharma clients “struggling with the rate of change and the degree of integration on their shoulders,” said Bob White, vice president of Accelrys’ worldwide sales and consulting division.

White said that Accelrys decided to add a consulting arm to the software division in response to customer requests for help designing an integrated drug discovery platform.

Customer demand also spurred InforMax’s entry into consulting, according to Peter Covitz, vice president of professional services. “Our customer base wanted us to take a more comprehensive look at their bioinformatics needs, their infrastructure, their research goals, the actual algorithms and protocols that they’re using in bioinformatics, and to either advise them from a true consulting standpoint or actually engage them in the specific projects going on at their site,” said Covitz.

This growing demand for bioinformatics services has lured consulting groups from other domains as well.SynApps Software of St. Louis, a software consulting firm with clients in the medical, telecommunications, and web infrastructure domains, recently changed its name from PC Innovators in line with its strategy to focus on the bioinformatics and genomics market.

SynApps now lists Incyte Genomics among its clients and expects the bioinformatics market to provide up to 50 percent of its business this year, according to Skip Martin, president of SynApps. Recognizing biotech as a high growth market — and a safer bet than telecommunications or web infrastructure these days — SynApps decided to leverage its experience in the medical domain to focus on bioinformatics and genomics.

Surprisingly, established bioinformatics consultant 3rd Millennium welcomes the new competition. “I am actually encouraged,” said Richard Dweck, president of 3rd Millennium. “It really validates what we’re doing and the path we’re on.”

However, Dweck noted that bioinformatics vendors may not be entirely objective when determining the best solution for a client’s needs. “When you’re a hammer, everything looks like a nail,” Dweck said. “If you’re a software product company, when you hear clients’ needs, you’re hearing it through your product.”

Jim Golden, director of bioinformatics at CuraGen, said he’d require “some kind of level of credibility” from a software vendor acting as a consultant. “I would need to see that you are not just a tool provider who had suddenly become a consulting company. You are a tool provider who had actually refined that tool in a real-life genomic environment and were able to bring me something that was lacking in my current company.”

InforMax and Accelrys both seem confident that they can overcome this type of skepticism. White said that Accelrys offers an open architecture and an open platform, which eases prospective clients’ doubts about any potential bias toward the company’s own products. “I think you have a tendency to get over that objection when you can demonstrate real competence and domain expertise,” White said.

“I don’t think anyone ever rejects us out of hand just because we’re a software product company,” said InforMax’s Covitz. The risk of bias is actually limited, he added, because “not that many products in the bioinformatics space are truly direct competitors.” While some products appear to serve similar needs, Covitz said, different products are better suited to different customers.

Consulting newcomers also face other challenges, however, such as building a global presence to compete with established IT consulting organizations like IBM’s Global Services unit or the “big five” consulting groups. Staffing issues loom large as these groups plan to beef up their service offerings, since bioinformaticists are in such high demand. Accelrys plans to double its current services staff of 50 by year-end, while Covitz said InforMax intends to grow its consulting staff “aggressively” throughout the year.

But the biggest challenge these companies may face may be proving that they can help their potential clients to meet their goals. “If I’m going to pay you as a consultant, show me how you’re going to shave two years off my drug discovery process,” said CuraGen’s Golden.

— BT

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