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At Year End, a Fragmented Informatics Sector Eyes New Challenges and Opportunities in 2006

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2005 may be remembered as a turning point in the commercial life science informatics sector. While the year marked the end of a period of rapid consolidation that began in 2002, it also ushered in a rash of niche application areas that may pose a number of technical and business challenges for a market that is already highly fragmented.

Compared to the last few years, M&A activity was minimal in 2005. Tripos kicked off the year by acquiring Optive Research for $8 million in January, but the deal turned out to be the biggest consolidation event of the year for the sector. In March, privately held firms Sertanty and Eidogen merged, but they did not disclose the financial terms of the agreement. Similarly, privately held Entelos acquired Discovery Innovations in May for an undisclosed amount.

The biggest M&A news of 2005 • Lion Bioscience's decision to sell its UK-based bioinformatics business • likely won't see closure until 2006. While company officials initially expected the sale to close by the end of the summer, it has been delayed indefinitely. Lion management said in early December that the sale of the business was "close," but as of press time, an agreement had not yet been signed.

Other market indicators indicate that the sector was relatively stable year over year. Four bioinformatics firms raised venture capital funding in 2005, compared to five in 2004: GenoLogics closed a $5 million Series A round in February; Geospiza raised $1 million in May; Teranode secured $9.5 million in Series B financing in September; and Gene-IT announced $4.1 million in first-round financing earlier this month.


A number of trends emerged in 2005 that could represent new prospects for commercial informatics firms willing to experiment with new business models and new technology areas.

The $19.6 million in total funding that these firms raised was just over half of the $37.5 million that informatics companies raised in 2004, but some VCs still consider the field to be a growth market. Chad Waite, general partner at OVP Venture Partners, which was the lead investor in GenoLogics' funding round, told BioInform last week that there "certainly seems be a more openly receptive market to people talking about things in this area, and … from an investors' perspective … an increasing awareness that biology is becoming a digital science."

While acknowledging that the investment community was burned by a number of high-profile flops in the bioinformatics field several years ago, he said that the field has made a great deal of technical progress since that time. "Everyone had the right idea five years ago," he said, "it's just that the infrastructure wasn't ready." (see table, below, for some different takes on the bioinformatics market in 2006 and beyond).

Other signs signal a flat market for commercial informatics software in 2005. Companies in the sector announced 21 software agreements with top-20 pharmaceutical firms in 2005 (see table, below) • the exact same number that were disclosed in 2004 [BioInform 12-27-04].

In addition, instrumentation and reagent vendors like Invitrogen and Applied Biosystems released free versions of once-pricey bioinformatics resources, indicating that the commercial market for certain informatics tools has all but dried up. In September, Invitrogen released a free version of its flagship Vector NTI sequence-analysis software for academic researchers as part of an ongoing strategy to drive traffic to its online catalog. [BioInform 09-19-05]. The release followed the company's launch in June of a free pathway analysis tool called i-Path with links to specific reagents in its catalog [BioInform 06-27-05].

Applied Biosystems stopped marketing a commercial version of the Celera Discovery System during 2005, and deposited the data from the resource at NCBI this fall [BioInform 10-31-05]. The company also released a free version of its Panther protein classification system in January [BioInform 01-10-05].

Opportunity Knocks

A number of trends emerged in 2005 that could represent new prospects for commercial informatics firms willing to experiment with new business models and new technology areas.

For example, the National Cancer Institute's Cancer Bioinformatics Grid (caBIG) initiative is openly encouraging industry involvement.

In September, caBIG held its first Industry Partners Meeting, which was the first step in the initiative's broader plan to attract participants from the commercial sector. At the time, Peter Covitz, director of core infrastructure at the NCI Center for Bioinformatics, told BioInform that "our hope is that we are in fact creating a new market here … that a market will be there for vendors to consider selling into, and they'll have a competitive advantage if their systems are opened up and caBIG-compatible." [BioInform 10-17-05]

To do so, vendors may have to modify the way they do business. Compatibility with caBIG data structures goes against the "proprietary lock-in business model" that some software vendors follow, Covitz said. In addition, NCI requires all tools developed with caBIG funding to be released under an open-source license, although products developed with private capital "can be adapted to be caBIG compatible by building some type of appropriate adapter layer, and then the underlying product does not have to be open source because caBIG didn't pay for it," Covitz said.

In the microarray analysis sector, which appeared to hit a plateau last year after several years of rapid growth, new prospects are opening up for application areas outside the traditional realm of gene expression analysis. Companies are rapidly developing software tools for processing the huge amount of data coming off of higher-density chips and for the analysis of SNP data, tiling arrays, and chromatin immunoprecipitation (ChIP)-on-chip experiments, with no obvious market leaders yet to appear in most of these areas.

Microarray market leader Affymetrix took steps to foster further development in the field during the year by launching its GeneChip-Compatible Applications Program, an extension of the Affymetrix Developers Network, a web-based forum through which the company provides third-party software developers with file formats, software development kits, and other tools [BioInform 09-19-05].

Steve Lincoln, Affy's vice president of informatics, told BioInform at the time that Affymetrix created the program to ensure that its customers have access to software that is tightly integrated with the GeneChip platform and that developers can keep pace with the company's next-generation chips. "We're looking to build better relationships with our [software] partners because we're not going to be able to provide all products for all use cases," Lincoln said.

Affymetrix retained the top spot in bioinformatics patenting activity during 2005, however, with five patents issued in the area during the year (see table, below). The company was awarded four bioinformatics patents in 2004 and nine in 2003.

Next-generation sequencing platforms, which began hitting the market toward the end of 2005, may also present a new market for developers willing to tackle the informatics challenges of assembling and analyzing data from post-Sanger systems. Of course, traditional sequencers are still turning out oceans of data, and GenBank continues its rapid growth trajectory (see table, below, for details on the growth of GenBank and other bioinformatics databases during 2005).

One company's commercial threat could be another's opportunity. NCBI officially entered the realm of cheminformatics during the year with its PubChem small-molecule database, but the effort was sharply criticized by the American Chemical Society as presenting "unfair competition" for its subscription-based Chemical Abstracts Service [BioInform 05-16-05].

The dispute played out over the course of the year, but at press time, ACS and NIH had not reached agreement. Nevertheless, in a sign that not all commercial chemical data providers have the same view as ACS, Elsevier MDL last week announced that it was partnering with NIH to add data from its xPharm resource to PubChem (see story, this issue).

"We don't see [PubChem] duplicating what we've got," Phil McHale, vice president of marketing and corporate communications at Elsevier MDL, told BioInform. "There may be some small areas of overlap, but I think those are of less consequence than just exposing the family of data that we have to a large set of people."

Signs of Maturity

Some technology areas • such as pathway informatics and workflow software • came into their own during 2005, and 2006 could be the year in which clear market leaders emerge in those sectors.

InforSense signed licensing agreements for its KDE workflow software with AstraZeneca and GlaxoSmithKline during the year, while GSK, Bristol-Myers Squibb, Merck, Pfizer, Sanofi-Aventis, Schering-Plough, Wyeth, Bayer, and Schering devoured pathway software and databases from Ingenuity, Ariadne, Genomatix, Jubilant Biosys, and others.

A number of industry observers believe that many pharmaceutical firms that have licensed several pathway informatics packages in the past will settle on one or two in 2006, which could lead to a shakeout in the sector.

The proteomics informatics sector witnessed the launch of a number of startups in 2005, including Insilicos, GenoLogics, Sage-N Research, BioAnalyte, LabKey, and Proteome Software. Based on the past history of other segments of the bioinformatics market, such as the gene-expression analysis sector, rapid growth will continue into the coming year as new players emerge to address the analytical demands of this market. Nevertheless, it's likely that the user base for these tools will not be large enough to support more than two or three key players in the long term, so a shakeout is likely on the horizon for the proteomics software sector as well.

Commercial bioinformatics firms may continue to struggle in 2006, but public bioinformatics resources will likely not have an easy time either. In a year in which the Blueprint Initiative's BIND database closed shop because it was unable to secure follow-on grants [BioInform 12-05-05], and funding for resources like EMBOSS is still uncertain, it was clear that public and private bioinformatics resources face many of the same risks.

As NIH braces for a half-percent increase in its budget for the 2006 fiscal year, financial resources may be equally scarce on both sides of the public/private bioinformatics fence next year.

• Bernadette Toner ([email protected])

Market Research Firms Take a Stab at the Bioinformatics Market
What's the outlook for the bioinformatics market in 2006 and beyond?
It depends on who you ask. BioInform compiled some estimates from
recent market research reports and found that estimates can vary widely.
Market Research Firm
Publication Date
Definition
of Market
Market Size
Compound Annual Growth Rate
Drivers for Growth
Navigant Consulting
February 2004
Bioinformatics analytical software

2004:
$245 million

2009:
$375 million

9.3 percent Proteomics software is expected to gain the most market share • from 17 percent to 20 percent.
Life Science Insights
May 2004/
April 2005
Worldwide IT (hardware and software) spending for the life science sector

2004:
$14.2 billion (5/04 report)

2008:
$38.9 billion
(4/05 report)

6.2 percent (5/04 report) Regulatory burdens, clinical trials, personalized medicine
Kalorama Information
May
2005
Drug discovery informatics products, including hardware and software

2005:
$830 million

2008:
$1 billion

"modest" Electronic laboratory notebooks will see average annual growth of 25 percent
Business Communications
August
2005
Bioinformatics technologies for "the annotation, storage, analysis and search/retrieval of nucleic acid sequence, protein sequence, and structural information."

2005:
$1.4 billion

2010:
$3 billion

15.8 percent Analysis software and services, which is estimated to grow from $444.7 million in 2005 to $1.2 billion in 2010.
Frost & Sullivan
August
2005
European bioinformatics market

2004:
$310 million

2011:
$720 million

14.4 percent Proteomics software will see the fastest growth
Research
and Markets
November
2005
Bioinformatics software and other tools

2005:
$1.4 billion

2010:
$3 billion

15.8 percent Cost and time savings in drug discovery

Who's Buying? Informatics Licenses with Top-20 Pharma Announced in 2005*
Company
Vendor
Product
Software AstraZeneca Eidogen-Sertanty Target Informatics Platform
InforSense KDE
Linguamatics I2E
Bayer HealthCare Ariadne Genomics MedScan Text-to-Knowledge Suite
Bristol-Myers Squibb Ingenuity Systems Ingenuity Pathways Analysis, Ingenuity Pathways Knowledge Base
GlaxoSmithKline Advanced Chemistry Development NMR Processor, ACD/CNMR Predictor, ACD/2D NMR Manager, ACD/Combi NMR
Applied InSilico ELE
Inforsense Open Discovery Workflow
Partek Partek 6.0
Johnson & Johnson Pharmaceutical R&D Equbits Foresight
Merck Ariadne Genomics MedScan
Novartis Equbits Foresight
Formulatrix Rockmaker
Novo Nordisk Elsevier MDL Isentris
Pfizer Gene Logic ToxShield
Ingenuity Ingenuity Pathways Analysis (extension of existing license)
Roche Genedata Screener (extension of existing license)
Sanofi-Aventis Genomatix GenomatixSuitePE
Schering Inpharmatica Biopendium, Chematica
Schering-Plough Ingenuity Ingenuity Pathways Analysis 3.0
Wyeth Ingenuity Ingenuity Pathways Analysis 3.0 (extension of existing license)
Databases Bayer HealthCare Jubilant Biosys PathArt
GlaxoSmithKline GeneGo MetaBase
Jubilant Biosys PathArt
Molecular Connections NetPro
Prolexys Human Interactome
Pfizer Gene Logic ToxExpress (renewal)
Inpharmatica StarLite, DrugStore
Jubilant Biosys Gene Family ChemBioBase
Schering Jubilant Biosys Kinase ChemBiobase
IT Infrastructure AstraZeneca SGI 32-processor Altix cluster
*As of Dec. 20, 2005
Bioinformatics Patent Leaders in 2005*
Organization
US Patent No.
Title
Affymetrix (5)
6,850,846
Computer software for genotyping analysis using pattern recognition
6,882,742
Method and apparatus for providing a bioinformatics database
6,954,699
System and method for programatic access to biological probe array data
6,957,149
Computer-aided probability base calling for arrays of nucleic acid probes on chips
6,965,704
System, method, and computer software product for grid alignment of multiple scanned images
Rosetta
Inpharmatics (4)
6,839,635
Method and system for analyzing biological response signal data
6,847,897
Method and system for analyzing biological response signal data
6,950,752
Methods for removing artifacts from biological profiles
6,859,735
Computer systems for identifying pathways of drug action
Agilent
Technologies (3)
6,909,970
Fast microarray expression data analysis method for network exploration
6,920,448
Domain specific knowledge-based metasearch system and methods of using
6,950,756
Rearrangement of microarray scan images to form virtual arrays
California Institute
of Technology (2)
6,947,846
Non-metric tool for predicting gene relationships from expression data
6,950,754
Apparatus and method for automated protein design
Cytokinetics (2)
6,956,961
Extracting shape information contained in cell images
6,876,760
Classifying cells based on information contained in cell images
Maxygen (2)
6,917,882
Methods for making character strings, polynucleotides and polypeptides having desired characteristics
6,961,664
Methods of populating data structures for use in evolutionary simulations
Perlegen (2)
6,898,531
Algorithms for selection of primer pairs
6,969,589
Methods for genomic analysis
PhenoGenomics (2)
6,920,396
System and method for providing flexible access and retrieval of sequence data from a plurality of biological data repositories
6,922,638
System and method for transacting and manipulating a multi-sequence search using biological data repositories
Stanford University (2)
6,859,736
Method for protein structure alignment
6,954,722
Methods and systems for data analysis
*As of Dec. 20, 2005
Growth in Key Bioinformatics Databases in 2005
December 2004
December 2005
Growth
Genbank
Release #
144.0
151.0
Base Pairs
43,194,602,655
56,037,734,462
12,843,131,807 (29.7%)
Entries
38,941,263
52,016,762
13,075,499 (33.6%)
Storage Requirements
166 GB
196 GB
30 GB (18%)
UniProtKB/Swiss-Prot
Release #
45.3
48.7
Sequence Entries
164,970
204,086
39,116 (23.7%)
Total Amino Acids
60,244,500
74,182,688
13,938,188 (23.1%)
References Used
122,339
137,700
19,361 (12.6%)
Protein Data Bank
Total Entries
28,790
34,303
9,513 (19.1%)
Proteins, Peptides, Viruses
26,181
31,341
9,160 (19.7%)
Nucleic Acids
1,380
1,543
163 (11.8%)
Protein/Nucleic Acid Complexes
1,216
1,406
190 (15.6%)

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