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By Mark D. Uehling

August 13, 2002 | “Is there a future for bioinformatics companies?” Leroy Hood, director of the Institute for Systems Biology, asked rhetorically in his keynote address at the Sixth International Biotech & Infotech Summit*, held recently in San Francisco.

“There isn’t. The computational tools are changing so rapidly that anytime a company freezes the tools, it is left behind. One company is never going to be able to keep up with what’s going on. It is going to be hard to be a straight bioinformatics play.”

“The graveyard of bioinformatics companies is almost as extensive as the graveyard of dot-coms,” noted David Kingsbury, president of DTK Consulting. He warned that it is risky to underestimate the utility of freely available academic bioinformatics applications. Open source programs, such as BLAST, are not just free—they are often superior to commercial offerings.

To laughter in the audience, Kingsbury recounted an exchange from another conference at which a Merck & Co. executive was chided for his company’s $540-million purchase of Seattle bioinformatics company Rosetta Inpharmatics Inc., which produces software for microarray analysis. “You know,” a Stanford University professor had teased, “you can FTP better software off the server at Stanford than you can buy from Rosetta.”

According to Jim Holt, president of Acero Inc., pure bioinformatics companies generate such prodigious quantities of information that data silos are all but inevitable. This is making it difficult to link researchers and results together. “Everybody is dealing with terabytes and on their way to petabytes. This model is not sustainable,” he said. “We talk about data isolation, researcher isolation, application isolation. There is no unifying scientific context.”

Applied Biosystems Group (ABI) is one company that is de-emphasizing bioinformatics in favor of equipment and reagents. Deborah Smeltzer, the company’s vice president of knowledge business, elaborated on ABI’s spring announcement of a drug development strategy. “The business model wasn’t as fine-tuned as it needed to be,” she said of the field as a whole. “Bioinformatics is just a key tool. By itself, it isn’t something you can build a business on.”


Portal Plan

Smeltzer said the company plans to offer an Internet portal to assist customers in every aspect of drug discovery. The Web site will allow researchers to inquire about genetic sequence or expression data, and to order reagents and other consumables directly. ABI will provide public and proprietary tools to manage and analyze data. Then, owing to the repetitive nature of scientific experiments—and presumably, flat pricing for the service—a researcher could feed some of the analyzed data from a wet lab or in silico experiment back into the database via another query and start all over again.

The tiered subscription service strategy aims to make ABI’s data, software, and services as indispensable to biotech and pharmaceutical companies as the Bloomberg box is to the financial sector. “We want to revolutionize the way scientists work,” said Smeltzer. “We want to have a workbench in every scientist’s office where they can go for definitive information. We can link to third-party information. We can create a virtual lab where they design an experiment and get what they need.”

That may include stealing a page from IBM Corp.’s playbook, with a vigorous offering of consulting services. Says Smeltzer: “We can send out our teams of bioinformatics or software experts, and they can help them put it together. We have had many customers come and ask us to reproduce that for their company, so that they can put genomics and proteomics together in one lab.”

Bill Swope of IBM’s Almaden Research Center, originally trained as a chemist, has seen the grandiose promises made for high-throughput screening and computational chemistry. Neither field has disappeared, nor have they fulfilled the early hype. “Bioinformatics will become an integrated part of drug development rather than something that is isolated and separate from it,” Swope said. “I’ve seen rational drug design be oversold and peter out. Bioinformatics is the same thing. It will eventually have an impact, but it will be more incremental in how it affects the business.”

And yet the core bioinformatics tools remain essential to drug development efforts. Bioinformatics may no longer be a viable business opportunity, but as a discipline it is not going anywhere. The tools are changing so fast that a company with the best approach today may not have happy customers tomorrow.


Worried Optimism

There were hints of dread—but more of hope—expressed by members of a panel of financial experts, who predicted better tidings to come. “We’ve gone through a period of six months where we haven’t had any good news. We have had an enormous string of failures,” concedes G. Stephen Burrill, chief of Burrill & Co. “ImClone [Systems Inc.] and Elan [Corp.] ... pulled the whole industry down with them.”

Citing the impatience of many biotech investors, Burrill said it is time for steely stomachs: “If you’re always trying to position yourself for the flavor of the month on Wall Street, you’ll never get there.” But the science is advancing and the scandals will pass. “It’s a fabulous time to be an investor,” he said bullishly.

A reason for hope, paradoxically, is bioterrorism. Burrill says the battle against anthrax and other threats will increase public appreciation of biotechnology and allay concerns about cloning and stem cells. “Bioterrorism is a moon shot for our industry. It provides us with credibility and a massive increase in new funding.”

Kurt von Emster, portfolio manager of the MPM BioEquities Fund, forecasted that pharmaceutical companies sensing trouble would back out of deals with biotech or bioinformatics partners. He cited GlaxoSmithKline’s renegotiation of its pact with ImmunoGen Inc., which halted work on a novel cancer drug. “Any hint of negative issues, and those [partnership] programs will be unwound.” Rather than invest in other companies’ drugs at early stages of clinical testing, Big Pharma would rather wait and spend more if a drug is a proven winner.

The most curmudgeonly voice belonged to Dennis Purcell, senior managing director of the Perseus-Soros BioPharmaceutical Fund, who has tracked what the biotech bosses are doing with the shares of their own companies. “I thought CEOs would step up and buy their stock,” he says. “It’s the opposite. A number of CEOs are selling their shares. It’s shocking.”



*The Sixth International Biotech & Infotech Summit was held at the University of California at San Francisco, June 24-25, 2002. For information, visit


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