Pity the bio-IT pure-players

By Tanya Hollis
Thursday, 27 June, 2002

Fledgling businesses trying to carve themselves a spot in the Australian pure-play bioinformatics sector can be left feeling like television salesmen in the 1950s: everybody knows about the technology, but they're not quite sure if they want to spend their money on it yet.

Such has been the experience of six-month-old bio-IT company Biogene-e-us, conceived two years ago by Curtin University Molecular Genetics graduates Rachael Duff and Tracey Wilkinson.While finishing their degrees, the students noticed a gap in the provision of a purely bioinformatics analysis service."We were interested in the area of bioinformatics and noticed that not many people were qualified in the area and that not many people were using the tools," Duff says.

The WA company, which mostly offers analysis of sequence data, has so far secured six Australian clients. But Duff says the immaturity of the local market for bioinformatics meant Biogene-e-us would soon seek to expand its customer base offshore. "There's a definite need for bioinformatics and a definite under-use of it, as well as a lack of knowledge in the area, by most people," Duff says. "People are realising they need to use it but are still in the process of integrating it into their protocols, so maybe we're a little ahead of our time in terms of market maturity."

Prof Sue Wilson, co-director of the Centre for Bioinformation Science at the Australian National University, is a little more blunt in her appraisal of the current pure-play business environment."At the moment there is next to no bioinformatics industry as such in Australia," Wilson says.

She says that plenty of opportunities exist, particularly given that set-up costs were much lower than biotechnology in general. But she says a problem inherent to the industry, which has been variously described as pre-emerging and in utero, is a lack of skilled people to move it forward.

That is an issue close to the heart of Dr Tim Littlejohn, CEO of Sydney bio-IT firm BioLateral, whose three-tiered business model incorporates professional training in all aspects of bioinformatics.

Littlejohn points to a current push towards undergraduate programs in the discipline and emerging Masters-level programs, as well as BioLateral's own professional training workshops, which he says are aimed at helping to plug the bioinformatician vacuum.

With seven staff, BioLateral has the largest number of skilled people of any Australian bioinformatics company - a position Littlejohn says it is eager to relinquish.

Biogene-e-us has two staff, while two other local pure-play bio-IT companies - Desert Scientific and geneticXchange - each have three.

"It's that kind of size that reflects the size of the market in Australia," Littlejohn says. "The industry is not at a maturity level yet where they require bioinformatics."

Littlejohn says that even in the United States very few bio-IT businesses were doing well, and even the big players were struggling to make money, begging the question as to the motivation of people trying to crack into the industry here.

According to a 2000 report by Frontline Research, the market for bioinformatics data and software alone is estimated to reach $US2 billion by 2005 and $US5 billion by 2010, while a report commissioned by IBM last year suggests life science companies would be spending as much as $US6.5 billion on computer-related services by 2004.

Littlejohn says that International Data Corporation (IDC) research also points to significant growth on the service provision side of bioinformatics, especially given that a lot of software is now available free from database owners.

He says data and tool aggregation and delivery company Entigen, which he founded, was a case in point - running out of money before it had a chance to establish itself. "It can be difficult in bioinformatics to get a sustainable software business model because there is a lot of good stuff available free," Littlejohn explains, adding that while software models could work, BioLateral believes it will not be a major revenue generator. "Our driver is a passion for the industry, but in order to stay viable we are focusing on the services side."

He says it is vital for bioinformatics companies to align themselves with big players in the life sciences area who will need major biological data problems to be solved. "No company I know of has managed to stay alive unless it has been acquired. It's all about partnerships," Littlejohn says. "When you look at successful bioinformatics companies [overseas], most have been bought by bigger companies, such as Neomorphic, which was bought by Affymetrix."

He says BioLateral has moved in this direction through strong collaborations with IBM and Apple. "IT vendors are absolutely required if you're going to have traction in this industry and they need us because of our knowledge and ability to exchange biological problems into bioinformatics solutions," he says.

But while the local life sciences sector tries to find its sea legs on the bioinformatics boat, the pure-play businesses are looking for their livelihoods offshore.

In the case of Desert Scientific Software, its only connection with Australia lies in the fact that it is based in Sydney. "To tell you the truth I don't have anything to do with the local scene," says founder and chief scientific officer Dr Neil Taylor.

"The products and services our company provides are targeting large pharmaceutical companies doing medicine research, and there is nothing like that going on in Australia."

Desert's main product is its Protein Structure Database and Visualisation System (PROASIS2), which Taylor says is targeted at molecular chemists who might be familiar with the molecular aspects and organic synthesis of a compound, but are less experienced with the protein structures. The company also offers consulting in the field of software development in chemoinformatics and computational chemistry.

Taylor says that in his field the software was more specialised and less likely to be freely available than in other areas of bioinformatics. He says he has also carved himself a niche by offering a high level of support and software optimisation in a field where providers have been notoriously bad at back-up. "I think the bioinformatics sector is not big enough to support companies that are just operating in Australia," Taylor says, explaining that the exchange rate is a major factor. He says it is obviously more lucrative to deal in US dollars, and the markets in places like North America and Asia are happy to bear double the price for software than it could be sold for in Australia.

The Asian market is also the main focus for geneticXchange Asia Pacific, the Australian arm and majority-owned subsidiary of the US company of the same name. Regional vice-president Lorrainne Noffke says that since setting up in February, the company's radar has been trained on Asia, because of the relative spend on biotechnology and the relative maturity of the bioinformatics sector. GeneticXchange markets two products, the first being discoveryHub, a query and integration engine for biological data sources and related data sourcing, and the second discoveryBuilder, a query management interface enabling non-IT people to use the application.

The company has established infrastructure to support 10 clients and so far has one in Singapore, although Noffke says it has mostly been concentrating on building its name recognition. She says there are very few commercial opportunities for the company's products in Australia, and that its future plans lie in setting up a southern Asia office in Singapore or Taiwan to expand further into the region.

But according to the managing director of Rothschild Bioscience Managers, Dr Geoff Brooke, the inherent problem for bioinformatics businesses is developing a model that is scalable, proprietary and not freely available.

Brooke says that many US venture capital funds jumped aboard the bioinformatics bandwagon about five years ago, with several losing money on poorly planned business models. "Obviously, with automation of a lot of the processes of biotechnology, there's a massive amount of data that has to be stored, analysed and manipulated and from that comes enormous need for hardware and software to deal with all that," he says.

"Because of the infrastructure for hardware it's unlikely many companies will play in the hardware game, but the problem with the software side is that a lot of the requirements are quite specialised.

"The barriers to entry are extremely low, but it is hard to get scalability and volume in sales because it is so specialised, plus there is so much free software around provided by the owners of databases."

Brooke says there could be opportunities in integrating the various aspects in a way that would significantly add value to all of the available data. "It's a huge opportunity but an extremely difficult one to get into because it's really hard to work out what's the real opportunity," he says.

He says that while biotechnology offers a clearer, albeit still risky, commercialisation path with an obvious pot of gold at the end, the path to market for bioinformatics was not so clear.

"I don't want to paint too bad a picture, because there are opportunities - you just have to be really smart about where you put your money and what opportunities you go for," he says.

"You can make a lot of money out of hardware and services and there's a massive need for the software, it's just figuring out what's the right play."

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