December 1, 2005 (Vol. 25, No. 21)
Suppliers Find Plenty of Unmet Need But Where’s the Market?
From 2000 to 2003 the oceans of data generated by life science research were all anyone in drug discovery could talk about. Information management, be it bioinformatics, cheminformatics, or systems biology, was undoubtedly the next great step forward in solving pharma’s discovery woes. If we could only manage the oceans of data effectively, we would be able to find the fish.
The excitement over the coming bio-information revolution was such that readers of Burrill & Company’s 2003 annual report on the state of the biotech industry were treated to whole sections about IBM rather than Amgen and Genentech. One major IT provider (we won’t name names) predicted the market for informatics would be $43 billion worldwide by 2004. Most analysts forecasted the number at a more modest $2 billion, but still, the year 2000 was an exuberant time.
First the obvious: five years on, the worldwide market for research informatics in the life sciences is not $43 billion. According to Kalorama Information’s research, it’s not even $1 billion. What happened in the meantime?
Certainly, the need for tools to manage the enormous amounts of data generated by genomics, proteomics, transcriptomics, metabolomics, and all the other “omics'” has not disappearedquite the contrary. It is not a stretch to say that more data was generated today in life science research than any previous day in history.
The need did not disappear, but the market that was supposed to be born of that need never took shape. Rather than the birth of a new monolithic informatics tools and services industry, the field dissipated and fragmented into a thousand parts with little continuity or coherence to characterize the marketa collection of products created in different ways for different applications by different vendors.
Industry participants explain this disconnect between early expectations and current reality by citing a few false premises from the first informatics suppliers:
One size fits allone winning approach to informatics will be widely adopted.
Customers prefer to go to outside suppliers rather than do it themselves.
A winning informatics approach for one customer can be sold to lots more.
Small suppliers with great technologies can grow into big companies.
You can make a sustainable profit just supplying software.
You can become a winner just by being a tools supplier.
Being a niche supplier is a viable long-term strategy.
These false premises led to some missteps. The first group of software introductions were over-promised and under-delivered. Pharma companies spent hundreds of thousands of dollars only to find out the delivered system still required modification, or did not work for all intended applications.
Pharma did not receive what it needed from turnkey software systems. Each “solution” turned out to be a partial solution, and the buyer had to invest internal resources into customizing it to become a full solution.
The result was that a lot of new technology emerged, but didn’t appear to make drug discovery any faster or more efficient. And as the science that researchers were doing at their benches advanced, the first information management tools in place to handle the results were, in many instances, left behind.
Research management in the pharmaceutical industry began to pull back on spending and asking suppliers in advance for accountability for the payback on investments they had made on costly drug discovery hardware systems. Even for relatively successful implementations, return-on-investment data for suppliers to point to were few and far between.
A Rosier Future
Despite early missteps, lackluster growth, and a confused marketplace, there are signs that the next few years will hold some hope for informatics suppliers. Some factors that impeded the development of the market seem to be abating, and shake-ups in the industry have led to better business strategies and product offerings.
One factor that slowed the industry was the time it has taken for customers to integrate the purchased software and evaluate its performance. Similarly, there were many cautious customers who adopted a wait-and-see attitude toward informatics solutions. There are signs that this period may be ending, and the intervening retrenchment in the supplier industry has allowed product offerings to align more closely with customer demands.
For example, horizontal integration has helped some suppliers align with the new market dynamics. Instead of providing software just for proteomics analysis or just for workflow improvement, some vendors have found applications for their platforms throughout drug discovery and development, from early discovery to late clinical trials. This strategy got a boost from the FDA, which expressed interest in seeing connections between early experiments and clinical results.
Another supplier strategy gaining momentum is to use the company’s unique technology to help morph into a drug discovery company. A few players have made this transition, like Protein Design, which uses its proprietary MCA technology to develop its own drugs.
Finally, and perhaps the best news for suppliers, is that pharma appears to be spending again. Kalorama estimates that pharmaceutical companies will spend over $2 billion this year on informatics. Although the majority of it will remain in-house and not find its way to suppliers, the figure represents at least a commitment to the field and a recognition of its vital importance.
The Best Bets
According to Kalorama’s research, the market for informatics products market will be about $830 million in 2005 and will establish modest, if not spectacular, growth over the next few years to top $1 billion by 2008.
By far the largest segment of the informatics marketplace is the hardware and systems market, with high-performance computing being the largest part of the hardware market and led by the usual suspects: IBM and Sun Microsystems, among others.
However, electronic laboratory notebooks (ELN) represent the fastest growing portion of the hardware segment. Despite problems with early adoption in the life sciences, Kalorama believes ELNs will show average annual growth in the 25% range as the forces pushing for them overcome the inherent resistance.
Aside from hardware, though, cheminformaticssometimes called chemo-informaticsis the best-established market for informatics products, led by MDL and Accelrys. Cheminformatics began with basic software and databases to help chemists design new compounds, but over the past few years, it has grown to include tools for combinatorial chemistry, library design, data mining, and other applications.
Databases and searches are still the dominant area, with 2004 sales of about $75 million, but more recently, cheminformatics has added tools that link cheminformatics with modeling and bioinformatics. It is this information integration that is the fastest growing portion of the cheminformatics marketplace.
Bioinformatics in drug discovery is a significant but highly fragmented market. The market is overcrowded with small players with limited product offerings. Data acquisition and integration is the largest product segment within bioinformatics, but few players have developed solutions that will manage the whole gamut of technology results.
Pathways analysis, which connects with the emerging field of systems biology and offers tremendous potential for impacting drug discovery, is a promising field in the data-mining and analysis portion of the bioinformatics market. Ingenuity Systems is the market leader in pathways analysis; Ariadne and GeneGo are promising newcomers. According to our research, pathways analysis will drive the data-mining and analysis segment to better than 10% annual growth in the coming years.
The hottest property in informatics is in the area of in silico modeling. Although it is currently the smallest segment, it is also the most intriguing, with a tremendous potential for growth. In silico models for lead optimization hold great promise, but have not yet delivered all that was expected of them.
Rather, Kalorama believes that target validation and binding models are where in silico modeling will find its best growthin excess of 20% yearly over the next few years. These models address the critical question of finding the right targets for compounds to bind to.
The emerging research areas of systems biology and protein pathways play an important role in designing these models. While established players like Accelrys, Gene Logic, and MDL have selected products in this market space, it is the newcomers that are creating a lot of attention. Companies like Entelos, Gene Network Sciences, and Schrodinger have launched some promising new products in this area. Kalorama expects this group of products to grow steadily over the next two years, then really take off by 2007.
The bottom line is that informatics is essential for drug discovery, and the market will be dragged along by this unmet need whether it likes it or not. The jury is still out on how much informatics will speed up drug discovery, but most experts believe that it could shorten the process by 15%. For a single drug, this 15% could represent upwards of $100 million dollars in cost savings and more in terms of speed to market. With incentives like that, there’s bound to be a decent future.