SCIENCE AND ENGINEERING NEWS
San Francisco. CA — As Lawrence M. Fisher reported for the New York TImes, Pangea Systems Inc. is a small company in “bioinformatics,” a new field that combines the two keystone technologies of the 1990s computing and biotechnology. But its products are expensive and difficult for mortals to use, which limits Pangea’s potential market and reduces the prospects for a public stock offering.
What to do? This being 1999, the answer, if you are Pangea, is to dot-com yourself.
Pangea, which is based in Oakland, Calif., intends to begin a shakedown test of DoubleTwist.com, a new Web site intended to make online genetic and biological research fast, easy and available to any amateur or professional biologist. While the test phase is available only to faculty and students at Stanford University, the site is scheduled to go live for general use in December.
The DoubleTwist site, whose name is a play on the double-helix structure of DNA, holds the near-term promise of lifting Pangea above the pack of competitors chasing the business opportunities in bioinformatics. But other companies may not be far behind. And the implications go beyond the interests of professional biologists and biotechnology executives.
As more of the arcane secrets of genetics and molecular biology become available to the modemed masses, some industry executives foresee the day when an educated consumer might take a CD-ROM containing a laboratory’s rendering of his or her genetic profile, and combine it with a Web surf through gene libraries to determine the person’s predisposition toward adverse drug reactions, for example, or for Alzheimer’s disease, colon cancer or other afflictions that might eventually be treatable through gene therapy.
To promote its name and capabilities, Pangea plans to let individuals who make only casual use of the site have access to its software and data base at no charge. Heavy users and corporations may obtain licenses to pay for access on a sliding fee scale, which could run tens of thousands of dollars a year, but would still be significantly less than the $500,000 or more that Pangea now charges big pharmaceutical companies to buy its software outright.
“The power of bioinformatics has been somewhat limited to those who could afford it,” said John Couch, Pangea’s president and chief executive, who was an executive at Apple Computer in the late 1970s and early 1980s. “I’ve been trying to figure out how to empower the scientist the way we did computer users at Apple in the early days,” Couch said. “We saw the opportunity to be the first Web portal that enabled scientists to do molecular research.”
Celera Genomics Group is another company that has said it will offer its bioinformatics tools from its Web site, although it has not specified a launch date.
“This is an Internet company,” said Craig Venter, president and chief executive of Celera, a unit of the PE Corp., which is based in Rockville, Md. Scientists and nonscientists alike, he said, will be able to use Celera’s tools to gain insights into their genetic makeup. And as catalogs of common mutations correlated with disease become broadly available, he said, individuals will be able to make appropriate lifestyle changes or health-care decisions. “You’ll be able to log on to our data base and get information about yourself,” Venter said. “Our ultimate customer on the Internet is individuals.”
Bioinformatics is a field that emerged from the Human Genome Project, the international quest, which began in 1988 and is expected to be concluded in the next two years, to spell out the precise sequence of the three billion letters in the human genetic code. The first industry spawned by the genome project was genomics companies, which sell data bases of individual genes whose sequences have already been identified or are developing drugs aimed at gene targets. As these efforts began to produce vast amounts of biological information, they needed powerful software to keep track and make sense of it all. And so, in the early 1990s, bioinformatics was born as a tool of genomics.
While the software created by the government-funded labs like the Whitehead Institute at the Massachusetts Institute of Technology is in the public domain, with intriguing names like Blast and Fasta, the genomics companies, like Human Genome Sciences Inc. and Incyte Pharmaceuticals Inc., have kept their tools for use by themselves or their licensed partners. That is Celera’s primary business as well, despite Venter’s intent to offer bioinformatics services on the Web.
It was not long before a few entrepreneurs and venture capitalists saw an opportunity in a pure-play bioinformatics company, which would sell not genes or data, but software. As private companies, none of the bioinformatics players publish revenue figures, but most say they are between $5 million and $10 million in annual sales, and growing. Indeed, some analysts predict a multibillion-dollar bioinformatics market within the next 10 years.
“Bioinformatics is not necessarily the next wave, but the glue that holds everything together,” said Tim Wilson, an analyst with S.G. Cowen. “If you don’t get that part right, it’s hard to realize the value of genomics,” he said. “The opportunity is something obvious to anyone who speaks to pharmaceutical companies.”
With the DoubleTwist site, according to Pangea, a researcher would have many of the same capabilities previously available only to the company’s big corporate customers, which include drug companies like Bristol-Myers Squibb and Hoechst Marion Roussel.
After logging on to the DoubleTwist site, a visitor could enter a partial sequence of a gene, some combination of the letters A, C, T and G, which make up the genetic alphabet, and then search for contiguous sequences that might lead to a full-length gene. Or if the code of a full-length gene were known, the researcher could ask in which tissues of the body that gene is found or found only when in the presence of cancer. To the extent the answer is available in the scientific literature, including patent filings, the software would retrieve it and highlight relevant passages. Other cross-referenced data might include notations on what biochemical materials are required for working with a given gene in the laboratory.
Such are the capabilities of the computational biology that underlies bioinformatics, a field that Francis Collins, director of the Human Genome Project for the National Institutes of Health, says he now often counsels promising graduate students to look to for career opportunities. “I just think it is going to hit us like a freight train and we really have too small a supply of expertise in that area,” he said.
But there has been a dichotomy between the opportunity and the market reality for Pangea and competitors like Netgenics Inc. of Cleveland; Informax Inc. of Rockville, Md.; Lion Bioscience AG of Heidelberg, Germany; Compugen Ltd. of Tel Aviv; the Genomica Corp. of Boulder, Colo.; and Molecular Applications Group of Palo Alto, Calif. Most of these companies are five years old or more, yet few are profitable.
Couch, Pangea’s president, said the two hurdles to expanding the market have been complexity and cost. Besides the $500,000 price for Pangea’s suite of software programs, a suite customer must make a comparable investment in hardware. And even though they have a point-and-click graphical user interface, like any Windows application, their sophistication has tended to restrict their use to bioinformatics specialists within large pharmaceutical or biotechnology companies, not to individual research scientists without special training.
In moving to the Web, Pangea will find neighbors with some similar-sounding offerings. This week, HySeq Inc., a genomics company in Sunnyvale, Calif., will launch GeneSolutions.com, which will sell genes and genetic information over the Web. And there are various Web sites, for example, that freely offer public-domain algorithms, or mathematical formulas, that can perform the basic tasks of bioinformatics. These include a technique called clustering and alignment, which pieces together full-length genes from the fragments spewed out by so-called automated sequencing machines that derive their data from DNA samples.
But these public-domain tools tend to be difficult to use, and limited in their application to specific gene data bases. Pangea’s DoubleTwist, by contrast, will aggregate data from multiple sources, and then make it available using software agents, small automated software programs that will scan the Web at a user’s request and return answers to complex biological queries via e-mail. Theses agents can update information as it becomes available, suggest necessary laboratory supplies and provide links to vendors.
DoubleTwist is intended to complement rather than supplant Pangea’s established software suites. But Couch said it was possible that a growing portion of the company’s revenues would come from the Web rather than packaged programs. Rather than buy Pangea’s software suite for $500,000, companies or academic institutions could spend $10,000 a year to provide each user access to these programs over the Web.
Pangea’s competition in this arena is companies very much like itself: small, financed with venture capital and possessing more programming prowess than marketing skills.
All of these companies are looking for ways to differentiate themselves, and while an Internet presence is one way to do that, it is by no means the only one.
For example, Netgenics’ programs run on corporate intranets, rather than the World Wide Web. But they are built using Internet technology like the Java programming language so that they can be easily adapted to the specific needs of different customers. “Pangea decided they would come up with the perfect schema for all types of drug discovery and put a nice graphic user interface on it,” said Manuel J. Glynias, president and chief executive of Netgenics, which was founded in 1996. “We decided there was no perfect schema because every pharmaceutical company is different.”
Netgenics did consider a Web-based electronic commerce business model, but decided a faster route to growth was to bundle consulting services with custom bioinformatics software. So far, customers include Abbott Laboratories and Pfizer. “We’ve very much targeted big pharma and biotech,” Glynias said. “They’re the only ones who can afford it, and really the only ones it makes sense for. At the end of the day you’ve got 50 big pharma and biotech companies and 100 medium-sized ones. It’s not a big market.”
If the market is small, creating a big company requires that each sale be large, and Netgenics bases its goals on finding at least 20 customers willing to pay $5 million annually for its services.
Another player, Lion Bioscience, takes that model a step further. It recently announced a deal in which it would develop new bioinformatics systems and identify target genes for drug development by Bayer A.G. for an investment estimated at $100 million. The figure includes an up-front equity stake in Lion as well as fees for use of Lion’s existing information systems, research and set-up costs for a new subsidiary to be based in Cambridge, Mass., and royalties on drugs developed from the gene targets identified at the subsidiary.
Lion calls its concept iBiology, and like Netgenics’ approach, it uses intranets rather than the Internet. “It goes far beyond the usual gene sequence analysis software,” said Claus Kermoser, Lion’s vice president for corporate development. “We crawl further up the value chain to include the chemical side, and also pharmacological and toxicology data. It’s not just a software package, tools and data; it’s a solution for pharmaceuticals research data management.”
In fact, Lion is actually a hybrid of pure-play bioinformatics and genomics, because it sells gene targets along with information-processing capabilities. Similarly, Compugen, after building a successful business selling bioinformatics tools, has recently added a genomics thrust, selling novel gene variants the Compugen researchers have identified with the company’s tools.
Compared with these other companies, which have aimed for a corporate clientele, Informax has taken a vastly different tack. For six years it has sold a program for individual scientists, Vector NTI, which is almost to biology what desktop publishing software was to print publications. At $3,500 a user, for the Windows or Macintosh versions, Vector NTI is not inexpensive. But because it is a purchase that typically can be authorized at the department level, it is the most widely used bioinformatics program in the industry. It is used at 60 pharmaceuticals companies, 250 biotechnology concerns and 500 academic institutions.
“We’ve built our franchise by meeting the needs of the bench biologist,” said Timothy Sullivan, Informax’s senior vice president for marketing and sales. “Informax took a bottom-up approach and did it well, versus Pangea and Netgenics, who started out at the enterprise level,” he said. Informax recently introduced its own enterprise product, Software Solution for Bioscience, and hopes to use the leverage of its existing customer base to win sales at large companies.
One hurdle for all of these competitors is that the large companies that are their obvious customers often have substantial bioinformatics capabilities of their own — expertise that the company may even view as a proprietary advantage.
“You’re trying to do cutting-edge research, and if you’re on the leading edge of the curve that means you also have to develop the software to do it,” said Paul Godowski, director of molecular biology at Genentech Inc., the pioneering biotech company. “On the other hand, there are products out there from these third-party vendors we can import for our programs,” Godowski. “It’s a mixture, and I don’t see that going away, certainly not at a place like Genentech.”
No wonder Pangea is looking to cyberspace to expand its potential audience.
“Only a few select pharmas can afford the tools, and if they can, then in some cases they can also afford to produce their own software,” Couch said. “Why not take the infrastructure we’ve created, add a graphic interface that makes it easier, and offer it directly to the scientist? We are taking the Internet, which was originally developed to do research, and giving it back to the researchers.”