ASK FIVE SCIENTISTS TO
define "biotechnology" and you'll
get seven definitions. The
nebulousness of the term has
led the Biotechnology
Industry Organization to define it in the
vaguest, most all-inclusive manner
possible: biotech involves "the use of
cellular and molecular processes to solve
problems or make products." But it may
very well be the buzzword's lack of any
precise meaning that accounts for its
seemingly boundless potential.

Ever since the initial sequencing of
the human genome was announced
several years ago, interest in the biotech
industry has been extraordinary, and
"biotech" has quickly become a catch-all
term embracing a wide range of
disciplines and industries. In the biotech
space, there are three fundamental
sectors: medicinal biotech, agricultural
biotech, and environmental and
industrial biotech. Medicinal biotech has
spawned a number of important
subsectors, including drug discovery,
genomics, proteomics, and bioinformatics
(see chart).

Computers + biology = bioinformatics

Here, we will explore one of the most
intriguing areas within medicinal biotech:
the nascent field of bioinformatics. The
term "bioinformatics" was coined in 1987
in a journal article by Hwa Lim, the
current president of the biotech consulting
firm, D'Trends. Since then, the term has
taken on a life of its own. Though
notoriously hard to pin down,
bioinformatics may be defined as the use
of computer technology to organize and
analyze genomic, biological, and
chemical data in order to support the
drug discovery process.

A brief history lesson might help to
highlight the extraordinary value of
bioinformatics. For decades, companies
have taken the old-fashioned approach to
drug discovery: the drug in question is
put through a battery of preclinical
safety tests, followed by a lengthy—and
very expensive—set of clinical trials on
animals and humans. At the end of this
nearly decade-long process, drug
developers cross their fingers in hopes
that their drug will be approved by the
Federal Drug Administration (FDA).

But usually, drug companies are not
so lucky. According to the Boston
Consulting Group, nearly 75 percent of
the 5,000 drug candidates now in the
trial stage will never make it to market.
With such a high rate of failure and such
extraordinarily high costs, researchers
are eager to find ways to streamline and
accelerate the drug discovery process.

Drug discovery in hyperspeed

This is where bioinformatics steps in.
With bioinformatics technologies, drug
companies can cut the cost of drug
development in half and shave years off
the development process. No wonder
high-profile pharmaceutical companies
have been scrambling to jump on the
bioinformatics bandwagon.

Pfizer, the world's largest
pharmaceuticals company, currently
partners with about fifteen major
bioinformatics companies. And
pharmaceuticals giant, Merck & Co.,
hoping to speed up its drug discovery
process, forked out $620 million to
acquire the genomics data analysis
company, Rosetta Inpharmatics, in May
2001. And that's just the beginning.
According to a Frontline study, the
worldwide bioinformatics market was
estimated at roughly $697 million in
2001 and is projected to grow to $1.7
billion by 2006.

At the moment, bioinformatics
companies work with drug companies
primarily in the pre-clinical trial phase of
the drug development process. Palo Altobased
Incyte Genomics, for example, has
developed powerful databases which
provide researchers with a stable set of
genes in order to facilitate drug
discovery. Gene Logic provides drug
companies with data mining and
visualization tools to streamline the
process of sifting through data.

From in vitro to in silico

However, some bioinformatics
companies are moving higher up the
drug discovery value chain by
collaborating with companies at the
clinical trial stage of the drug
development process. In fact, in silico
discovery—drug discovery on computersimulated
models—has become the latest
buzzword in the bioinformatics industry.
Silicon Valley-based Entelos, for
instance, has developed PhysioLab
technology, enabling scientists to
simulate experiments on a computer
instead of conducting costly clinical
trials, which often take a number of
years. Entelos' technology offers
researchers a virtual research
environment in which they can define
virtual patients, virtual drugs, and
experiment protocols to run rapid
simulations that predict human clinical
efficacy. (Turn to "The Informer" on p.20
for a bioinformatics company that straddles
both ends of the drug discovery chain.)

This kind of technology holds
extraordinary promise. A recent Price
Waterhouse Coopers study estimates
that in silico technologies can save a
drug company about $200 million and
two to three years per drug.

Trying to stay afloat

For all its promise, bioinformatics has,
strangely, left investors cold. Venture
capitalists don't question the value of
the technology but seem skeptical as to
whether bioinformatics companies can
come up with a viable business model.
The key question seems to be: how will
the market be able to sustain companies
built around one or two high-cost
software programs targeted to a
relatively small user-group?

The unexpected demise of the
bioinformatics firm, DoubleTwist, in
March certainly hasn't helped to boost
investor confidence. Founded in 1993,
the Oakland-based gene database
licenser managed to burn through $37
million, before ending up in
bankruptcy.

Meanwhile, the bioinformatics
giant, LION Bioscience—as well as a
number of smaller firms such as AxCell
Biosciences and BioDiscovery—have
adopted a hybrid business model,
deriving significant revenues from
collaborations with drug discovery
companies as well as from product
licensing. The Burlington, MA-based
bioinformatics company, AnVil, has
abandoned the product-licensing model
altogether—it derives all of its
revenues from corporate partnerships.

Some investors remain uncertain
about the potential for bioinformatics to
penetrate the biotech market. Dr.
Dinesh Patel, Managing Director at
vSpring Capital, shares this uncertainty.
"A lot of people are saying that it will
be very simple for bioinformatics
companies to achieve market
penetration. I would say that it is not
going to happen easily since most
pharma or biotech companies already
have huge bioinformatics groups inhouse
within their own company. They
are not going to outsource something
that is so critical," insists Patel.

Cautious optimism?

However, others are more optimistic.
"Outsourcing is certainly happening.
There is a lot of outsourcing of
medicinal chemistry today, for instance,
which would have never happened ten
years ago. That used to be the crown
jewel that you would never outsource,"
says a biotech consultant.

Indeed, the trend among drug
companies seems to confirm such
optimism. Despite the fact that the
major pharmaceuticals company,
Bristol-Myers Squibb, built an in-house
bioinformatics division in 1998, it still
chooses to outsource most of its
bioinformatics responsibilities. And the
London-based pharma company,
AstraZeneca, has embarked on a
number of academic and corporate
partnerships to complement its inhouse
bioinformatics efforts.

It remains to be seen whether the
optimists or skeptics will rule the day.
But it can safely be said that the future
of bioinformatics lies in how effectively
bioinformatics companies are able to
shed the stigma of being "mere
database-providers" and prove to be an
integral part of the drug discovery
process itself.

In fact, some bioinformatics
firms—not satisfied with being on the
platform side of things—are moving
into the drug discovery arena
themselves. High-profile bioinformatics
company, Celera Genomics (partly
responsible for the initial sequencing of
the human genome in 2000), has
recently begun to focus on developing
therapeutic antibodies and cancer
vaccines. LION Bioscience, meanwhile,
has lately embarked on drug discovery
for neuroreceptors. Only time will tell
whether bioinformatics companies are
successful in their quest for the perfect
business model.