Has the bioinformatics dream soured?

It was touted as one of the biggest markets Indian software companies could address. But somewhere along the way, the market scenario has changed and today only a few focused companies are still looking at bioinformatics as the next big opportunity, says Srikanth R P

Just a month ago, Hyderabad based I-Labs announced that it proposed to shut down its bioinformatics division as it had failed to make any inroads in the overseas market despite developing a unique software product in association with the Centre for Cellular and Molecular Biology (CCMB). Another pointer towards the fact that bioinformatics is slowly getting off the radar screen of Indian software companies was evident when Express Computer tried to speak to majors in the Indian software services space. Most companies were edgy when asked to share details on their plans for tapping the bioinformatics market.

Even globally the sector is falling from grace and few venture capitalists are willing to back start-ups focused on this sector. The few Indian companies who are still focused on the bioinformatics market are companies like TCS, Kshema Technologies and Strand Genomics. While many global and even Indian companies had similar plans, not many of them have even come close to deriving revenues from the bioinformatics space.

While the market potential for bioinformatics is huge few Indian companies have the skill sets or the ability to capture a significant share of the market. The global biotechnology market is said to be in the range of $30-40 billion, growing at around 25 percent per year. Bioinformatics constitutes about 8-10 percent of the total market size, i.e. about $2.5 billion currently and analysts estimate that this will rise to about $5-6 billion by the end of this decade.

Says Dr Vidyasagar, executive vice president, TCS, “In contrast with all the hype, bioinformatics is a niche area and will remain so in the foreseeable future. The market potential for Indian companies is about 10 percent of the global market or about half a billion dollars.”

Market analysts believe that the key is to focus as a niche player and not as a software player who provides every kind of service under the sun—something Indian software companies are more prone to do.

Says Dr Vidyasagar, “Bioinformatics as a science is still evolving. The underlying mathematical and algorithmic methods are still being developed. In this rapidly changing scenario, a company that aims to provide ‘standardised’ services will definitely fail. Only those companies that are contributing to the evolution of the subject itself, and generating their own intellectual property will survive in the long run.”

Unlike many companies who have focused only on the product front or the services front, TCS has tried to de-risk its business model by concentrating on three areas: product sales, end-to-end services and focused consulting. On the product front, TCS has already developed a product called ‘Bio-suite’. In addition to the product sales, TCS is offering services for understanding all aspects of the use of bioinformatics in drug discovery. As TCS has the advantage of size and infrastructure, the company is offering small and medium sized biotechnology companies focused services, such as comparative genomics, prediction of protein structure, integrated database design and search- and structure-based drug design.

As a business model, the bioinformatics space has great potential. With the ever rising costs of discovering new drugs and taking them to the market, the average cost of discovering a new drug is about one billion dollars. A great deal of this cost comes from the fact that drug candidates fail at various stages of testing. At present, a great deal of drug discovery especially in bio-pharmaceuticals consists of simply trying out all possible combinations of proteins and drug candidates and putting them through high throughput screening. The use of bioinformatics will allow pharmaceutical companies to eliminate many combinations at the simulation stage itself. As Dr Vidyasagar says, “The motto behind using bioinformatics tools is : ‘fail early, fail cheaply’. By using bioinformatics tools, the cost of drug discovery can be reduced by about 20 percent.”

Another Indian company that has established itself firmly on the global bioinformatics map is Bangalore-based firm Strand Genomics. The company, which was formed only in the year 2000, has developed a number of products that have found global takers. Apart from the increasing number of products Strand keeps on developing with regularity, Strand Genomics’ arrival in the global space was announced when the World Economic Forum nominated the company as a technology pioneer and lauded it for being at the forefront of technology innovation.

The history of Strand is interesting as it started off with a services model and eventually changed its revenue model to a mix of products and services. The capabilities of Strand Genomics can be seen from the fact that in the year 2002 when the entire bioinformatics industry was seen as ‘untouchable’, Strand managed to get funding from VCs like WestBridge and UTI venture funds in the range of $3 million. The company’s list of alliance partners resemble the Who’s Who of the world’s leading biotechnology and healthcare firms. The list of customers and partners include names like the Bioprocessing Technology Institute, Singapore, Eli Lilly, Sequenom, Abgenix, Automated Cell, Stanford Human Genome Centre and John Hopkins University School of Medicine. Strand has used the alliance route effectively by selectively providing high-end informatics services to partners.

Even the mix of the services team for delivering bioinformatics services is significant as it requires skill sets spanning areas of expertise like life sciences, engineering, mathematics and computer science. And as India offers a talent base that offers all these skill sets at a fraction of global costs, Indian companies are confident that they will be able to repeat their software services magic in the bioinformatics space too.

Says Anant Koppar, CEO of Kshema Technologies, “The Indian bioinformatics industry is highly progressive in many areas such as contract research and development services, clinical trials, contract manufacturing and drug development. Research and development in biotechnology is a highly happening area. The low cost of skilled labour in India is attracting genomic and proteomic data for analysis from overseas. There has also been an increasing trend towards alliances between Indian pharmaceutical/biotechnology companies and foreign companies.”

Key challenges

While India’s talent base makes the country one of the preferred destinations for R&D, there are a number of challenges before even a fraction of the potential market can be addressed. Opines Dr Vidyasagar, “Most global competitors have close ties to major pharmaceutical companies. Unless an Indian company achieves the same, it will be difficult for us to become competitive. Since the pharmaceutical industry is highly sensitive about IPR issues, the usual differentiators such as price will not work in bioinformatics. Probably the offshore model will also not be popular, at least in the beginning. Only after an Indian company has gained the client’s confidence will the client allow its data to be moved to a remote location.”

Additionally, many pharma majors are still sceptical on outsourcing their discovery work as they perceive laws in India to be weak when it comes to protection of IPRs. Dr Vidyasagar believes that this is a significant challenge and India has to create an environment where pharma majors are more confident of outsourcing their requirements. Many industry players whom Express Computer spoke to said that they expected the reluctance to ease off post-2005 when India becomes an accessory to the WTO IPR norms.

Conclusion

While the market is still big enough for Indian software service players to tap, the important thing is for Indian software companies to realise that bioinformatics is a highly specialised field where domain knowledge is more important than pricing. This is where Indian software service companies could lose out as they focus more on the volume front than the value front. Says Anuradha Acharya, CEO, Ocimum Biosolutions, “There is potential but we must not forget that the market space is much smaller than the regular IT services or BPO operations. Additionally, there are issues of domain expertise, which is difficult to find and build.” Till Indian companies realise this, they too would join the increasing number of companies who have burnt their fingers awaiting the bioinformatics boom.

srikanth@expresscomputeronline.com