The term “informatics” has gone through more than its fair share of use and abuse. In the broadest sense, informatics is part of every aspect of our daily lives, and the information revolution of the past 20+ years has shown that effective information management has applications across a wide spectrum, from personal entertainment and services to business planning, marketing, finance, retail sales, and research. Informatics has shown promise in each of these areas; however, promise does not equate with realization, and implementation of the promise of information technology has met with as many disappointments as successes.

Life science research is one area where the promise of informatics is clear. In the past five years, life science markets have exploded with the ‘-omics’ revolution. After the Human Genome Project has come the rise of genomics, proteomics, transcriptomics, metabolomics, and more-each creating an ocean of data. Most agree that somewhere in these data lies the key to new understandings of disease and ultimately new drugs, a conclusion that brings us back to the promise of informatics. If we could manage the ocean of data effectively, we can find the fish.

Most life science research dollars are currently being spent on drug discovery and development, and it is here that informatics suppliers are eagerly addressing the research market with a dazzling array of different products and services. A few years ago, this market space was occupied primarily by a few niche players. During the past five years, established companies have expanded their offerings and hundreds of new software companies have surfaced. All of them hope to provide the magic bullet that will change the face of life science research.

Informatics Then – Y2K

The year 2000 doesn’t seem that long ago-just one presidential election cycle away. But in the world of informatics, five years has turned out to be a very long time. When Kalorama investigated drug discovery markets in the 1999 to 2001 period, this is what some of the experts were saying about informatics back then.

• Who was in the market? Data firms that sell tools. Specialty software companies. Drug discovery companies that develop tools for their own account. Small, venture funded start-ups popping up like mushrooms to create new software.
• What was driving the market? Rapid expansion of chemical data (coming from expanded High Throughput Screening), and rapid growth of biological data (from genomics). These two areas are described as Cheminfor-matics and Bioinformatics.
• What was the greatest market challenge these new companies faced? If they try to sell big-ticket items to Big Pharma, they can’t make enough sales to be viable. But if they pitch lower-ticket items to the broader life science market, this will cost more in marketing, but still may not bring in enough revenues.
• What was happening to the market in 2001? Market for all products sold into Pharma and Biotech research was weakening. Incyte Genomics lost $21 million on sales of $51 million. NetGenics couldn’t launch its IPO and began layoffs. Double Twist also delayed its IPO. Investors found the timeframe to profitability too long and too uncertain for informatics companies.
• Buy-in vs. Do-it-yourself. Only five of the top 25 Pharmas were buying many informatics tools from outside vendors. The rest were developing their own. Promising sign: some Big Pharmas such as Merck and Lilly were launching venture funds to support small informatics companies.
• How fast was the market growing? It depends who you asked. Some opinions:
  • $43 billion worldwide market for informatics by 2004 (Sun Microsystems)
  • $2 billion by 2002 (Frost & Sullivan 1997 report)
  • $1.2 billion by 2005 (Front Line Consulting)
  • $110 million by 2004 for bioinformatics (Silico Research)

Informatics Now

Now it’s 2005. Are things as they seemed they would be? Industry experts still tend to agree that the two most important keys to success in drug discovery are more focused research and better informatics. But the challenges of, and assumptions about, informatics are not the same as they were five years ago.

First, drug discovery faces some incredible hurdles in dealing with data and information management:

• Data volume is exploding as more information is being generated about more targets and compounds.
• Data is being captured and stored by different systems in different formats which do not readily communicate with each other.
• Decisions must be made faster, based on creating, capturing, and reusing data from disparate sources.
• Information must be transmitted seamlessly and automatically among a company’s labs, which may be located in different countries.
• In this era of Pharma mergers, information from two different corporate cultures must be consolidated and evaluated to set future directions.

The first group of software introductions were over-promised and under-delivered. Pharmas spent hundreds of thousands of dollars only to find out the delivered system still required modification, or did not work for all intended applications. Pharmas have not received what they needed from turnkey software systems. Each “solution” advocated turned out to be a partial solution, and the company had to invest internal resources into customizing it to become a full solution.

About the same time Pharma research management was being asked to account for the payback on investments it had made on costly drug discovery hardware systems. There was a lot of new technology out there, but it hadn’t made drug discovery any faster or more efficient.

Research managers were now being told to come up with numbers that would demonstrate return-on-investment before they could invest in new technology. The days of “spend fast to be first” were coming to an end. So these managers began asking their prospective software suppliers what ROI their products and services would deliver. Tough question. Suppliers scurried to come up with answers, but they were hard to come by.

Some Pharmas have chosen to beef-up their internal IT operations. Some buy off-the-shelf modules from software vendors, which they incorporate into their own systems. Vendors have responded to this trend by providing customized solutions of their own, building on leased software which is then tailored to individual needs.

There is evidence that all these needs are not yet being met. In a recent survey of drug discovery scientists, 92% are seeing increased data management needs; 44% expect their data to grow more than 100% over the next year, and 16% expect more than 50% growth. Almost 95% of them are involved in collaborations that involved sharing research results and data. Data management strategies that are in place to handle this growth are not up to the challenge. Nearly 40% report having no data management system at all, and another 18% have a home-grown system. Only 5% use a system from a commercial data management supplier.

The Future According to the Bulls

Industry analysts, software suppliers, and hardware giants paint a rosy picture of the market for informatics in drug discovery. Some industry analysts also share this view. They see unlimited opportunities, based on the increased demands that life science has in managing, storing, and analyzing data. These data must be converted into information, and the information into knowledge, before decisions can be made in drug discovery. This is beyond human capabilities; hence the obvious need for computers and informatics.

Encouraging signs of a booming market are there: hot new technologies, successful sequencing of the human genome, the need for more efficient drug discovery, better integration between chemistry and biology, ways to get better information faster. Pharmas are looking for better ways to do things, and the old promises of informatics still stand.

Moreover, the challenges that have arisen during the past five years have by no means erased the need for informatics products and services. Indeed, the exploding volume of data, the lack of tools and expertise to analyze these data, the untranslatability of one platform to another, and the plethora of other problems point ultimately to yet another generation of informatics solutions. The bulls point out that just because there is more work to be done, it doesn’t mean the field is dead in the water. On the contrary, they see the challenges as pointing to an even bigger market.

For example, in November 2004, IBM Business Consulting Services created a report called Pharma 2010: Silicon Reality, which touts the advantages that seven key technologies will provide to the Pharma industry over the next decade. The report claims that implementation of these technologies will cut drug development cost from $800 million to $200 million, and average lead times from 12-14 years to 3-5 years. According to IBM, the Pharma industry spends $20 billion a year on IT, but rarely reaps the rewards on this investment. Most of this is spent on technologies to cut costs: supply chain, transaction processing, support services. Many of these are becoming outsourced to external providers. These costs can be significantly reduced through implementation of the type of enterprise-wide solutions that IBM provides.

The Future According to the Bears

Bears hold a very different view of the informatics market and where it is headed. While some industry experts believe their views are overly pessimistic, they counter that what they are saying is only a reflection on what has been happening. Despite what optimistic forecasters predicted would become a multi-billion dollar market, this hasn’t happened. Some say that this is really not a market at all, but rather a collection of products created in different ways for different applications by different vendors. In short, there is little continuity or shape to characterize this market.

Why the huge disconnect between expectations and reality? The naysayers point to a few false premises:

• False: One size fits all-one winning approach to informatics will be widely adopted;
• False: Customers prefer to go to outside suppliers rather than do it themselves;
• False: Small suppliers with great technologies can grow into big companies;
• False: Being a niche supplier is a viable long-term strategy.

When you look at software suppliers, the view is unimpressive. The four biggest ones are under $100 million in sales and struggling with profitability. Scores of players in the $10 to $30 million range, some of whom have been around for nearly a decade and have yet to make a quantum leap in sales. Hundreds of tiny players are still in start-up stage with high hopes but not much cash or sales results.

Other suppliers do not specialize in software, but offer it as part of their total instrument/reagent/service package. They know they need to supply software as part of their total solution, but they make their money on their other products. Software often gets combined with service, customized to fit the customer’s requirements.

At the upper end of the spectrum are the computer giants: IBM, Hewlett-Packard, Sun Microsystems, etc. They are in life sciences because they are in every industry that uses computers. They have made some investments in this market, but only enough to establish a presence and not fall behind their competition. Their strategy is to “partner” with the small software companies, and leave the expensive and unprofitable customization to them. IBM can sell big-ticket platforms (fundamental software and hardware) upon which this software can be based. This minimizes risk: no huge investment is needed, others develop the market for you, and you sell profitable items already developed for other industries.

The bears conclude that informatics is not a true market in the classical sense. It is a collection of products. And while informatics remains a growing need, essential for future success of drug discovery, it will be filled mostly by selected products, fitted into customized approaches. There will still be select niche opportunities for small suppliers, but as an industry, the future for suppliers is far from rosy.

The Future According to Kalorama

Kalorama Information’s new study, Informatics in Drug Discovery: The Evolving Information Technology Market-place, describes a future for informatics that is neither rosy nor dire. The pie-in-the-sky predictions of 2000 have not come to pass. Today, informatics suppliers must come to grips with a new reality. Yet there are opportunities in this market and strategies that can help guide suppliers on a successful path.

First, how big are these life science IT opportunities? To make sense of the informatics market, Kalorama divided informatics market into four product areas: cheminformatics, bioinformatics, in-silico modeling, and hardware & systems. Overall, the market will grow an average of 8% per year for the next few years, according to the study. The informatics market is projected to grow from $772 million in 2004 to $1,028 million in 2008.

However, not all segments are created equal. As the market for some product areas matured, their growth has slowed (bioinformatics data acquisition). Other product areas (target validation & binding, in-silico modeling) are displaying explosive growth.

To capitalize on the growing market, finding the right opportunity is key. Many opportunities involve simply doing the job better with more effective products and services. Some opportunities include better tools for information integration, data mining & analysis, target selection & validation, integrated modeling, electronic lab notebooks.

Successful strategies are now being employed by some informatics companies. In general, they fall into three main categories:

• Horizontal integration – extending applications throughout the discovery chain
• Morph into a drug discovery company – apply technology to create own drugs
• Cash out – sell the company to a major customer or Big Pharma.

The bottom line is that informatics is essential for drug discovery. This is and has been known for some time. Making money at it is a different matter, and for the time being, it looks like the informatics marketplace in drug discovery will experience steady but not spectacular growth-neither bull nor bear.

Jack Gardner is lead drug discovery market analyst with Kalorama Information. He can be reached at show_email(“jgardner”, “kaloramainformation.com”, “”, 1) . More information about this study can be found at www.kaloramainformation.com