VCs name their bioinformatic hot buttons

Venture capitalists are hungry for systems biology, data mining, and anything that targets "where the rat is in the snake," said James Sherblom, chairman and managing partner of Seaflower Ventures Inc, speaking at the biotech financing round table held on March 14 at the BioITWorld Conference and Expo in Boston.

The "rat" in this case is any important bottleneck in the drug discovery and development process. Genomics has provided more drug targets than most companies can afford to follow up. With the cost of drug development already at around $US800 million per candidate and increasing steadily, 'fail faster' has become the industry's new mantra. Now the premium is on tools that provide deeper detail about the systems in which these drug targets operate, ways to mine highly complex types of data for target validation, or anything that accelerates clinical trials.

Until recently, most bioinformatics companies sold genomic data or applications, but those business models are proving difficult to sustain. For example, genomic software- and database-provider DoubleTwist Inc ceased operations last week.

Despite the often exuberant forecasts that abound, "the bioinformatics market is $US400 million tops," said David Stone, a partner at Applied Genomic Technology Funds, which is a unit of NewcoGen Group. "What's the business model?" asked Stone, "If it's software, then you are counting sites and seats. If it is consulting, then it is very difficult to scale it up."

Companies that can produce billions of dollars worth of new drugs within an eight-to-ten year timeframe are also in demand. After all, just being able to quickly discard losers will not replenish drug manufacturers' pipelines. "Merck hasn't put a new drug out in over 18 months," said Stone.

Word about the new hot buttons has already gotten around the industry. "We're now getting new versions of old proposals, in which they've just added the words 'systems biology,' " noted Sherblom. The words "fail fast," were also pervasive throughout the Expo presentations. "We love to kill drugs early," said John Reynders, repeatedly, in describing Celera Genomics' informatics platform. Given the company's earlier commitment to the database model, Celera's shift to discovery was a key turning point for the industry. But it is not clear whether the new models will be any easier to sustain. "I'm from a system's biology start-up, and we can see out for the next two to three years, and how to build a $25 million company," said one audience member at the round-table discussion, "But we can't really see beyond that yet."