WASHINGTON – When Qiagen scooped up Ingenuity Systems this year, the acquisition of the Redwood City, California-based firm marked the first time the biotechnology giant had purchased a firm that exclusively makes software.
The purchase allows Qiagen to analyze information it derives from the genetic maps of organisms, which can be used to detect variations and mutations that point to the cause of certain diseases or new ways to treat them.
The deal is indicative of the increasing interdependency of the life-science and information-technology industries.
The cost of determining an organism’s genetic makeup has fallen considerably since the first human genome was mapped more than a decade ago — so much so that many scientists and physicians envision a not-distant future in which DNA mapping will be standard medical practice.
But that proliferation has created a need among the corporate, research and academic institutions for faster, more sophisticated software that can handle vast volumes of data.
“As the cost of sequencing has come down, what we’ve seen is far more sequencing. The number of genomes has just exploded. Accordingly, what comes part and parcel with that is greater demand to analyze this information,” said William Quirk, who is managing director at Piper Jaffray.
That demand has given rise to a number of upstarts that develop such software. Analysts and executives say the niche is ripe for innovation and lacks a clear market leader.
“There’s a fair amount of open opportunity here for different software companies to come in and establish themselves,” Quirk said.
Devon Jensen is one. Armed with a doctoral degree in molecular and cell biology, he started Enlis Genomics, which is based in Berkeley, California, two years ago.
“I could see that the tools that were available were really built for the experts and not for people in labs where I came from,” Jensen said. “There’s a lot of utility in genomics, and I think going forward it’s going to be a big part of biology and a big part of the medical world.”
Jensen said the firm sells its software — which helps researchers understand the significance of genetic variations — to a broad spectrum of customers, including small clinical laboratories, universities, pharmaceutical companies and even a few medical doctors.
His company is far from the only player who sees an underserved market.
San Diego-based Cypher Genomics was formed two years ago by scientists from the nearby Scripps Translational Science Institute and produces a similar software. Once an organism’s DNA has been mapped, the software helps make sense of genetic variations to determine whether they raise health concerns.
“It’s a big problem, and so that attracts a lot of folks trying to solve it,” said Chief Executive Ashley Van Zeeland.
The field is still in its early days, however, meaning the flood of entrants is likely to consolidate as firms merge, are acquired or shut their doors. Van Zeeland expects that will be more apparent as the technology becomes more sophisticated and some programs prove more effective than others.
“What the field really needs are standards so we can benchmark performance and accuracy,” she said. “It’s just so new it’s sort of the Wild West.”
DNAStar, a life-sciences software company, is not new to the scene. The company was founded by a computer science student and genetics professor from the University of Wisconsin in 1984.
“Their timing was just right because this was at the dawn of personal computers as well,” said Tom Schwei, DNAStar’s vice president and chief financial officer. “They decided if they could put software tools in the hands of (scientists) that were powerful and easy to use, they would be successful.”
But the DNA sequencing technology then was incredibly slow and expensive relative to what is on the market today. DNAStar has since adapted its software to the needs of a modern laboratory, including adding a Internet-based “cloud” version in recent months.
Schwei said that the firm saw many of its competitors get bought by large biotechnology companies more than a decade ago when the promise that genomics would lead to major medical breakthroughs was hitting its stride. Those firms languished as business units, he said.
“The software side of this business, it’s hard for it to be big enough to be worth a public company’s attention,” Schwei said.
But that may be changing now that the long-held promise of genomics is becoming more of a reality. DNAStar, for example, entered into an agreement 2½ years ago to have its software sold by Life Technologies, which offers DNA sequencing.
“Often the companies that are making sequencing machines aren’t necessarily the best at creating software for the results, and so it makes sense for them to think about where they can add value to the results of their machine,” said Jensen, at Enlis Genomics.
That sort of reasoning prompted Qiagen to buy Ingenuity Systems in April. And analysts expect there are likely to be further acquisitions as the market for genetics software continues to mature.
“There has been a concerted interest from a number of licensed tools companies to wade into that discussion, in many ways via” mergers and acquisitions, Quirk said.
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