A Revolution in R&D

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UPSTART START-UPS—THE COMPETITORS CLASSIFIED
As the e-commerce revolution has demonstrated,
disruptive technologies tend to spawn start-ups that
aim to exploit the disruption, either as suppliers to,
or as replacements for, incumbents disoriented by a
changing world. In the case of genomics, the incumbents
are easy to identify: the traditional pharmaceutical
companies and the larger fully integrated
biotech companies. But who are the start-ups?
Genomics companies can be classified in three
broad groups, on the basis of how closely or distantly
they are related to the actual developing and
marketing of drugs.
The group furthest away contains the companies
that supply enabling technologies, in the form of
hardware or software. These companies resemble
the merchants of the California gold rush who sold
pickaxes to the miners, or more recently, companies
such as Cisco and Sun Microsystems that have been
providing the necessary infrastructure for the multitude
of e-commerce practitioners. Examples of such
companies are PE Biosystems, the supplier of highthroughput
sequencing machines, and Affymetrix,
the preeminent gene-chip manufacturer and supplier.
The second broad group contains the companies
supplying information and knowledge, including
those companies that generate proprietary databases
and offer access to them through subscriptions or
fee-per-use business models. One of the best-known
examples is Celera, which sells subscription-based
access to human and animal model-sequence data.
The group also includes companies that are attempting
to integrate and exploit those databases to conduct
in silico R&D. An example is LION Bioscience,
which integrates information from public and private
sources into a single platform to make targets and
leads easier to identify and analyze.
Finally, there is the group of companies that develop
and sell more traditional “physical” drug intermediates—targets
and lead compounds. We call these
platform and orchestrator companies.
Platform companies deploy proprietary technology in
the quest for promising targets and leads. One such
company is Aurora Biosciences, which has developed
proprietary high-throughput screening technology
to exploit an opportunity in screening and chemical
genomics. Another example is MorphoSys,
which has developed a platform for rapid development
of high-affinity antibodies, for use in target validation
and therapeutic antibody discovery.
Going one step further are orchestrator companies,
which string together adjacent platforms to create
optimized segments of the R&D value chain. As the
orchestrators extend their value chain, they can sell
drug candidates that have progressed further and
further downstream—and have thus become more
and more valuable. Although these companies are
still selling only intermediates, they show every sign
of graduating into fully integrated drug companies.
Millennium has already made that transition: concentrating
initially on genomics target discovery, it
has subsequently developed a full R&D pipeline in
its own right.
What is the outlook of each of these groups? The
first two (the pure suppliers, either of enabling technologies
or of information and knowledge) would
appear to be well positioned if they target areas of
scarcity (that is, bottlenecks) with proprietary prod-