ANALYSIS & OPINION

Careful consolidation?

5 March 2013



Beth Harlen looks at recent changes within the informatics market

When Accelrys announced the acquisition of long-time partner Vialis on 14 January, it marked the company’s fourth such deal within the past 12 months. Other companies have also been out with their informatics shopping list. In 2011, for example, Perkin Elmer bought up CambridgeSoft, Caliper Life Sciences, Labtronics and ArtusLabs.

Industry insiders believe that there will be more mergers and acquisitions in the future. What is driving this trend and what are the implications for end-user scientists? There is both push and pull in operation here: one factor is the nature of the vendor community itself while another is the behaviour and expectations of the customers.

The market is fragmented – there are many small companies supplying informatics products and services – so what we are seeing today is an inevitable consolidation. But another factor is that users want to move away from a laboratory that has many ‘siloed’ applications and towards an integrated laboratory with a single solution that encompass a range of capabilities – there is a convergence of technology.

In part, this convergence is driven by the needs of the scientists, but their bosses also want single solutions because they believe this will make the laboratories more efficient and cut costs. According to Michael Elliott, CEO of Atrium Research and Consulting, ‘Companies that rely on informatics are not only facing substantial cutbacks in both capital and expenditure, but the consolidation and closure of sites throughout the organisation as well. Generally, when this occurs within the user community, it is mirrored by a level of supplier consolidation as companies attempt to address customers in a more concentrated fashion.’

Max Carnecchia, Accelrys’ CEO, noted that, when he joined Accelrys, more than 400 organisations were identified within the informatics market, each with annual revenues of $1 million or more. ‘The vendor community has become far too fragmented and it’s impossible for users to stitch together all these small, best-of-breed, point-products and come up with an environment and set of capabilities that will meet needs of global enterprises in the longer term,’ he said.

‘This consolidation of the market is well underway, and there’s not a week that goes by where I don’t get a phone call, email or FedEx packet from one of those 400 informatics companies looking to sell itself,’ said Carnecchia. ‘Some of those are great opportunities, but most are distressed situations, where these companies have seen the writing on the wall. They can no longer continue as they have been, due to the shift in customer patterns and behaviours.’

He also noted the financial imperatives from higher management driving technological consolidation within the laboratory, remaking that, for example, 10 years ago, a computational chemist within a life sciences company would have had a decent budget and the freedom to use many different systems for in silico modelling and simulation. ‘Fast forward to today and half that team has been laid off, and the company has had to standardise on one system.'

Convergence can be seen in the behaviour of large vendors such as Waters which has launched products that no longer fit the traditional category of a laboratory information management system (LIMS), or an electronic laboratory notebook (ELN), but rather include a combination of technologies rolled into one solution. For other companies, this shift away from discrete informatics products has led to mergers and acquisitions as they seek to bring in knowledge and expertise they might otherwise have lacked.

Accelrys’ purchase of Vialis, a relatively small services company, has two noteworthy aspects. Firstly, it exemplifies a push by informatics providers generally to add a services element to their offerings. But this move may not be entirely unproblematic for the industry. According to Elliott, one of the challenges that comes with any of the vendors expanding its service offering is a widespread perception that the services are there simply to sell product. ‘Historically, there really hasn’t been a software vendor in this space that’s been successful in having a truly independent services offering that can help customers go through workflow analysis and determine which products fit best,’ he said.

Elliott added that the decision to meet the high valuation of $5 million for Vialis was unexpected, given that for the same level of investment Accelrys could have built up its own capability within that area. However, Carnecchia maintained that, rather than trying to ‘roll up the space’, Accelrys is attempting to assemble a portfolio of capabilities both through acquisitions and also organically, through its own internal R&D engineering efforts. He pointed out that while Accelrys has invested more than $100 million on acquisitions, it has also spent 22 per cent of revenues on internal product development.

With regards to the acquisitions, Carnecchia was keen to emphasise that the company is adding domain expertise as well as technology capabilities to support the corporate strategy, as well as customers’ evolving needs as they aim to get products to market faster in the face of increased cost pressures, externalisation and government regulations. To that end, many employees, including the founders, of recently purchased Contur, VelQuest and Aegis have remained part of Accelrys.