Microsoft has been angling toward the life sciences software market for years, and yesterday it made a significant play in the sector by scooping up an industry pioneer just a few miles away.
The Redmond, WA-based software company said yesterday it is acquiring the assets of Rosetta Biosoftware, a Seattle-based division of Merck that has been marked for downsizing since back in October.
So what did Microsoft get for the undisclosed amount it paid? A pioneering computational biology operation that’s been around more than 10 years; a profitable cash stream; an existing customer base of almost 100 names from academia and major drugmakers; and partnerships with major genetic instrument companies like Santa Clara, CA-based Affymetrix and San Diego-based Illumina. Then there is a talent pool of 53 experienced employees that it will get to interview and choose from. Microsoft isn’t saying how many people it plans to retain, but it will move the Rosetta operation from Seattle’s South Lake Union to the main campus in Redmond.
Microsoft has had its eye on Rosetta for years, and knew what it was getting, says Jim Karkanias, senior director of Microsoft’s Health Solutions Group. Karkanias was at Merck when the pharmaceutical giant purchased Rosetta Inpharmatics, the parent operation of Biosoftware, back in 2001, and he said he has seen it grow in value ever since. Microsoft thought about whether to try to build its own software to get in the same game, but it’s easier said than done. It probably would have taken Microsoft at least three years on its own, Karkanias says.
“Rosetta really pioneered its way in this space,” Karkanias says. “I’ve been following them for years, and I was at Merck when it made the acquisition and really started to understand Rosetta value proposition. It’s only increased over time.”
Now Karkanias will be in charge of the remnants of Rosetta Biosoftware as it is integrated into Microsoft’s beefed-up Amalga Life Sciences by early 2010. This means it will get product lines by the names of Rosetta Resolver, Rosetta Elucidator, and Syllego. Getting this stuff integrated will be no small feat, and an easy one to botch. These are highly technical products that help researchers sort through results from machines that can tell researchers which genes are turned on or off in a tissue sample, whether patients have a genetic abnormality that might lead to disease, or whether the proteins made by genes are somehow off kilter.
Piecing together this complex mosaic of information was supposed to help give Merck an edge over its Big Pharma competitors in the development of new drugs. The industry is plagued by horrible R&D productivity, in which it typically takes more than a decade and $1 billion to develop new drugs. After all that, the industry has a 1-in-10 success rate with drugs making it through clinical trials to become FDA approved products. Rosetta’s products are supposed to help Merck, and other companies, raise this batting average by helping identify which patients are more likely to respond to certain drugs, and which are likely to suffer side effects.
It’s still early days for Amalga Life Sciences, which was introduced at the end of April. Karkanias didn’t identify any new customers, or new partnerships lined up with genomic instrument makers. He declined to get specific when I asked about how big the market opportunity is, and how much Microsoft has left to capture. He called the market “gigantic” and the opportunity to change current research practice is a biggie. “We want to change data into knowledge,” he says.
This all sounds great, but to hear companies that market software to biologists, you’d think these guys are still living in the age of VHS cassette tapes. The main barrier for Microsoft and all companies trying to enter the biosoftware market is to get researchers to switch from homemade software programs to capture their data, or even cobbled together versions of Excel or Access in some cases. Seattle-based Geospiza, one of the companies trying to tap this market, hopes that Microsoft’s move will help blaze a new trail. “This announcement should provide some reassurance to investors that biosoftware is an attractive acquisition/growth market,” says Geospiza president Rob Arnold.
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