Indian IT companies including Infosys (Nasdaq: INFY), TCS, Cognizant (Nasdaq: CTSH) and HCL Technologies are leveraging their reputation in software to target the growing offshore opportunity in bioinformatics.

Bioinformatics, created through the combination of information technology and biology, is a relatively new addition to the service portfolio of medium to large IT companies in India, although they have been providing software services to the life sciences and healthcare verticals for a long time.

The offshore opportunity
A recent publication by ValueNotes (in collaboration with KnowGenix) has estimated revenues from bioinformatics offshoring to India to be around $32 million. This is expected to demonstrate a CAGR of 25 percent over the next four years and is expected to reach $62 billion by 2010. The high growth rate has been predicted on the back of India’s relative cost competitiveness, government support, India’s success as a pharma and IT hub and stronger and wider range of vendor capabilities.

Focused capabilities
IT companies are building up capabilities in bioinformatics for drug discovery and clinical trials and depth in areas including data mining and integration, databases, scientific visualizations, DNA sequence simulations and genome analysis, Laboratory Information Management Systems (LIMS) tools, etc. Most vendors are aggressively looking to climb the value chain and move from low-end research in bioinformatics to higher value-adding services in the global marketplace. A case in point could be the recent multi-year-extension of strategic relationship by Merck with Cognizant for services including bio-informatics outsourcing. Inorganic growth will aid this ascent of Indian companies, as an acquisition would add skilled employees, clients and capabilities to the parent firm. Partnerships, is another much sought after route.

IT companies as a vendor segment in India enjoy some distinct advantages vis-à-vis their competitor segments – pure play life sciences and bioinformatics companies and multinational IT companies:
1) Easy access to funding and strong investment capabilities. Most of the Indian IT companies have successfully tapped capital markets in the US and Europe in the form of bourse listings, GDR/ADRs and debt issues.
2) Strong brand, marketing and distribution networks across the world leading to low-cost global delivery model. Companies leveraging services of Indian IT companies have been able to achieve cost savings to the extent of 30-40 percent in the drug development process.
3) Demonstrated capability to scale. Big enabler exists in the form of abundant pool of biosciences and engineering graduates in the country.
4) Capability to enter into strong partnerships, which will aid the bioinformatics practice. For instance, Infosys has strong partnerships with Oracle and SAS for data management and statistical data analysis. TCS has entered into deals with several international players like Congenia (Italy) and Sequenom (USA).
5) Ability to attract clients due to existing relationships and brand presence, as well potential to cross-sell services to existing clients in life sciences and healthcare. IT companies can also potentially mine bioinformatics clients to cross-sell core IT services.

On the flip side, bioinformatics, or even life sciences is not a focus area for IT companies. Compared to pure-play companies, IT vendors lack the specialized knowledge and are typically perceived as “generalists” in the bioinformatics domain. However, the scalability and investment ability is a big factor in overcoming this weakness.

Going Forward
The report by ValueNotes and KnowGenix identifies India’s strength in bioinformatics to be in software (including database) and services, on top of well-developed scientific expertise. Consequently, future growth is likely to come from this direction. The bioinformatics offshoring space is also likely to see a lot of investment in building and co-owning intellectual property in the near future. Given the investment, scale will be important for survival and future growth of vendors in this industry, and software companies seem well poised for now.

No responsibility is accepted for errors of fact or opinion. Neither the analyst nor ValueNotes has a position in the stocks covered above, or has received any payment in any form for this report. ValueNotes does not own or trade in the stocks of companies under coverage. ValueNotes does not provide investment banking services or investor relations' services to preserve the independence of its research. Neither ValueNotes nor the analyst incurs any liability arising out of use of the above information/ report. Reproduction in whole or in part without written permission is prohibited.

ValueNotes Outsourcing Watch articles are distributed through FinancialWire, an independent, proprietary news service of Investrend Information, www.investrend.com

Related Items:

1. Visual Media Outsourcing To India Gaining Traction
2. Media Outsourcing: Catching attention