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IBM nurtures biological growth

Karen Southwick CNET News.com

Published: 01 Jun 2004 11:55 BST

In early 2000, IBM research executives Carol Kovac and Jeff Augen were kicking around the notion of how the company could play a larger role in the fast-growing life sciences arena.

Although IBM had scientists working in the field, "it was pure research," said Augen, who at the time was director of emerging technologies. There was a considerable gap in translating that research into sales of equipment and services to the pharmaceutical and biotech industries.

So Augen and Kovac, an IBM research vice president, put together an aggressive plan to get to $100m (£54m) in revenue in the first year and turn cash-flow positive by the third year. Those goals were met, Augen said, as they grew revenue by $500m in just two years.

"We at IBM believe that within the next three to five years, the transformation of health care will be under way," Kovac said, offering "probably the greatest new market opening in IT that we see on the horizon."

Already, IBM Life Sciences is a $1bn-plus business that recently merged with the company's older health care division, which served providers and payers. Kovac, named general manager of the combined operation, said IBM was able to take advantage of a historic development in health care: the sequencing of the human genome in June 2000. Presciently, she and Augen had formed IBM Life Sciences only a couple of months before, in late March.

As successful as it has been so far, however, IBM Life Sciences faces substantial competition. The company lost critical time in bringing its technologies from the lab to the marketplace, falling behind Sun Microsystems, Hewlett-Packard and other major rivals. In addition, all these companies must compete with others that have specialised in this field and have established strong partnerships with health care organisations for decades.

Some analysts predict an uphill battle for IBM because the health care industry needs software applications, not the kind of hardware-oriented technologies that the company is generally known for. "What does it really mean for them to be committed to health care?" said Barry Hieb, a Gartner research director specialising in health care. "The real value is in applications, which are Cerner or Siemens or Accelrys."

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