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.
Despite a late start, IBM's Life Sciences division is a billion-dollar operation.
As successful as it has been so far, the company lost critical time in bringing its technologies from the lab to the marketplace, falling behind Sun, HP and others. It also must compete with health care specialists.
"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 $1 billion-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 specialized in this field and have established strong partnerships with health care organizations 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 specializing in health care. "The real value is in applications, which are Cerner or Siemens or Accelrys."
Hieb sees more strength from IBM on the services side, particularly with the acquisition of PricewaterhouseCoopers, a major consulting firm that "gives IBM a solid group of experts in the health care market." But even there, he said, "so far I am underwhelmed with what they have done with that group."
Still, no one can dispute the potential for growth, regardless of the competitive obstacles. In the post-genomic era, learning how to harness the newly available genetic information to develop more effective treatments for human diseases has triggered an unprecedented quest by life sciences companies and academic research centers.
Information technology is an essential partner because it enables researchers to match up the thousands of chemical compounds that companies have in their databases with "targets"--places on a gene--they could affect. For example, genes that go awry can cause cancer, so the goal is to find potential drugs that could interrupt this process.
Moreover, information technology is playing a key role in identifying cost-effective treatments at a time when health care has become a top issue for politicians, employees, hospitals, doctors and consumers. An important goal is "information-based medicine," which combines a patient's individual profile--including genetics--with treatment data to achieve personalized medical care.
As in its business with other specific industries, IBM doesn't provide applications to customers; that is left to a wide variety of specialized partners. Rather, Big Blue aims to combine its hardware systems, R&D prowess and huge services business to develop unique health care packages.
Augen said IBM had spent $150 million to $200 million establishing partnerships and alliances by 2002. That was on top of $100 million in venture capital investments made to gain access to cutting-edge start-ups. For example, he said, the company put $10 million into a biotech fund run by Burrill & Co., a San Francisco merchant bank.
Despite all this investment, IBM still wasn't winning a lot of pharmaceutical business. Even though IBM in 1999 had proudly unveiled, a supercomputer dedicated to analyzing the human genome, the company wasn't making many life-science equipment sales.
"This is a new frontier, so it's going to take us a few years to explore."
That proved difficult to change. IBM did get business from small biotech companies, Augen said, but "we needed to land some big deals."
What worked was identifying a relatively untapped customer arena: large academic medical research centers--such as the Mayo Clinic, Duke University and the University of California at San Francisco--looking to upgrade their IT infrastructures to become players in the post-genomic era. In targeting these customers, IBM could apply resources that neither Sun nor other competitors could match.
Mayo, in particular, was an early and important partner. In about two years of working together, IBM and the clinic have developed good rapport, said Dr. Nina Schwenk, an internist who heads the IT committee for the Mayo Foundation Board of Trustees. Both companies are major employers in Rochester, Minn., and had served together in community groups.
"We're two very different types of organizations," Schwenk said, so the first project was limited--entering data into an electronic medical record--to see if a business relationship between a nonprofit health care provider and the world's largest technology company was even feasible.
When it proved productive, the two embarked on a more ambitious project aptly named the "data trust," for getting patient genomic information into a database stripped of private information in a way that could still be useful for research purposes.
"This is a new frontier," Schwenk said, "so it's going to take us a few years to explore."
Similarly, UCSF and IBM embarked on a three-year effort in 2003 to link the university's clinical information and research findings to help accelerate medical research on Alzheimer's and other neurological illnesses.
IBM is developing an advanced clinical and genomic information program that would allow scientists from different disciplines to work with physicians in discovering genetic links to their patients' diseases. IBM faces the twin challenges of giving physicians an easy-to-use Web-based system to find this information and protecting the security of patient data.
To that end, IBM in February announced a $250 million health care initiative aimed at developing consulting practices, information resources and customized industry solutions to help hospitals identify "best practices." The effort includes partnerships with Duke and the H. Lee Moffitt Cancer Center at the University of South Florida.
The health care industry is only
halfheartedly following federal
tech mandates as as deadlines
slip and dual standards apply.
IBM's customer base extends beyond academic facilities. One longtime customer is Novant Health, which operates eight hospitals in Charlotte and Winston-Salem, N.C. "We use IBM technology in just about everything we do," said Toni Kourey, Novant's senior vice president and CIO.
In fact, she just ordered three new mainframes at a cost of $7.1 million. Novant has IBM desktops, servers and workstations, running RISC, AIX and Linux, among other operating systems. Also, Novant is in the complex process of relocating its data center, and IBM has had an engineer on site for almost the whole time.
"IBM has a much better understanding of health care than other IT vendors we have dealt with," Kourey said. Novant's software provider is Siemens Medical Solutions, and IBM has people on site at Siemens, Kourey said, making interaction smooth for the customer.
"We just have one throat to choke," she quipped, referring to her ability to make one phone call about IT problems and get a single answer from the two vendors.
Siemens Vice President Jon Zimmerman, who previously worked for IBM, said Big Blue is its largest health care partner, followed by HP. Worldwide, IBM/Siemens serves 4,000 to 5,000 customers, mostly hospitals. As an example of their successful partnership, he cited Siemens' HDX health care data system, which runs on IBM's WebSphere application server software.
"We developed that together," Zimmerman said. "We showed them the holes they needed to fill for us," such as privacy and security tools to meetunder the Health Insurance Portability and Accountability Act (HIPAA).
Zimmerman said IBM is careful to "stick to its knitting" and let partners such as Siemens focus on actual health care applications. IBM's emphasis is on hardware, platform software, and business and technical consulting.
In the life sciences arena, one of IBM's partners is San Diego-based Accelrys, a software company whose products are aimed at streamlining the lengthy clinical trials that drug makers must undertake to get products approved.
The two jointly market Accelrys' Discovery Studio, which supports the entire drug discovery process by creating a collaborative technology environment that links companies' in-house research with external knowledge such as genomics data.
"We came to IBM in December 2001 and outlined the opportunity in drug discovery," said Steve Levine, Accelyrs' senior director of business development. "We told them, 'you have to make a serious, long-term commitment' to be successful.'" Kovac "got it," he said, and enlisted support within IBM for products such as Discovery Studio, running on eServer systems for Unix, Windows NT and Linux.
Levine said there was a perceived cultural mismatch between IBM's generalized technology structure and the unique, entrepreneurial life sciences industry. But Big Blue overcame much of that skepticism by dedicating its attention and resources to the field with the creation of IBM Life Sciences, he added.
"When they came in, they invested in how to brand themselves and hired people from the industry who could communicate that IBM has a strong culture of innovation," Levine said.
Old habits, however, can die hard. IBM's bureaucratic nature--nearly 100 years in the making--can still work against the company at times.
Although he usually works directly with around 10 people at IBM, Levine said "we probably have ad hoc contact with 1,000 IBMers." Inevitably, he added, "some aspects of what we need to do fall into bureaucratic black holes."
For the most part, though, the resources alone of IBM's vast empire far outweigh the drawbacks for many customers. Its sheer size and influence were key reasons the company was able to catch up in life sciences so quickly despite its relatively late start.
With the explosion of information from the human genome and related projects, "the fuse has only been lit" on cooperation between health care and technology, said Eric G. Brown, vice president and health care analyst at Forrester Research. IBM "is a welcome provider because of its ability to do everything from pooling basic research to hosting services in India."