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Growing steadily downstream
SANTA CLARA, Calif.—In a move that Affymetrix Inc. is characterizing as a very deliberate and carefully orchestrated one, the company has announced that it is acquiring eBioscience Inc., a privately held San Diego-based company with a notable market presence in flow cytometry and immunoassay reagents for immunology and oncology research and diagnostics.
In characterizing the value of the eBioscience acquisition, Dr. Frank Witney, president and CEO of Affymetrix, expressed to industry watchers recently that his company's board of directors feels some "urgency" in its desire to get the company on a growth track, but that the acquisition was carefully considered. He further noted in a recent conference call to investors and media that "our aim is to return the company to growth and sustained profitability. We expect to achieve these goals through a number of ways, including stabilizing our gene expression business, growing our genotyping market share, building a market-leading position in cytogenetics and maintaining consistent growth of our life science reagents business."
Over the past several months, Witney notes, Affymetrix has conducted a number of meetings and discussions with investors that have covered moves such as mergers and acquisitions and buying back stock.
"On the M&A front, we've shared the key criteria that any potential acquisitions would have to meet, which include being larger enough to make a difference to our overall business trends, that it would need to extend our strategic footprint and that it have strong current financials and future profit prospects—a combination that is very hard to find," he explains. "We've been clear that we're not interested in investing in a platform company that is burning cash. We've been very disciplined in assessing targets, and I'm happy to say that eBioscience is a company that meets all of our criteria.
"Affymetrix has been moving aggressively downstream from discovery with acquisitions such as Panomics and products such as CytoScan and OncoScan," Witney continues, "so this is a very logical next step to add the capabilities of eBioscience. We are now in a position to provide a much more comprehensive toolkit for translational medicine research."
Under the terms of the agreement, Affymetrix will acquire eBioscience for $330 million in cash, subject to certain customary adjustments, with an expectation in late November that if all closing conditions were met, the transaction would close late in the fourth quarter of 2011. Affymetrix plans to maintain eBioscience's management team and operations in San Diego.
Affymetrix expects the acquisition of eBioscience to create significant new commercial opportunities in the key post-genomic applications of immunology, oncology, cell biology, stem cell biology and diagnostics; diversify the company's revenues to complement its genomics franchise; augment the company's growing business in molecular diagnostics; expand the company's product portfolio to include multicolor flow cytometry reagents and a broad spectrum of reagents for the analysis of cytokines, growth factors and other soluble proteins; enhance the operational and new product opportunities for Panomics RNA and protein analysis products; and leverage the commercial capabilities of both companies to generate new opportunities for growth.
"The acquisition of eBioscience is transformational for our business, and we are enthusiastic about the opportunities it creates," adds Witney. "With eBioscience, Affymetrix will significantly expand its addressable markets by adding an industry-leading portfolio of cell-based and immunoassays. These new products are a critical part of our customers' workflow in our key target markets of translational medicine, oncology, and immunology. We believe that these markets represent a nearly three-billion dollar annual opportunity, which will put Affymetrix on a solid path to sustained growth and profitability."
Zacks Investment Research acknowledges that Affymetrix is pursuing a number of strategies, including expansion into new markets such as cytogenetics and cancer research, which are aimed at expanding its top line, adding in a note about the eBioscience acquisition that "the company is shifting its R&D focus from discovery and exploration markets to the faster-growing validation and routine testing markets. However, Affymetrix is operating in an intensely competitive industry and faces risks associated with lower R&D spending by its customers due to a soft economy and government actions including budget cuts."
Because Affymetrix is exposed to a "volatile funding environment" and because declines in government research grants "may substantially affect the company's revenues," Zacks has maintained a "Neutral" stance on Affymetrix's stock.
The mood is notably more upbeat at Affymetrix, with Dr. Stephen P.A. Fodor, founder and chairman of the company, saying, "This transaction places Affymetrix at the forefront of immunology and oncology, two of the fastest-growing segments of molecular and translational medicine," adding that eBioscience "complements our traditional businesses of genomics and cytogenetics, and dramatically strengthens our foundation in molecular diagnostics."
For his part, Don Tartre, CEO of eBioscience, asserts, "the combination of the Affymetrix presence in genomics, its global commercial footprint and our protein and cell analysis tools is a great match."
"The combination of Affymetrix and eBioscience has significant benefits," noted Tim Barabe, executive vice president and chief financial officer of Affymetrix, in the news release about the deal. "With 2011 sales expected to exceed $70 million, gross margins in excess of 70 percent and EBITDA margin of approximately 30 percent, eBioscience makes Affymetrix a much stronger company, both operationally and financially. The purchase price represents approximately 4.5 times 2011 revenue and 14 times 2011 EBITDA."
The transaction will be funded using a combination of roughly 50 percent cash-on-hand and 50 percent committed debt to avoid dilution and maximize value to shareholders, Barabe added.
Affymetrix, Genisphere ink deal for miRNA reagent kit
SANTA CLARA, Calif.—Affymetrix Inc. also announced last month an exclusive agreement with Genisphere LLC to offer the company's proprietary FlashTag Biotin HSR Reagents designed for Affymetrix.
According to Affymetrix, the miRNA reagents provide streamlined, high-fidelity target preparation methods yielding high-quality data and unmatched reproducibility when used with the Affymetrix GeneChip Arrays.
"Launched in March 2009, the FlashTag product line has provided a powerful standardized tool for investigating miRNA expression when coupled with the GeneChip miRNA Arrays. This licensing agreement combines the technologies from both companies for the benefit of our mutual customers."
Genisphere reagents are compatible across a wide variety of sample types including formalin-fixed, paraffin-embedded (FFPE) fresh frozen samples and blood. This complete solution provides researchers with faster insight into the role of miRNAs in biological processes including mRNA degradation, transcriptional gene silencing, translational repression and ultimately in biomarker discovery in translational and cancer research, says Affymetrix.
Starting with as little as 100 ng of total RNA, these reagents provide ultrasensitive miRNA labeling in just 45 minutes, with no purification steps required to go from sample to target for microarray hybridization. When used with the recently released GeneChip miRNA 2.0 Array, these tools provide customers with a single validated workflow to better understand the biology of miRNA molecules from 131 different organisms.
"The new miRNA reagents designed specifically for Affymetrix GeneChip Arrays provide researchers with the best tools to access challenging samples and interrogate them on the world's leading microarray platforms," said Dr. Kevin Cannon, general manager of Affymetrix's Gene Expression business unit, in a statement. "This reagent addition provides researchers with the tools to move from a whole-genome view of complex biological systems using the GeneChip miRNA Arrays to single- gene validation with QuantiGene View miRNA Assays."
Affymetrix-branded reagent kits will be launched in early 2012.