Caliper looks to bring in vitro, in vivo together with Xenogen purchase

HOPKINTON, Mass.—With its recently announced agreement to acquire Alameda, Calif.-based Xenogen Corp., Caliper Life Sciences has embarked on a critical stage in its mission to be one of the first companies to truly bring together in vitro and in vivo experimentation.

"This transaction is a transformational event for Caliper," says Kevin Hrusovsky, president and CEO of Caliper. "The acquisitions of Zymark and NovaScreen, organic growth of Caliper's LabChip products, and the financial turnaround of our company have set the stage for the merger with Xenogen. We are achieving our goal of building a unique company with first-mover advantage in bridging in vitro and in vivo experimentation."

Technically, the acquisition of NovaScreen was the first time that the company got its hands on an in vivo lab, but that setup was simply used for a small number of animals to do comparative work against in vitro work on a couple of NovaScreen's cell lines and assays. It was not sufficient to actually provide in vivo services and there was no in vivo product base.

But, just as the NovaScreen purchase allowed Caliper to move from simply selling equipment to providing in vitro services, the roughly $80 million Xenogen acquisition will allow for sales and services on the in vivo end of the spectrum, Hrusovsky notes.

"The combined company can deliver Xenogen's technology to more customers more efficiently," says David Carter, chief executive officer of Xenogen. "In the near future the development of sophisticated molecular level products aimed at providing new solutions for our customers will be enhanced by the combination of microfluidics and optical imaging. Our two companies share a common vision for leading innovative preclinical drug discovery."

"We're pretty set on the basics now," Hrusovsky notes. "We needed to go into in vivo imaging because the FDA's Critical Path Initiative has pointed out the necessary evolutions needed to bring drugs to market, and animal models and imaging technologies were among the major steps in that process. We've captured both with the Xenogen purchase."

As such, he says, the company isn't looking for any other acquisitions at this point.
"We see a ton of potential in just what we'll be getting in terms of in vivo imaging equipment and services by adding Xenogen, on top of what we had already with in vitro equipment and services," Hrusovsky say.  "So we're going to focus on developing applications in both areas for a while. That's in line with our mission anyway, as we are very R&D-intensive, with about 18 percent of sales reinvested into research and development."

More than simply developing the two areas separately, though, Caliper has stated that it wants to integrate innovative in vitro and in vivo technologies to provide drug discovery scientists with more clinically relevant information earlier in the drug discovery process.

"Our partner customers in the pharmaceutical industry are asking us to create tools that will help them better predict safety and efficacy of new drug candidates all throughout the discovery pipeline," Hrusovsky explains. "Our response is to pursue next-generation platforms that produce more clinically relevant data by incorporating pharmacologically validated models that bridge small animal, in vitro and in silico approaches."

Even though greater resources have been applied to drug discovery in recent years, that hasn't resulted in greater productivity, he points out. Three-quarters of development work is still tied up in clinical settings, and 75 percent of cost on failures is tied to lack of efficacy. Bridging in vitro and in vivo platforms can help to shave off both that clinical time and money lost to failed candidates, believes Hrusovsky, who says there is a "growing divide" between in vitro and in vivo.

With the purchase of Xenogen, Caliper believes that the available cash resources of the combined companies will be sufficient to accomplish the integration and to fund the operations of the combined businesses through 2006. Caliper expects to be cash flow positive from operations beginning in 2007.

Immediately following the closing, Xenogen stockholders will own approximately 26% of Caliper's outstanding common stock. Assuming the exercise of the outstanding Xenogen warrants and after giving effect to the exercise of the warrants issued by Caliper to the Xenogen equity holders, Xenogen stockholders would own approximately 32% of the combined company on a fully diluted basis. The transaction is subject to the approval of both Caliper and Xenogen stockholders, as well as standard regulatory approvals, and is expected to close in the second quarter of 2006.