Growing steadily downstream

Affymetrix to acquire eBioscience for $330 million in plan to expand beyond discovery-based efforts

Jeffrey Bouley
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SANTA CLARA, Calif.—In a move that Affymetrix Inc. ischaracterizing as a very deliberate and carefully orchestrated one, the companyhas announced that it is acquiring eBioscience Inc., a privately held SanDiego-based company with a notable market presence in flow cytometry andimmunoassay 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 industrywatchers recently that his company's board of directors feels some "urgency" inits desire to get the company on a growth track, but that the acquisition wascarefully considered. He further noted in a recent conference call to investorsand media that "our aim is to return the company to growth and sustainedprofitability. We expect to achieve these goals through a number of ways,including stabilizing our gene expression business, growing our genotypingmarket share, building a market-leading position in cytogenetics and maintainingconsistent growth of our life science reagents business."
Over the past several months, Witney notes, Affymetrix hasconducted a number of meetings and discussions with investors that have coveredmoves such as mergers and acquisitions and buying back stock.
"On the M&A front, we've shared the key criteria that anypotential acquisitions would have to meet, which include being larger enough tomake a difference to our overall business trends, that it would need to extendour strategic footprint and that it have strong current financials and futureprofit prospects—a combination that is very hard to find," he explains. "We'vebeen clear that we're not interested in investing in a platform company that isburning cash. We've been very disciplined in assessing targets, and I'm happyto say that eBioscience is a company that meets all of our criteria.
"Affymetrix has been moving aggressively downstream fromdiscovery with acquisitions such as Panomics and products such as CytoScan andOncoScan," Witney continues, "so this is a very logical next step to add thecapabilities of eBioscience. We are now in a position to provide a much morecomprehensive toolkit for translational medicine research."
Under the terms of the agreement, Affymetrix will acquireeBioscience 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. Affymetrixplans to maintain eBioscience's management team and operations in San Diego.
Affymetrix expects the acquisition of eBioscience to createsignificant new commercial opportunities in the key post-genomic applicationsof immunology, oncology, cell biology, stem cell biology and diagnostics;diversify the company's revenues to complement its genomics franchise; augmentthe company's growing business in molecular diagnostics; expand the company'sproduct portfolio to include multicolor flow cytometry reagents and a broadspectrum of reagents for the analysis of cytokines, growth factors and othersoluble proteins; enhance the operational and new product opportunities forPanomics RNA and protein analysis products; and leverage the commercialcapabilities of both companies to generate new opportunities for growth.
"The acquisition of eBioscience is transformational for ourbusiness, and we are enthusiastic about the opportunities it creates," addsWitney. "With eBioscience, Affymetrix will significantly expand its addressablemarkets by adding an industry-leading portfolio of cell-based and immunoassays.These new products are a critical part of our customers' workflow in our keytarget markets of translational medicine, oncology, and immunology. We believethat these markets represent a nearly three-billion dollar annual opportunity,which will put Affymetrix on a solid path to sustained growth andprofitability."
Zacks Investment Research acknowledges that Affymetrix ispursuing a number of strategies, including expansion into new markets such ascytogenetics and cancer research, which are aimed at expanding its top line,adding in a note about the eBioscience acquisition that "the company isshifting its R&D focus from discovery and exploration markets to thefaster-growing validation and routine testing markets. However, Affymetrix isoperating in an intensely competitive industry and faces risks associated withlower R&D spending by its customers due to a soft economy and governmentactions including budget cuts."
Because Affymetrix is exposed to a "volatile fundingenvironment" and because declines in government research grants "maysubstantially 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, "Thistransaction places Affymetrix at the forefront of immunology and oncology, twoof the fastest-growing segments of molecular and translational medicine,"adding that eBioscience "complements our traditional businesses of genomics andcytogenetics, and dramatically strengthens our foundation in moleculardiagnostics."
For his part, Don Tartre, CEO of eBioscience, asserts, "thecombination of the Affymetrix presence in genomics, its global commercialfootprint and our protein and cell analysis tools is a great match."
"The combination of Affymetrix and eBioscience hassignificant benefits," noted Tim Barabe, executive vice president and chieffinancial officer of Affymetrix, in the news release about the deal. "With 2011sales expected to exceed $70 million, gross margins in excess of 70 percent andEBITDA margin of approximately 30 percent, eBioscience makes Affymetrix a muchstronger company, both operationally and financially. The purchase pricerepresents approximately 4.5 times 2011 revenue and 14 times 2011 EBITDA."
The transaction will be funded using a combination ofroughly 50 percent cash-on-hand and 50 percent committed debt to avoid dilutionand maximize value to shareholders, Barabe added.

Affymetrix,Genisphere ink deal for miRNA reagent kit
SANTA CLARA, Calif.—Affymetrix Inc. also announced lastmonth an exclusive agreement with Genisphere LLC to offer the company'sproprietary FlashTag Biotin HSR Reagents designed for Affymetrix.
According to Affymetrix, the miRNA reagents providestreamlined, high-fidelity target preparation methods yielding high-qualitydata and unmatched reproducibility when used with the Affymetrix GeneChipArrays.
"Launched in March 2009, the FlashTag product line hasprovided a powerful standardized tool for investigating miRNA expression whencoupled with the GeneChip miRNA Arrays. This licensing agreement combines thetechnologies from both companies for the benefit of our mutual customers."
Genisphere reagents are compatible across a wide variety ofsample types including formalin-fixed, paraffin-embedded (FFPE) fresh frozensamples and blood. This complete solution provides researchers with fasterinsight into the role of miRNAs in biological processes including mRNAdegradation, transcriptional gene silencing, translational repression andultimately in biomarker discovery in translational and cancer research, saysAffymetrix.
Starting with as little as 100 ng of total RNA, thesereagents provide ultrasensitive miRNA labeling in just 45 minutes, with no purificationsteps required to go from sample to target for microarray hybridization. Whenused with the recently released GeneChip miRNA 2.0 Array, these tools providecustomers with a single validated workflow to better understand the biology ofmiRNA molecules from 131 different organisms.
"The new miRNA reagents designed specifically for AffymetrixGeneChip Arrays provide researchers with the best tools to access challengingsamples and interrogate them on the world's leading microarray platforms," saidDr. Kevin Cannon, general manager of Affymetrix's Gene Expression businessunit, in a statement. "This reagent addition provides researchers with thetools to move from a whole-genome view of complex biological systems using theGeneChip miRNA Arrays to single-gene validation with QuantiGene View miRNAAssays."
Affymetrix-branded reagent kits will be launched in early2012.

Jeffrey Bouley

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