SAN DIEGO—Illumina Inc. and Solexa Inc. announced in mid-November a definitive agree­ment under which Illumina will acquire Solexa in a stock-for-stock merger. Under the merger agreement, Solexa stockholders would receive Illumina common stock valued at $14 per share, for a total equity value of approxi­mately $600 million. Illumina also agreed to invest $50 million in Solexa in exchange for newly issued Solexa shares.

 

The merger announcement comes just months after Solexa began moving its next-generation sequencing platform, the 1G Genome Analyzer, to a handful of select customers and prepares to aggressively launch the product to the broader market in 2007. Furthermore, it joins together compa­nies that have plied the waters of both gene expression and gene sequencing, mar­kets that Illumina officials say are highly complementary and that it estimates in excess of $2.25 billion.

 

"For around the last 18 months, we and our CEO [Jay Flatley] have been looking at next-generation sequencing technolo­gies," says John Stuelpnagel, COO of Illumina. "We knew that what we are doing in genotyping and gene expression had great overlap and synergies and that the tech­nologies could play off each other."

 

Specifically, Illumina sees cross selling and integration opportuni­ties for researchers using Solexa's 1G Genome Analyzer for whole-genome resequencing to use those results to conduct additional work on Illumina's BeadStation for whole-genome genotyping. Likewise, results from the BeadStation for targeted genotyping studies could suggest additional work for target­ed resequencing appropriate for the 1G Genome Analyzer.

 

"This merger will create the only company today that can offer both analog and digital gene expression," notes Stuelpnagel. "From Illumina's standpoint, it was also an opportunity to bring in a sequencing technology that is much farther along than com­peting technologies and to rapidly commercialize it."

 

For Solexa, the time to join with Illumina was suitable as it pre­pares to ramp up the production and marketing of its 1G product—a system it maintains has the poten­tial to generate "upwards to 1 bil­lion bases of data in a single run." The company also says it can cur­rently sequence an entire genome for around $100,000, a figure that is orders of magnitude separated from its nearest competitor.

 

"We started talking with Illumina about a collaboration to help us with our sequencing tool," says Omead Ostadan, VP of mar­keting for Solexa. "But as we con­tinued to talk, what we found was there was much more we could do as a company by merging with them both from a technology and a technical standpoint."

 

While Solexa will benefit from Illumina's large sales and support footprint in the global market, there are also opportunities for Illumina's manufacturing infra­structure to help with the com­mercial ramp up of the 1G.

 

Still, Stuelpnagel notes, there is no intention of significantly chang­ing the operations at Solexa's two operating centers in Hayward, Calif. and Cambridge, England.