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Affymetrix to Acquire Neomorphic for $70M

NEW YORK, Oct. 2 – GeneChip-maker Affymetrix (Nasdaq: AFFX) of Santa Clara Calif., said Monday that it would acquire privately-held computational genomics company Neomorphic of Berkeley, Calif., for about $70 million in stock, based on Friday’s close.

The companies anticipate that products resulting from the acquisition will include whole-genome, high-density GeneChip arrays, new data analysis tools, and a series of Internet-accessible information products.

Affymetrix’s GeneChip customers have often considered the accompanying data analysis software inadequate. The purchase of Neomorphic, which in February shifted its focus from selling Java-based visualization software to applying its computational expertise to find drug targets, is likely an effort to both provide better software and more genes for Affymetrix’s chips.

The company's customers will now “have a more comprehensive view of key genomes than has previously been available, along with powerful new tools to interpret and understand the assembled genomic information,” Affymetrix president Susan Siegel said in a statement.

The acquisition adds weight to industry expert predictions that bioinformatics companies cannot survive as stand-alone entities. A month ago Pharmacopeia (Nasdaq: PCOP) completed the purchase of the software subsidiaries of Oxford Molecular Group for approximately $27 million. And over the last few years several bioinformatics companies have either been gobbled up by bigger genomics companies or expanded their offerings.

Under the terms of the agreement, Affymetrix will issue approximately 1.4 million shares of its stock in exchange for all of Neomorphic’s outstanding shares and the assumption of all of Neomorphic's outstanding stock options. The transaction will be accounted for as a purchase transaction, and is expected to close in the fourth quarter of 2000.

The number of shares of Affymetrix stock to be issued in the transaction may change depending on the performance of its stock prior to the close of the transaction. Affymetrix has the option of paying up to $20 million in cash instead of increasing the number of shares it issues.

Neomorphic’s clients include Celera Genomics (NYSE: CRA), Millennium Pharmaceuticals (Nasdaq: MLNM), Monsanto (NYSE: MCT), and the Institute for Genomic Research.

The Affymetrix GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, reagents for use with the probe arrays, a scanner, and other instruments to process the probe arrays and software to analyze and manage genetic information. The company's spotted array system enables individual researchers to create and analyze custom microarrays.

The company’s stock was down 1 7/8, or 3.8 percent, at 48 in mid-morning trading.