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With $3.4-Million Investment, Invitrogen Will Market Illumina s Oligos and Split Revenues

Invitrogen will pay Illumina $3.4 million to manufacture oligonucleotides that it, in turn, will market, with the two companies splitting revenues 50-50, the companies said this week.

Invitrogen, fresh off the $8 million acquisition of Bio Asia and a biomarker agreement with the Mayo Clinic, said Tuesday it will invest the $3.4 million in Illumina’s San Diego oligonucleotide manufacturing facility, to extend Illumina’s Oligator technology from plate-based oligonucleotide products to tube-based oligonucleotide products, and eventually install the manufacturing technology in two Invitrogen facilities outside North America, likely Scotland and Japan.

The companies said Invitrogen will assume responsibility for sales, marketing, and technical support for the Oligator products in a transition expected to take place over the “next several quarters.”

“We believe we can grow the market and generate more revenues and profit than either of us can do independently,” Invitrogen CEO and chairman Greg Lucier said in a conference call.

Moreover, he said, market research associates primer purchases with other products.

“There is an affinity of primer volume with the rest of our products,” he said. “This is a novel solution.”

Lucier said the market opportunity in oligonucleotides is approximately $300 million and growing at low single-digits. Market analyst Frost and Sullivan estimates that the total global market for oligonucleotides is likely to grow from $340 million in 2003 to $776 million in 2010, driven by demand from basic research, drug target screening, and therapeutic development.

The oligonucleotide market is marked by fierce pricing competition. The Illumina-Invitrogen alliance will compete against market leaders IVT, Sigma-Aldrich, and Operon Biotechnologies, which spun out of Qiagen last summer in a management buyout.

Today, Illumina manufactures oligos in a plate at a price of 14 cents a base, compared to 35 cents per base four years ago, Lucier said, with a nod to Illumina’s manufacturing prowess.

“We thought they were sacrificing margin for market share,” Lucier said. “What Illumina had done is different, creating a cost-effective factory for making oligos with superb margins and quality.”

Illumina’s oligo production facility, located on a lower floor of its San Diego facility, has a capacity of 20 million oligos per year, according to SEC filings. The company is developing its next-generation oligo synthesizing technology, with plans to bring online two new instruments, which Illumina CEO Jay Flatley said could supply the needs of the entire commercial market, not including its internal needs.

The current Illumina technology is built on a largely automated backbone. Oligo sales are generated by sales reps, and then handled electronically. Customers can also log in to a website, place their orders, and oligos are manufactured and then shipped. The company’s most recent oligo release and its largest shipment, the whole mouse genome, included 8,000 plates.

Lucier noted that Invitrogen’s current oligo business is 80 percent tube-based and 20 percent plate-based, while all of Illumina’s business is in plates.

Lucier said that the alliance could produce a $100-million-plus business “in the next couple of years.” He said that the cost savings from transitioning Invitrogen’s current oligo-manufacturing in Frederick, Md., would likely not impact the company’s financials in 2005, but likely 2006 and beyond.

Invitrogen will shift most of its current oligo production to Illumina, with its oligo facilities in Frederick, Md., shifting emphasis to RNAi production work. Invitrogen’s distribution, which provides one-day turnaround times, will move from Frederick to San Diego.

“Delivering on the same or the next day is a critical element of being a player in the oligo market,” he said. “It was a key consideration in the discussions. We can serve all our customers inside the US the same from San Diego as we did from Frederick,” Lucier said.

The companies have established a six-person committee to manage the alliance and review expenses and profits.

Invitrogen will book all top-line revenues from sales, deduct sales and marketing costs, and costs of goods. Illumina will be credited for the cost of manufacturing, and receive a profit check, said Flatley.

Illumina’s seven sales representatives will move to Invitrogen within three months, Invitrogen said.

— Mo Krochmal ([email protected])

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