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Aiming to Grow Consumables Portfolio, ABI Hopes Ambion Buy Will Drive RNAi Market Play

Making good on a promise earlier this year to build its consumables business, Applied Biosystems said last week that it would acquire the research products division of RNAi firm Ambion for around $273 million in cash.

The acquisition will provide ABI entry into a market that it estimated at $500 million and growing at an annual rate of more than 10 percent. It also will pit ABI against several other entrenched competitors in the RNAi consumables market, such as Fisher Scientific's Dharmacon unit, Invitrogen, Qiagen, and Sigma-Aldrich.

"This acquisition is an important component of Applied Biosystems' strategy to drive growth by expanding our consumables product offering," Cathy Burzik, president of ABI, said in a statement.

With the acquisition, which is ABI's first since it purchased Boston Probes in November 2001 for roughly $33 million, the firm gains entry into the consumables market for sample prep, RNAi, microRNA, and gene expression and array products. Ambion's research products division develops and supplies consumables for stabilizing, synthesizing, handling, isolating, storing, detecting, and quantifying RNA. Among its newer products are microRNA and siRNA reagents used to study mechanisms of gene expression. The acquisition is expected to close in the first three months of the year

ABI is "increasing [its] sales and field support personnel in North America, putting in place consumables-oriented marketing programs, and has developed a new web portal focused on making it easier to buy consumables from AB."

Ambion's technologies will build on ABI's nascent efforts in the RNAi field, which has become a key area of interest of many multi-platform tool providers because of its potential use in a range of applications, such as target validation, gene expression analysis, and high-content screening. ABI recently introduced its TaqMan microRNA assays, which were being used pre-launch by noted genetics and RNAi researcher Victor Ambros of Dartmouth University in studying gene expression in human tumors.

"Ambion and Applied Biosystems product lines are very complementary, with Ambion products being used in the pre-analytical phases and Applied Biosystems' products used afterward for sample analysis," an ABI spokesperson said in an e-mail response to questions from BioCommerce Week.

Consuming Challenges

Earlier this year, ABI officials made it clear that growing its consumables business would be a key focus as the company tries to lessen its dependence on big-ticket instrument sales, such as its DNA sequencers and mass spectrometers.

Many of the firms in the BCW Index that sell capital equipment, such as ABI, Waters, PerkinElmer, and Thermo Electron, are exposed to purchasing cycles that lead to inconsistent quarterly revenue returns. While these cycles have affected some of them more than others, they have all stressed the importance of providing consumables and/or service offerings that bring in more consistent revenue streams.

"We have an incredible strength in capital equipment sales," Carl Hull, vice president and general manager for ABI's RT-PCR and gene-expression business lines, told investors visiting the company's Foster City, Calif., headquarters in April (see BioCommerce Week 4/14/05). "Our real opportunity is to take that core competence and build a shell around it. Consumables represent a big opportunity for us and we are focused on that."

In trying to figure out how it would integrate greater consumable sales into its business, ABI had retained an undisclosed consultancy to evaluate its sales force, Burzik said during the April meeting.

"We haven't had an opportunity to examine sales-force effectiveness," Burzik said at the time. "We are now focusing within the US [and] asking fundamental questions: 'Do we have the right number of feet; are the territories sized appropriately; is the compensation right?'" she said. "We are an instrument-focused company, and we have instrument people selling consumables. Is there an opportunity to have a consumables-focused sales force?"

According to the ABI spokesperson, the firm recently established a separate business unit within its molecular biology division to focus on consumables and noted that sales of such products rose 12 percent in 2005 year over year.

"To support further growth in this revenue source, we are increasing our sales and field support personnel in North America, putting in place consumables-oriented marketing programs, and have developed a new web portal focused on making it easier to buy consumables from AB," the spokesperson wrote.

Sector consolidation has been rapid in the RNAi field, with bigger research products firms snatching up smaller players that hold the key intellectual property covering the uses of RNA interference in research applications. Qiagen got the ball rolling with its April 2002 acquisition of Xeragon, which was followed by Invitrogen's November 2003 purchase of Sequitur, Fisher Scientific's acquisition last year of Dharmacon, and Sigma's acquisition of Proligo last year. Sigma also bolstered its position in the field by recently licensing Benitec's RNAi patent portfolio and buying a stake in the company (see BioCommerce Week 10/27/2005).

According to market figures for 2004 provided last year to BioCommerce Week from life sciences consulting firm TSG Partners, Fisher's Dharmacon had achieved a market share of 55 to 60 percent, while Qiagen was second with a 30 to 35 percent market share, followed by Ambion, Sequitur, and Proligo. TSG estimates the total in vitro RNAi market size at $253.2 million for 2005, but growing to roughly $458 million by the end of 2007.

ABI Evolving

Ambion's research division has approximately 300 employees. The ABI spokesperson said that although plans about staffing haven't been finalized, the firm intends to keep most of Ambion's employees.

Ambion's research and development, manufacturing, and other operations will continue to be based in Austin, Texas, and report to ABI's molecular biology division as a wholly owned subsidiary of Applera. Ambion's other assets, primarily its diagnostics business, will be sold to Asuragen, a newly formed affiliate of Ambion CEO Matt Winkler.

According to ABI, Ambion expects to report more than $52 million in revenue for the research products division in 2005, which would be a 22-percent improvement over last year's receipts. In total, the research products division accounts for about 90 percent of the company's revenue, according to Ambion officials.

ABI has spent the past few years integrating its array of molecular biology tools for DNA sequencing, proteomics, gene expression, genotyping, and other applications into packages aimed at serving scientists' needs from basic research to preclinical drug development.

The firm undertook a sweeping reorganization in July 2004, which included the termination of 145 employees — with a further 250 jobs cut this past June — and restructured its business into four separate divisions: molecular biology; proteomics and small molecules; applied markets; and service. Each of the divisions was assigned a dedicated president, and allocated distinct product development and advanced manufacturing resources, and marketing and sales forces.

A month after the reorganization was announced, Burzik replaced as ABI president Mike Hunkapiller, a co-developer of the capillary sequencing technology on which the firm was built.

Since then, ABI expanded the scope of a mass spectrometry joint venture with Toronto-based MDS, under which MDS paid $40 million for a 50-percent interest in intellectual property assets related to ABI's MALDI time-of-flight mass spectrometry systems and next-generation products under development. It also has continued to launch new products and upgrades to its instrument systems for a variety of other applications.

The Ambion acquisition, however, significantly expands ABI's portfolio of consumables, and is the first major addition to the firm's product offerings since the reorganization.

Perhaps just as important as adding consumables — at least in the minds of many investors, industry analysts, customers, and rivals — is ABI's plan for the sequencing market. The firm has long been the dominant player in the DNA sequencing instruments field, but a growing number of start-ups have garnered a lot of attention from researchers and the media over the past couple of years, promising to eventually cut down the cost of sequencing a genome to $1,000.

Eager not be shut out of the evolution underway in this market, ABI a couple of months ago inked a collaboration with VisiGen, one of the firms developing next-generation sequencing technology (see BioCommerce Week 11/3/2005). Although ABI made an undisclosed equity investment in VisiGen, the firm is not limiting its efforts in new sequencing technologies to that alliance.

"We have a very active internal investment program in next-generation sequencing technologies, but I think it's wise for AB to be continuously surveying what's going on in the marketplace," said Burzik during a conference call. "We want to keep our fingers on all of these different technologies that are being developed. So, we are actively looking at those."

— Edward Winnick ([email protected])

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