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Buying Agencourt, Beckman Takes Risk On Sequencing; Is ABI Under Pressure?

This article has been modified from a previous version, which stated that Beckman does not currently sell DNA sequencers. The company sells two DNA sequencing products.
A little more than a month after CEO Scott Garrett said in a webcast that Beckman Coulter would look to bolster revenues partially through entering new markets, the firm has made a move to do just that by agreeing to acquire Agencourt Bioscience, a privately held provider of DNA sequencing services.
In addition to sequencing services, the deal, worth around $140 million in cash to Beckman, would enable the company to compete in the potentially lucrative next-generation DNA sequencing instrument market. Agencourt is working on a "sequencing by synthesis" technology that would enable Fullerton, Calif.-based Beckman to take aim at a number of small players working on cheaper and faster DNA sequencing technologies as well as the standard capillary electrophoresis instruments made by industry leaders Applied Biosystems and GE Healthcare. Beckman currently sells the CEQ 8800 and P/ACE MDQ DNA System for DNA sequencing, but Agencourt's sequencing business features ABI's sequencers.
The acquisition also points out the dichotomy in the field between making and selling the DNA sequencing instruments on the one hand and providing DNA sequencing services on the other: As demand and corresponding sales for DNA sequencing instruments has dropped in recent years - ABI said last week that it "remains concerned" with its sequencing business - the market for DNA sequencing services has remained fairly strong.
"The service business is doing very well," said Lynne Doucette-Stamm, Agencourt's vice president of business development. "We are seeing a shift again back to outsourcing of sequencing, where a number of pharma companies...[are] now saying, 'Let's just send it to the experts.'"
Doucette-Stamm's assessment was backed by high-profile customers such as George Grills, director of DNA sequencing at the Harvard-Partners Genome Center, which provides sequencing services for academic and commercial customers. "Basically, I think [the market for sequencing services is] strong and it's growing," he told BioCommerce Week (see Q&A with Grills this issue). "The nature is somewhat changing. Obviously, we don't have the public funding for the scale of project like the Human Genome Project any longer, which was quite significant throughput. [But] there are some proposals on the table, like the cancer genome project, that would have significant throughput as well."
Pressure on ABI
Beckman's agreement to acquire Agencourt undoubtedly puts a spotlight on ABI, the market leader in selling DNA sequencing instruments, whose sequencing-derived revenues averaged $148 million per quarter and some $1.8 billion in total sales over the past three years. Since December 2002, however, sequencing revenues have been trending down (see BCW 10/28/2004). And in February, the company reported that revenues for its DNA-sequencing segment during the three months ended Dec. 31, 2004, declined 17 percent year over year to $141 million. Although with its most recent quarter the firm ended a 7-quarter decline in that segment, posting a 3-percent increase in revenues for its DNA sequencing instruments, that should not be taken as a signal that the market is turning around, according to ABI President Cathy Burzik (see BCW 4/28/2005).
In an e-mail response to questions from BioCommerce Week this week, ABI officials said that the firm "remains concerned about a number of factors that may have a negative impact on future sequencing revenue including reduced government funding, outsourcing to core labs, and the introduction of emerging sequencing technology."
In addition to instrument sales declining, the market for related consumables also had declined, as upgraded DNA sequencing instruments now run more efficiently and use fewer reagents, but the "dilution rate has stabilized over the recent quarters," ABI officials said in the e-mail.
With the writing on the wall for current sequencing platforms, the question for ABI is whether it feels any pressure to follow Beckman's lead and get involved in the DNA-sequencing services segment or pursue the acquisition of a next-generation DNA sequencing technology. "Applied Biosystems has no plans to enter the services field," company officials noted in the e-mail.
On the other hand, the firm reiterated earlier comments from Burzik that it had identified 35 companies that have "alternative" sequencing technologies, though it did not provide any names or say whether ABI was interested in acquiring any of them.
Dennis Gilbert, ABI's chief scientific officer, told BioCommerce Week, "Next-generation sequencing methodologies such as single-molecule detection and stepwise sequencing are generating enormous excitement with their promise of high throughput and low cost in life-science research, clinical practice, and personalized medicine. While significant technical challenges still remain for successful commercialization of the $1,000 genome, we realize the rewards of delivering such a promise are immense."
It is clear that in the meantime the firm is looking to build on its existing instrument placements to drive revenue in other markets. "We have many sequencers out in the marketplace," Burzik said recently in a company webcast. "There is a huge opportunity to develop applications that can rest on those sequencers - resequencing, genotyping, methylation. We have to make sure that the installed base is very effectively utilized and that drives the consumables sales for us" (see BCW 4/14/2005).
Agencourt's Assets Beyond Sequencing Services
Although Agencourt is best known for its DNA sequencing services business, which uses ABI's 3700 and 3730xl DNA sequencers, there are two other pieces of the business that prompted Beckman to buy the Beverly, Mass.-based firm.
First, Beckman said that it intends to use Agencourt's Solid Phase Reversible Immobilization (SPRI) technology for isolating and purifying DNA and RNA in its automated sample preparation systems for biomedical research and molecular testing. The SPRI technology already has been used with Beckman's BioMek automated liquid handling systems in Agencourt's genomic services business, which includes its DNA sequencing services.
The second factor is Agencourt's ongoing development of its sequencing by synthesis approach to personal genome sequencing, which represents the firm's first foray into creating its own sequencing technology. The approach is based on the polymerase colony ("polony") amplification technology developed in the lab of George Church at Harvard's Lipper Center for Computational Genetics.
A planned spin-off, called Agencourt Personal Genomics, will continue to work on the technology, which is in a race to the market against several other efforts from start-ups including 454 Life Sciences, Solexa, Nanofluidics, Helicos Biosciences, AQI Sciences, VisiGen Biotechnologies, and GenoVoxx.
Doucette-Stamm told BioCommerce Week that Agencourt Personal Genomics could offer sequencing services using the new technology "a couple of years down the road."
One would have to believe the potential of the sequencing by synthesis technology was a key reason why Beckman would be willing to pay five times annual revenue for Agencourt's business (Beckman officials did not respond to calls and e-mail from BioCommerce Week seeking comment). Terms of the pact call for Beckman to pay Agencourt $100 million upon closing of the deal, expected near the end of May, plus up to an additional $40 million of contingent payments through 2007. Agencourt pulled in revenue of roughly $27 million in 2004.
Grills said of Agencourt's sequencing by synthesis technology, "I think they've got a good shot at putting out a technology that will be very useful. They might be one of the first ones out of the gate that might enable us to do whole-human genome sequencing at a significant reduction of price."
- Edward Winnick ([email protected])

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