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Chipping Away at Affy

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Amersham hopes its purchase of CodeLink will transform it into a microarrray powerhouse

 

By Aaron J. Sender

 

Call it an amputation. For the past few years Motorola has explained its foray into the pre-spotted microarray market as the development of an additional limb that would put life sciences on par with its communications and electronics business. “We think the next science for Motorola is molecular biology,” Rud Istvan, then senior VP and general manager for the company’s life sciences division, told GenomeWeb.com in October 2000. “Our intent is to grow a major third leg for the corporation.”

But plans change, and early this year, while it was yet barely a stump, Motorola put its micorarray business up for sale.

Amersham Biosciences took on the appendage in July, buying Motorola’s CodeLink microarray unit, including all manufacturing equipment, for $20 million. It’s a relatively small investment, but it has captured interest. The move has positioned Amersham to become the next powerhouse in the pre-synthesized array market, a title long held exclusively by Affymetrix. With almost $1 billion in yearly sales, 50,000 customers, 4,400 employees, and a huge global sales and marketing network, Amersham has industry observers wondering if it could be the competitor to finally shake Affy’s tight grip.

True, Affymetrix has a formidable head start. With about 690 GeneChip systems installed, it has, by some accounts, as much as 85 percent of the current market. And with three consecutive quarters of growth, and profitability around the corner, it is continuing to extend its reach. Having watched giants such as Motorola and Corning already make a run at Affy’s position in high- density microarrays over the last couple of years, analyst Scott Jones, who follows Affymetrix for A.G. Edwards, says, “The burden of proof would be on the challengers rather than the incumbent in the high-density preprinted market.”

But Jones acknowledges that Amersham has certain advantages. Unlike Motorola and Corning, Amersham’s marketing and distribution prowess and large network of customer contacts are within the life sciences field. “They’ve already got the commercial engine out there to move this product, which was one of our big issues,” says a former senior level executive of Motorola life sciences. Practically every lab already buys something from Amersham’s catalog of reagents, buffers, enzymes, and instruments. And that presence could make all the difference.

As Genomic Solutions CEO Jeff Williams once explained the sale of his company to mega-scientific-equipment-supplier Harvard Bioscience: “The market has moved from leading by innovation to leading by distribution. … Distribution has become key.” In fact, Affy had already recognized Amersham’s market access. The chipmaker years ago negotiated a deal that let it rely on Amersham’s sales force to distribute its chips in Europe briefly and then in Japan. A hint of the struggle to come, Amersham and Affy amended the arrangement in September.

“Amersham brings credibility into this marketplace, and a presence and an immediate visibility for the CodeLink platform just because of who Amersham is and the customers that they already have,” says Sue Pandey, sales director for CodeLink, and one of the 77 employees that transferred to Amersham along with the product.

“We are in a very good place,” she says.

The Data Determination

To be sure, more important than distribution and marketing is product performance and data quality. How does CodeLink measure up? “[It] could probably pick up twice as many [genes] as any other platform because of the sensitivity and the very, very low background,” contends José Walewski, who has been using the chips in his liver diseases lab at Mt. Sinai Medical Center and presented his data in April at the annual American Association for Cancer Research meeting.

When Walewski and his lab head Andrea Branch began looking for human arrays in the late ’90s, Affymetrix was out of the question. “Affy was charging a fortune and we didn’t have a fortune,” Walewski says. “It’s $200,000 front end just to get into it and then you have to buy all the chips.”

Instead, when their lab got a hold of some liver samples from a colleague in the department of surgery and wanted to study gene expression in hepatocellular carcinoma, Walewski and Branch set up a collaboration with Corning, which was getting into the market but soon dropped out. “Then I was at a Chips to Hits meeting and heard that Motorola was developing something,” Walewski recalls. So in October of last year, a couple of months after Motorola announced the release of its first human array containing 10,000 genes, Walewski took some of the liver tissue samples and flew out to the company’s CodeLink facility in Northbrook, Ill. “We ran a number of our samples and we got beautiful results,” he says. “They were just gorgeous in terms of both reproducibility and sensitivity. … It was a very pleasant week.”

The Sinai lab has been using CodeLink ever since. To validate its data, they ran some of the samples through a Taqman real-time PCR platform. “The concordance between the two platforms for all samples was almost 100 percent,” Walewski says.

After his experience with Corning, he was well aware of the product’s iffy future. “Motorola, unfortunately, thinks cell phones,” he says. “But I felt that the platform had such promise that if they didn’t pursue it, someone else would.” That Amersham turned out to be that someone delights Walewski. “Amersham is a major presence in the life sciences field. They understand the needs of biological researchers,” he says.

Walewski is not the only one with data showing that CodeLink meets or beats the market leader. Winston Kuo, a research fellow and computational genomics PhD candidate at Harvard Medical School, has been comparing data from different human genome arrays, including those he obtained from Motorola and from Affymetrix. The preliminary data, he says, show that although both perform well, “CodeLink had a higher specificity compared to Affymetrix” — meaning fewer false positives.

A major advantage of the CodeLink arrays, according to its developers, is that the 30-mer oligos are not directly attached to a glass slide, but rather to the three-dimensional surface of an acrylimide gel matrix that coats it. As a result, “the kinetics of hybridization approaches more closely that of a solution phase hybridization than solid phase hybridization,” says Ramesh Ramakrishnan, who led the CodeLink development team at Motorola until April. “The 3D nature of the microarray surface provides for better access, better hybridization, an easier washing off of hybridization. In other words, sensitivity went up because of the surface properties.”

Another difference between Affy’s chips and the CodeLink arrays is the way the oligos are synthesized. At the CodeLink manufacturing plant in Tempe, Ariz., researchers create the oligos first, verify their sequence with mass spec, and then attach them to the slides. Affy, on the other hand, uses photolithography to build oligos one base at a time directly on the chip.

“We know everything about all the oligos pre-spotting, so then when we go through the spotting routine we know exactly what is in every single spot,” says Trevor Hawkins, head of the Amersham genomics division into which CodeLink will be folded. “And that’s different,” Hawkins says, “from photolithography where you’re synthesizing on the surface and you take your hits and misses as you synthesize.” Affymetrix’s U133 human array boasts 22,500 probe sets compared to CodeLink’s 10,000, but, Hawkins notes, “when you look at pure density, you have to remember that when using photolithography, you have to have a number of spots so that you can be sure that over, say, a dozen or so spots you synthesized the same oligo.”

History Calling

Regardless of whose technology is better, Amersham is all too aware of the power of an installed base. Amersham’s experience in the DNA sequencing market is too fresh to forget: Amersham/Molecular Dynamics was first to market with a multiple-capillary sequencer, the MegaBace 1000, in 1997, beating Applied Biosystems’ 3700 by more than a year. Yet in the end ABI captured the larger chunk of the market. True, Celera’s high profile purchase of 250 3700s didn’t hurt ABI, but the force of incumbency cannot be denied. “Applied Biosystems already had sequencers, the 377 and others, at every sequencing operation in the world,” explains a former Amersham employee who requested anonymity. So customers were already familiar with ABI’s software, sample prep procedures, and protocols. “Yeah, you’re going to convert some, because the MegaBace was just an amazing platform, but you’re also going to have a lot of people who, when Michael Hunkapiller says, ‘Guys, wait a year and we’re going to have something too,’ are going to wait,” he says.

Affy’s lock on the whole genome expression market is even stronger. “When it comes to microarrays people just think Affymetrix,” say Thomas Weisel Partners associate Michael Yee. “Affymetrix has already penetrated most of the dominant players who are going to be significant contributors to a microarray market, whether that’s the top 20 pharma, biotech, or academia.” Researchers have already generated so much data on the Affy platform that it would be a tremendous technological advance to get them to dump it for something else and possibly relinquish the ability to compare experiments.

The Bioarray Bundler

How does Amersham plan to compete? “One key is we’re not going head-to-head on density,” says Hawkins. “People are looking at subsets of genomes that they feel are critical and they would like pre-arrayed slides that represent those.” Themed and customized chips are, in fact, where Affy is most vulnerable. Each new array design requires construction of a new set of expensive masks that need to be amortized over a significant volume. Affy instead concentrates on human and commonly studied organisms, as well as some custom chips derived from these.

Pui-Yan Kwok, a researcher at the University of California, San Francisco, who was a scientific advisor to Motorola Life Sciences, says the SAB told the company repeatedly that it shouldn’t fight in the human market. “Go into the model organisms market,” Kwok recalls telling Motorola execs. “There are plenty of people who want to do expression in pathogens and animals, and Affy is not making chips for them because they are way too expensive. Give those researchers a tool and then you can establish how good you are.”

Motorola disregarded its SAB’s advice, but Amersham seems to recognize that the obscure genome or focused sets of genes — a beachhead left unprotected by Affymetrix — is its best bet for getting a foot in the market. “We certainly will be looking at increasing density slightly, but it’s not our number one goal,” says Hawkins. Instead, “we’ll be looking at really unique content and customized content both in the expression and SNP fields.”

Profiting on Protein

Another way Amersham plans to elbow its way into the market is with protein arrays. “One of the unique features of the CodeLink platform is that it’s highly applicable to both DNA and proteins,” Hawkins says. “The dream of functional biology is being able to look at particular genes in terms of DNA, but then go straight into a protein array. And we’re looking to tightly link the DNA and the protein arrays so that customers can do that,” he says. “That is a very powerful competitive stance.”

But Amersham’s biggest advantage, Hawkins says, will come from its ability to bundle the arrays with other products as a package. “We’re able to not just offer customers a chip. By integrating [CodeLink] into the existing Amersham portfolio, we’re able to offer processes that go from the very beginning of any research or development pipeline through to microarrays and RT-PCR,” he says.

On the other hand, Affy argues that focusing just on chips gives it an edge because it has more at stake. “Just thinking about the public disclosure of how much Amersham paid Motorola, it strikes me that there’s a pretty limited commitment here,” says Affymetrix senior VP of marketing Alan Dance. If CodeLink folds, Amersham is out a $20 million ante, a fraction of its total revenue. Affymetrix, however, has bet all its chips on microarrays.

The Amersham-Affy Asian Axis

In order to boost its current $5 million customer base, Amersham plans to take CodeLink global. Until now the technology has been available only in North America. “One of the first things we’re looking to do is widen that, in particular to Japan,” says Hawkins.

Of course, Amersham’s Japanese subsidiary has already helped Affy blanket that market by placing nearly a hundred GeneChip systems there. Moreover, Amersham is contractually obligated to continue placing GeneChip systems and selling Affy chips through the end of the year. Until then, Hawkins says the company will split its sales force in Japan “so that we do not have the same individuals selling the two products.”

Meanwhile Affy is getting ready to build on its presence there. Affymetrix Japan, due to open at the beginning of next year, will serve customers directly. “There is a large installed base in Japan and it’s unlikely because Amersham has taken on this Motorola array that they’re going to stop using Affymetrix,” says Dance. “Amersham always has had an array offering, and even with the distribution network, they have had a limited impact,” he says.

According to a former Amersham and Molecular Dynamics employee, Dance is spot on. “Amersham was first to introduce a spotter array platform, on an early access basis,” he says. “But, frankly, they pissed that market away.” In 1996 Amersham and Molecular Dynamics, then still an independent company, created a Microarray Technology Access Program that drew many pharmaceutical companies and biotechs eager to spot their own cDNA arrays with the instruments and reagents the companies had co-developed. “In a sense MD/Amersham was seduced by the nice revenue contributions of these MTAP customers,” says the ex-employee. “But the reality is that early access ultimately runs out of steam.”

In the meantime, other companies, such as General Scanning, had begun selling commercial desktop spotters and scanners at a fraction of the cost. “I remember our sales reps telling me, ‘Hey, this is what we need. Come on, why can’t we have a system like this to sell to our customers?’” he says.

Amersham previously made a bid to get into the pre-spotted market as well. In 1998, it penned an agreement with Clontech to co-develop and co-market, “specially prepared microscope slides that are prearrayed with up to 10,000 spots of cloned DNA,” for human, mouse, rat and other model organisms. Nothing ever came of that collaboration.

Chips in Hand, the Game Goes On

Time will tell whether Amersham’s acquisition of Motorola’s CodeLink business merely represents, as Dance puts it, “a rearrangement of pieces that were already on the board,” or whether Amersham can do some real damage to Affy’s dominance. “We will be able to take some market share with the CodeLink platform,” Hawkins says. “If we didn’t think it was going to be successful, we wouldn’t have purchased it.”