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CORRECTED: Feeling Heat from Affy, Packard Nixes Plans to Sell DNA Chips

This story was corrected on January 17 to more accurately reflect Packard BioScience’s microarray strategy. The company has cancelled plans to sell DNA chips, not microarrays, as previously reported.

SAN FRANCISCO, Jan 8 – Packard BioScience has cancelled plans to commercialize DNA chips after determining that Affymetrix’ domination in the market was too formidable, a company spokesman said Monday.

" Packard’s strategy has always been to compete in areas where we could be number one or number two," said Michael Zebarth, vice president of corporate communications and investor relations at Packard BioScience. " Clearly in the biochip arena we would have been a distant number two for a while, because Affy has the clear lead."

The move represents the second about face in a week that the company has announced. On Friday, Packard said it was backing out of an agreement to distribute Aclara BioSciences’ Arteas LabCards, a microfluidics array technology, in order to focus on selling its own products. Zebarth said that the unexpected success of some of its newly launched basic drug discovery techniques required the company to allocate more resources to these products.

The decision not to market DNA chips comes just months after an official told GenomeWeb that the company planned to become a player in the DNA chips sector in 2001. In October, the company said that it planned to begin producing DNA chips in the first-quarter of this year and to launch the chips commercially in the second or third quarter.

Zebarth said that Packard would, however, continue to supply tools, such as inkjet printers, 3-D chip substrates, and imagers to the microarray market as well as to manufacture microarrays upon request. The company also still intends to use its technologies to become a provider of protein biochips, a market where no one company has yet taken a clear lead.

" We are now focusing on protein arrays," Zebarth told GenomeWeb in an interview during the JP Morgan H&Q healthcare conference being held in San Francisco. " In addition to providing the technology to make protein chips, we also intend to actually provide these chips."

In September, Packard entered into a partnership with Oxford GlycoSciences to produce protein chips, and Zebarth said the company remained on track to launch these products by first quarter 2002.

Despite the decision not to market DNA chips, Zebarth said the company’s overall biochip effort remained poised for strong growth. Packard expects the division to achieve a 40 to 50 percent compound annual growth rate for the next four to five years. As a percent of revenue, biochips are expected to account for 20-25 percent of overall sales, compared with less than 10 percent in 2000.

Zebarth noted that the company’s future moves now hinge on the closing of the sale of its Canberra Industries subsidiary to Cogema of France. The deal, which calls for Cogema to buy Canberra for $170 million, is expected to close within one to two months.

Packard expects to receive $120 million to $125 million from the deal after taxes. Of this, some $50 million would likely go to reducing the company's debt by about half. A portion of the remaining $75 million would likely be used to buy back bonds and for acquisitions, Zebarth said.

Zebarth declined to comment on possible acquisition targets, but noted that Packard would be aggressive in its strategy.

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