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Roche Delves Further Into Genomics Research Market with Acquisition of NimbleGen Systems

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Following on its acquisition of 454 Life Sciences a few months ago, Roche this week signed a definitive agreement to acquire privately held microarray firm NimbleGen Systems for $272.5 million, which is 20 times NimbleGen’s 2006 revenues.
 
The acquisition, which is expected to close in the third quarter, will provide Roche with a growing, and primarily academic, customer base in the microarray market. It also gives the firm complementary products to the next-generation sequencing platform Roche gained in April through its $155 million purchase of 454 (see BioCommerce Week 4/4/2007).
 
NimbleGen’s business has been built primarily on services to academic customers. Those services include array comparative genomic hybridization, expression analysis, chromatin immunoprecipitation (ChIP)-on-chip, comparative genomic sequencing, and DNA methylation.
 
While Roche has a partnership with microarray-market leader Affymetrix, that alliance focuses only on diagnostic applications. The acquisition of NimbleGen would represent Roche’s first direct participation in the microarray market.
 
“The array systems from NimbleGen are highly synergistic and will complement the existing Roche portfolio of innovative genomic research tools such as the LightCycler qPCR systems and the high-throughput Sequencing Systems from the recently acquired company 454 Life Sciences,” Severin Schwan, CEO of the Roche Diagnostics division, said in a statement.
 
“Now they become an extremely well-positioned competitor to ABI,” said Harry Glorikian, managing partner of life sciences consulting firm Scientia Advisors. “But at the same time, if you start looking at this in a 10- to 15-year time horizon, they seem well-positioned to have the tools for whatever you need for diagnostics or pharmacogenomics.
 
“The question is whether they can turn these technologies into well-defined products that can be used clinically,” he told BioCommerce Week. “Will the products that they create actually satisfy the need of the [clinical] market, and I think that’s the hard part.”
 
Earlier this year, NimbleGen had filed for an initial public offering hoping to raise as much as $75 million. According to its US Securities and Exchange Commission filing, the firm planned to use the funds from the offering to expand its direct sales force in the US and in “select major countries around the world.”
 
The company said that it had begun a "major expansion of our sales force and commercial infrastructure worldwide" in late 2006 and said it is "now well positioned to meet the needs of our customers, whether they prefer to take delivery of our microarrays and related products to analyze their own samples, or to outsource the entire process to our [Icelandic] service laboratory."
 
Striking Before the IPO
 
The acquisition price is 20 times NimbleGen’s 2006 revenue of $13.5 million, which means Roche likely believes NimbleGen’s products represent a significantly untapped opportunity either on their own or in some sort of combination with Roche’s offerings. Roche officials did not respond by press time to questions from BioCommerce Week regarding the acquisition price and other matters.
 
In comparison, Agilent recently paid around two and a half times sales, or nearly $250 million, to acquire Stratagene, which has a much broader portfolio of research tools than NimbleGen and rang up 2006 revenues of $95.6 million (see BioCommerce Week 4/11/2007).
 
While some of Stratagene’s products are sold into more mature segments of the research market with low-growth potential, the firm has several nascent molecular diagnostics collaborations and instruments that could bring in significant revenue down the road.
 
“If the public offering took them even remotely close to that number, [Roche] would have had to pay more than the public offering,” said Glorikian. “They had some sort of multiple anyway that they thought they would get from the Street. It was probably cheaper for [Roche] to do it this way than wait for NimbleGen to go public.”
 
He said the multiple may have been high for Roche, “but not knowing if there is some IP, or some biomarkers, or some things [NimbleGen] had in the pipeline, your guess is as good as mine.
 
“It sounds like to Roche this was a very strategic sort of play,” he said. “They want to be in arrays.”
 
NimbleGen derived 63 percent of its 2006 revenues from North American customers, while European sales accounted for 28 percent of revenues, and Asian sales for 9 percent. The firm’s net loss declined 18 percent to $6.8 million in 2006 from $8.3 million in 2005. In total, the firm said in its SEC filing that it has accrued a loss of $44.5 million since its inception in 1999.
 
NimbleGen will become a fully integrated part of Roche Applied Science, a global business area within Roche’s diagnostics division. Roche said it plans to keep NimbleGen’s current facilities in Madison, Wis.; Reykjavik, Iceland; and Waldkraiburg, Germany, as well as NimbleGen’s 140 employees.
 
Capitalizing on Greater Resources, Licenses
 
“Joining Roche will accelerate and broaden NimbleGen’s opportunities with our high-density DNA microarray business as well as with new technologies focused on targeted DNA sequencing,” said NimbleGen CEO Stan Rose in a statement announcing Roche’s acquisition.
 

“The question is whether they can turn these technologies into well-defined products that can be used clinically. Will the products that they create actually satisfy the need of the [clinical] market, and I think that’s the hard part.”

The acquisition will immediately provide NimbleGen’s products with a massive global sales force that can capitalize on its licensing agreements over the past nine months with Affymetrix and Oxford Gene Technology.
 
In October, Affymetrix granted NimbleGen a non-exclusive, worldwide license to its intellectual property, enabling NimbleGen to add catalog arrays to its primarily service-based offering. The license gave NimbleGen rights for the first time to directly market its arrays to customers in the US, Europe, and Japan, free of intellectual-property issues.
 
The decision to license Affy’s IP represented a sea change for NimbleGen, Rose told BioCommerce Week sister publication BioArray News at the time of the alliance. NimbleGen previously “did not address some large opportunities out there because we thought that there was a need to license or litigate certain issued patents and we did not think that was a good use of our time and money,” said Rose.
 
However, he added, “over the past few years we have grown and we’ve become stronger financially, and at the same time we’ve seen more and more demand for direct access to our products from scientists that we weren’t comfortable selling to previously. We’ve now been able to come to a licensing agreement with terms that we felt justified our investment,” he said.
 
NimbleGen followed the Affymetrix deal with a January licensing pact with Oxford Gene Technology, a microarray firm that owns a broad-based patent and has been aggressive in protecting that patent through many lawsuits. The deal provided NimbleGen with a license to OGT’s oligonucleotide array technology, while OGT gained access to NimbleGen’s DNA microarrays for use in its services business while giving NimbleGen the ability to make and sell OGT-designed arrays.
 
It remains to be seen what role NimbleGen’s arrays will play in Roche’s molecular diagnostic strategy. “Both of the acquisitions they have made will impact diagnostics to a certain degree, sequencing probably more so in the short term, arrays longer term,” said Scientia’s Glorikian.
 
Roche is the molecular diagnostics market leader with a reported $976 million in 2006 revenue from that space. In addition to its own portfolio of PCR-based tests, the firm has a partnership with Affymetrix to develop and sell tests that run on Affy’s GeneChip platform. In 2005, the partnership yielded the first microarray-based in vitro diagnostic, the CYP 450 AmpliChip, to receive US and European regulatory clearance.
 
It also remains to be seen whether the NimbleGen acquisition will have an affect on Roche’s partnership with Affymetrix.
 
A combination of NimbleGen’s technology with that of 454 could also be used for diagnostic applications, similar to the strategy being plotted by Illumina, which competes with NimbleGen in the array market and acquired 454 next-generation sequencing rival Solexa for roughly $600 million earlier this year (see BioCommerce Week 11/21/2006).
 
Illumina is betting that content generated by its platforms, including the Solexa instrument, will end up in diagnostics.

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