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Serologicals Spends $82M on Acquisitions to Grow Reagent Play, Enter Ion Channel Drug-Target Market

Serologicals spent around $82 million for a bigger slice of the bead-based multiplexing and ion channel cell-screening services markets after acquiring two small companies earlier this month.

The firm competes with several BCW Index firms in those markets and is most like Invitrogen and Qiagen in its strategy of focusing on expanding its reagent offerings in niche drug-discovery areas. But its acquisitions of St. Louis-based Linco and Cambridge, UK-based Cytomyx were aimed at gaining the firms' customer bases in high-growth research areas in reagents and ion channel drug-discovery tools.

"We have a simple … strategy, which is to focus on select, high-growth markets," said Serologicals CEO David Dodd during a webcast last week. Unlike many other multi-platform tool providers, "we're not trying to have the broadest catalog. We like to identify an area, and then we want to go as deep as possible" in that area, he said.

Linco to Fortify Luminex Play

Serologicals announced last week that it would acquire Linco for $64.5 million, plus $10.3 million for the land and buildings owned by Linco. The company sells reagents and kits for endocrinology and metabolic disease indications, and the buy could fortify Serologicals' position at the head of the Luminex-based multiplexing market.

"It gives us a comprehensive research reagents portfolio with our focus on cell signaling and Linco's strengths in cytokine and chemokine research."

"We believe that we have strong talent that came to us first from Upstate and now from Linco to really exploit and develop even more value on the Luminex-based platforms," said Dodd. "It gives us a comprehensive research reagents portfolio with our focus on cell signaling and Linco's strengths in cytokine and chemokine research."

Serologicals acquired Upstate Group from Molecular Devices in 2004 for $205 million, which brought the firm its cell-signaling reagents. Dodd said these and Linco's reagents are complementary and would enable Serologicals to offer customers a more comprehensive line of products.

Serologicals' research segment, which will house both Linco and Cytomyx, will account for about 60 percent of the firm's total revenue in 2006, Dodd predicted. That business segment generated revenue of $138 million for fiscal year 2005, but company officials have not provided an estimate of sales for 2006.

The firm has said it aimed to expand its drug discovery platforms and services in 2006 to include ion channel-screening services, and wanted to fulfill a goal of strengthening its position in multiplexing — which was the primary reason for the Linco acquisition.

With roughly 3,400 Luminex systems in the marketplace, Linco is expected to significantly increase Serologicals' customer base in multiplexing. "Access to our sales organization of 70 people will be a real strong boost for the introduction of the Linco products," said Serologicals CFO Bud Ingalls, noting that Linco only has two salespeople and relies on distributors to sell products worldwide.

According to Dodd, Linco has relationships with some of the same industrial partners as Serologicals, but Linco's offerings in metabolic and endocrine research — areas that Serologicals has not focused on — should provide new business opportunities.

Linco brought in revenue of $17 million in 2005 and is expected to ring up sales of more than $22 million in 2006. About 50 percent of its revenues come out of the multiplexing area, said Dodd.

Ingalls said that Linco's operations are expected to be $.03 to $.04 accretive to earnings per share in 2006 and over $.05 to $.07 per share in 2007. The acquisition of Linco, which has 109 employees, is expected to be completed next month, and Serologicals has maintained key management of the firm, according to Ingalls.

Cytomyx's Ion Channel-Screening Business

Serologicals officials also said that they expect to complete the $7 million acquisition of Cambridge, UK-based Cytomyx later this week.

The acquisition serves two purposes for Serologicals. First, it provides the company entry into the rapidly growing ion channel drug-discovery market — which is behind only GPCRs and kinases/phosphatases in terms of sought-after drug targets — and continues to shore up Serologicals' cell-based assay play.

As part of the acquisition, Serologicals inherits Cytomyx's core asset: a panel of 23 distinct ion channel cell lines — which it claims is the largest portfolio of such cell lines on the market — that are outlicensed to researchers.

In addition, the deal expands Serologicals' drug screening service capabilities, which the company currently provides through its Upstate facility in Dundee, Scotland, to cover the three most popular classes of drug targets. Those services include the KinaseProfiler panel of assays for kinase screening and ChemiScreen calcium-optimized cell lines for GPCR screens.

"We have been wanting to enter the ion channel market," Dodd said. "It's an increasingly important drug target area," and will enable Serologicals to provide outsourced services using Cytomyx's technology and products. "With Cytomyx, we have the largest portfolio of ion channel cell lines that are commercially available, and rapidly growing channel selectivity screening and cardiac liability testing services," said Dodd.

In addition, the acquisition "gives us a point of differentiation from other players in our marketplace that simply are focusing on subsets of the kinase, GPCR, and ion channel areas. We are a much broader competitor here," Dodd said.

Cytomyx had 2005 revenue of $2 million and expects to generate roughly $3 million in 2006 revenue, Dodd said. Serologicals CFO Ingalls said the deal, which was announced two weeks ago, will be slightly accretive in 2006, but will continue to ramp up after that.

In addition to the two most recent acquisitions, Serologicals announced last month that it would acquire the CellCard high-content assay technology from defunct Vitra Biosciences. It also announced that month that it would collaborate with Pittsburgh-based biotech Cellumen on co-developing and selling a cytotoxicity profiling panel and services for use in pharmaceutical drug discovery.

— Edward Winnick ([email protected])

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