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Sigma-Aldrich Enters RNAi Market, But Leaves Blank its Cost to Get in

Sigma-Aldrich last week moved to enhance its oligonucleotide portfolio — specifically its RNA interference reagent position — by entering into a definitive agreement to acquire Boulder, Colo.-based Proligo.

The move brings another big company to the emerging siRNA portion of the larger research synthetic oligo RNA marketplace. In November 2003, Invitrogen acquired Sequitur. Then, last year, Fisher Scientific bought Dharmacon of Lafayette, Colo., for $80 million in cash to join reagent giant Qiagen (with its acquisition of Xeragon in April 2002) as a competitor in the space. Now Sigma joins the others, leaving only privately held Ambion, which had revenues of $38.6 million in 2003, as the major independent outfit in the siRNA oligo club.

St. Louis-based Sigma did not disclose how much it will pay Proligo owner Degussa, a Dusseldorf, Germany-based chemicals maker, in the transaction, or how the acquisition will fit into its operations. The Proligo deal follows Sigma's January announcement that it will acquire JRH Biosciences, a division of CSL Limited, for $370 million in cash in the company's largest acquisition ever (see BCW 1/20/2005).

The Proligo gene-silencing technology will join the TargeTron gene-disruption technology that Sigma licensed from St. Louis-based InGex in October (see BCW 10/21/2004) and rolled out commercially last week as part of Sigma's functional genomics portfolio.

The Proligo transaction is subject to regulatory approval. Both company's boards have approved the transaction, which should close in the second quarter Sigma said.

Previously, Sigma CFO Mike Hogan told BioCommerce Week that potential acquisitions must meet a two-part test — the target must be growing faster than 10 percent a year, and be profitable (see BCW 1/20/2005)

Depending on the closing date for the transaction, as much as nine months of Proligo's operating results will be added to Sigma-Aldrich's performance in 2005, increasing overall sales growth by roughly 2 percent, the company said in a statement.

In announcing the proposed transaction, Sigma reduced its previously announced 2005 diluted earnings-per-share expectations to a new range of $3.40 to $3.50, from $3.45 to $3.55, previously. Sigma-Aldrich said it expects to fund the acquisition, as well as the JRH acquisition, with short-term debt.

Degussa said it has been evaluating strategic options for Proligo "over the past few months."

"Proligo does not have the opportunities to achieve a leading position through its own resources" and "operates in a market that is expected to face heavy consolidation," Degussa said in a statement on its website. "The new ownership structure provides good opportunities for Proligo's development."

Perhaps most valuable at the heart of Proligo's assets is a set of licenses it shares with Dharmacon, Qiagen, and Ambion that allows the research use of technologies contained in a portfolio of patent applications relating to RNAi technology and held by the Massachusetts Institute of Technology, the Whitehead Institute, the Max-Planck Institute, Carnegie Institution of Washington, and the University of Massachusetts.

The four companies are the sole licensees of the patent applications, which are regarded as critical for operating in the RNAi research market. Together with Invitrogen's Sequitur, the four companies define the siRNA market of oligos, estimated at $30 million to $35 million in 2004 (including closely related services like design and validation). It is expected to rise to $40 million to $50 million this year, according to Jean-François Gauthier, partner at TSG Partners, a Life Sciences corporate advisory firm that closely follows this market.

"The acquisition of Proligo is another key step in our strategy to provide tools that fully meet the research needs of scientists in the rapidly growing field of genomics," David Harvey, Sigma-Aldrich's chairman and CEO, said in a statement. "Proligo will provide us with one of only four exclusive licenses to a key Massachusetts Institute of Technology patent application that covers the use of RNA in gene silencing."

With 2004 revenues of approximately $40 million, Proligo is a 300-employee company that has offices in Boulder, Colo.; Hamburg, Germany; Paris; Singapore; Kyoto; and Lismore, Australia. It divides its operations into two segments — reagents, and primers and probes and offers services in design, specialty oligos, and custom oligos.

Proligo was formed in 1998 as a joint venture between NeXstar Pharmaceuticals, now Gilead Sciences, and SKW Americas, a subsidiary of Degussa. When Gilead merged with NeXstar in July 1999, Degussa became entitled to purchase Gilead's 49-percent ownership share. The deal closed for approximately $14 million in August 2002.

The company has licensed its technology to Roche Diagnostics for use in its LightCycler product, and to DxS. It also licenses technology from Invitrogen's Molecular Probes, and from Beckman Coulter.

Gauthier said that Sigma likely paid a premium price to acquire one of five seats at the synthetic oligo siRNA market table.

And, like the other big companies in the game — Fisher, Invitrogen and Qiagen — Sigma will likely find it hard to reach break-even just on revenues from Proligo's oligo sales and services, he said.

"The only way to really make it an accretive acquisition is to increase revenues by broadening your offering of RNAi technologies, adding transfection, detection or in vivo RNAi," he said. "Sigma has electroporation and some detection technologies that they can now sell into this market, which they haven't been successful in selling to before."

Gauthier said Fisher is considered the research synthetic oligo RNAi market leader with a share ranging from 55 to 60 percent in 2004, followed by Qiagen and everyone else, according to RNAi user surveys performed by TSG Partners.

"It's great to have a seat at the table," he said. "But, oligos are not a differentiating factor in itself anymore. You need to have a broader product portfolio, develop a focused strategy, and have a focused sales and marketing team in order to be successful and get users to think of you as one of the leading RNAi players. Further investments will be required."

In 2004 Fisher's Dharmacon had achieved a market share of 55 to 60 percent, while Qiagen was second with a 30 to 35 percent market share, followed by Ambion, Sequitur, and Proligo, according to TSG Partners.

— Mo Krochmal ([email protected])













in vitro RNAi Market Size
2003
2004
2005
2006
2007
siRNAs & shRNAs
(incl. design & validation)
40.0
58.0
75.4
90.5
99.5
Transfection
(incl. instruments)
19.0
32.3
53.3
79.9
107.9
Detection
(incl. cell assays & instruments)
36.0
62.9
106.5
156.4
220.2
Cells, other
consumables, services
8.0
12.4
18.0
24.3
30.3
Total
103.0
165.6
253.2
351.1
458.0
RNAi market growth rates:
0
61%
53%
39%
30%
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