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Stratagene Acquisition Gives Agilent Dx Tools, Diversifies Life Sciences Portfolio

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
In a move that will significantly expand its opportunities in the molecular diagnostics field and increase its consumables sales, Agilent said last week that it would acquire Stratagene in a deal valued at roughly $246 million.
 
Agilent will pay $10.94 a share for the company, a 28-percent premium above Stratagene’s closing price on April 5, the day before the deal was signed, of $8.51. With a 58.6 percent stake in Stratagene, based on recent US Securities and Exchange Commission documents, Chairman and CEO Joe Sorge stands to receive quite a windfall from the sale.
 
Sorge intends to form a new company that will pay $6.6 million to buy certain of Stratagene’s molecular diagnostics assets from Agilent.
 
Nick Roelofs, vice president and general manager of Agilent’s Life Sciences Solutions segment, said in a statement that Stratagene’s products and experience are “highly complementary to Agilent’s life sciences portfolio.”
 
Other than the statement, Agilent officials declined to comment on the acquisition. They told BioCommerce Week that the firm would provide more information about the integration process at the time the deal closes, which is expected in around 90 days.
 
Agilent’s core life science competencies are in liquid chromatography, mass spectrometry, microarrays, Lab-on-a-Chip applications, and bioinformatics. The addition of Stratagene will broaden its portfolio to include complementary consumables; kits for DNA, RNA, and protein analysis; thermal cycling instruments and reagents; and software.
 
Stratagene had full-year 2006 revenue of $95.6 million, and company officials had forecast 2007 revenue growth in the low single digits.
 
According to a presentation that Roelofs gave to Stratagene employees last week, Stratagene will operate as a division within Agilent’s Life Sciences Solutions Unit. Agilent will appoint a general manager to lead Stratagene’s business and will integrate Stratagene’s operations on a “business-needs basis,” according to the presentation, which was filed with the SEC.
 
Immediate Dx Impact
 
In particular, Stratagene’s emerging molecular diagnostics portfolio and collaborations will provide Agilent with an immediate revenue opportunity that it currently lacks.
 
Agilent also will gain entry into the clinical diagnostics market with the assays Stratagene had obtained through its merger with HyCor Biomedical in 2004, as well as staff with extensive experience dealing with the US Food and Drug Administration's regulatory procedures.
 
In addition, Stratagene has a molecular diagnostics collaboration with Siemens — originally signed in March 2006 with Bayer Diagnostics, which Siemens has since acquired (see BioCommerce Week 3/8/2006). Under terms of that deal, Bayer agreed to sell customized versions of Stratagene's Mx3005P instruments to clinical labs for molecular diagnostic testing worldwide.
 
Sorge said recently that the Siemens collaboration remains on track, and Siemens will begin purchasing instruments after regulatory approval, expected this year (see BioCommerce Week 3/7/2007).
 
Agilent officials have stated in the past that the firm intends to play a role in the molecular diagnostics market, but they had offered little details about their strategy.
 
At the JP Morgan Healthcare Conference a few months ago, Roelofs, who is a former COO of Stratagene, and Agilent CFO Adrian Dillon provided a glimpse into the firm’s thinking on that subject. It appeared from their comments that Agilent’s preferred format for the molecular diagnostics market is its Lab-on-a-Chip technology (see BioCommerce Week 1/17/2007).
 
While other tool vendors are developing microarray- or mass spec-based molecular diagnostic platforms, which would also be possible for Agilent considering its product portfolio, these do not seem to be central to Agilent’s plans. Roelofs said that customers could pull Agilent’s technologies in these fields into the molecular diagnostics space as well — and if this happens, he said the firm would seek a partnership with an established diagnostics player.
 
Merill Lynch analyst Jon Groberg said this week that Stratagene’s diagnostics business and knowledge would benefit Agilent. He currently has a “buy” rating on Agilent’s shares, and said in a research note that he expects Agilent to “accelerate Stratagene’s revenue growth and significantly improve return on investment capital given the strength of its life science platform.”
 
Sorge Spin-Off
 
But Agilent is not keeping all of the molecular diagnostic assets. Instead, the firm will sell certain diagnostics-related assets for $6.6 million to a new company being formed by Sorge.
 
The firms have not said specifically which assets will be transferred, but Sorge told Stratagene employees and investors in a letter last week that he would acquire Stratagene’s facilities in Jackson Hole, Wyo., along with certain patents and contracts.
 
“The new diagnostics company will focus on the use of molecular markers to predict the potential severity of certain diseases, as well as guide physicians toward appropriate therapies for such diseases,” he wrote in the letter. He also said the firm would establish a clinical testing lab to perform tests developed by the new firm.
 

“Agilent intends to continue the PCR instrument relationships that have been established to date and will continue to talk with parties interested in Stratagene’s instrumentation offerings.”

“Stratagene has established certain relationships with clinical collaborators, diagnostics companies, and pharmaceutical companies,” Sorge wrote. “Going forward, I and Agilent plan to continue these relationships, either independently or together where appropriate. Agilent intends to continue the PCR instrument relationships that have been established to date and will continue to talk with parties interested in Stratagene’s instrumentation offerings.”
 
Unlucky in Law
 
While Agilent will be gaining a rapidly growing molecular diagnostics business, it also will be bringing on board a company that has had some poor results in patent infringement cases over the past year and a half.
 
Stratagene recently agreed to pay Third Wave Technologies $10.75 million to settle a patent case, which had earlier been decided in Third Wave’s favor by a Wisconsin court (see BioCommerce Week 1/31/2007). The settlement was far less than the roughly $21 million that had been awarded by the court to Third Wave.
 
Stratagene also was ordered by a Texas court to pay Invitrogen $16.2 million for infringing an Invitrogen patent covering a process for developing competent cell products (see BioCommerce Week 11/1/2006). The firm has since appealed the case.
 
However, the US Patent and Trademark Office recently notified Stratagene that its patent covering polymerase blends will be reinstated with retroactive effect. The patent is at the center of a suit Stratagene filed against Invitrogen and could provide some leverage in negotiating a possible settlement with Invitrogen of this litigation and the other case decided in Invitrogen’s favor.
 
In Monday trade — the first day of trading after the deal was announced — shares in Stratagene rose 25.9 percent to close at $10.71, while Agilent’s stock closed up 1 percent at $35.06.
 
The deal comes a year after Agilent sold off its semiconductor business and its share in a lighting joint venture with Royal Philips Electronics in an effort to increase its profitability and focus on its core life science and electronic measurement units (see BioCommerce Week 8/18/2005). Though it was expected that Agilent would apply some of the nearly $3.7 billion in proceeds from those sales to acquisitions in the life sciences market, the Stratagene deal is the first major move by Agilent to broadly expand its offerings in that area.  
 
Last April, Agilent paid an undisclosed amount to acquire SynPro, a small, privately held synthetic nucleic acids manufacturer based in Colorado (see BioCommerce Week 4/19/2006). But that pales in comparison to the addition of Stratagene, which will significantly diversify Agilent’s portfolio.

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