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Affy Says Sequencing Is Nice, but Not Enough To Buy; All New Platforms Still Too Immature

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A few days after rival Illumina last week said it plans to buy next-generation sequencing company Solexa, Affymetrix sought to extinguish any idea that it would follow suit.
 
Speaking at Lehman Small Cap Conference in Dana Point, Calif., on Nov. 17, four days after Illumina made its announcement, Affy CFO Greg Schiffman said that the company’s view is that the sequencing market is still evolving and that Affy is not “going to do a highly dilutive acquisition when [it isn’t] clear who [is] going to be the winner there.”
 
Illumina and Affy already compete in the genotyping and gene expression markets, and extending these plays into sequencing could have been seen as obvious.
 
Still, Illumina’s acquisition caught some investors by surprise. While Illumina never explicitly ruled out sequencing as a technological interest, the company had busied itself touting its genotyping, gene expression, and molecular diagnostic opportunities at recent investment conferences.
 
Unlike Illumina, though, Affy will stick to its existing technology. Last week, Schiffman and Doug Farrell, the company’s head of investor relations, said Affy thinks sequencing can complement its GeneChip platform, but that the company does not anticipate buying its own sequencing shop, at least for the moment.
 
According to Schiffman, Affy believes next-generation sequencing shops are years away from generating significant revenue, and buying a sequencing platform would not fit with its acquisitions strategy.
 
“We would rather see these technologies develop,” Schiffman said at the Lehman Brothers conference, and the “reality is that these existing platforms are going to demand a significant amount of investment over the next three to five years.”
 
“I think that while these technologies are exciting, this is not a near-term revenue driver for us anyway. We think it’s just a little bit early to be placing our bets at this point,” he said.
 
A No-Go for the Affy Workflow
 
Meantime, Doug Farrell, Affy’s head of investor relations, said that the Illumina deal is in line with an emerging pattern among life-sciences companies to acquire a series of different platforms.
 
“I think you are seeing more and more of a trend of customers wanting a one-stop-shop where they are able to get a broader assortment of products and applications from one vendor,” he said at the JPMorgan Small/Mid Cap Conference in Boston on Nov. 15.
 
“We certainly have been moving down that road, historically being a gene-expression company moving into genotyping and now diagnostics,” Farrell added. However, he stopped short of naming sequencing as a target for an Affy acquisition.
 
“We think of these sequencing technologies as being very complementary,” Farrell said. But because sequencers provide a “tremendous amount of detail” for each sample that is run on the platform, they “don’t allow you to address the answer of statistics, which is an important part of genetics,” he said.
 
“If you looked at 10 people and saw a particular abnormality, you would have no idea whether it was real or whether it was just coincidental, and that’s why you have seen many of these new genotyping studies having 10,000 to 30,000 samples, because you have to have the statistical power in that,” Farrell explained.
 
He also said that Affy “historically” has not done a lot of acquisitions. The company acquired ParAllele BioScience for $120 million in stock at the end of last year, adding its genotyping assay technology for more focused genotyping projects (see BAN 6/8/2005). ParAllele had been selling its assay for use on the Affy platform for several years when the deal closed.
 
“We are much more focused on acquisitions that would be around the current workflow that we sell,” Farrell said, meaning “things that are complementary to the GeneChip platform.” He added that he “wouldn’t envision [an acquisition] being an entirely separate platform. That’s not where we have been focused of late.”
 
“Acquisitions are much more likely to be either complementary to the GeneChip platform or part of the same workflow where you’d be selling to the same end users and really making a play of getting more leverage out of your global infrastructure,” he said. “So those would probably be the two most likely paths for us.”
 
Diverging Paths
 
In that way, Affy’s path is clearly diverging from competitors such as Illumina and Applied Biosystems.
 
Illumina acquired VeraCode, a non-chip-based bead platform with CyVera in 2005. Illumina will be relaunching VeraCode for use with its BeadXpress reader this quarter (see BAN 7/25/2006).
 
Last week, Illumina CEO Jay Flatley told BioArray News that the company intends to integrate Solexa’s sequencing platform with its existing genotyping workflow. The platform “is targeted for sequencing and expression and so it adds a highly complementary capability to our existing application base,” Flatley said.
 

“We would rather see these technologies develop. … These existing platforms are going to demand a significant amount of investment over the next three to five years.”

“With sequencing, you discover the content, you understand the structure of the genome, and you discover things like SNPs and put them on a chip and do very high-throughput and fixed content genotyping,” he added. “So it’s a discovery engine, if you will,” he said (see BAN 11/14/2006).
 
Similarly, ABI contends its newly acquired Agencourt Personal Genomics technology will complement its existing offerings. ABI acquired APG from Beckman Coulter for approximately $120 million in cash earlier this year.
 
Kevin Corcoran, vice president and general manager of ABI's genetic analysis business, told BioArray News in June that APG’s sequencing technology is "very attractive, especially in systems where there is not a commercially available microarray" (see BAN 6/13/2006).
 
"In some particular markets agriculture being one there may be challenges in getting a microarray ever developed. These systems are open systems; you don't have to have sequenced a genome so that you could therefore build a microarray," Corcoran said. ABI currently offers human, mouse, and rat arrays for use with its Expression Analysis System.
 
Corcoran added that APG "lines up very well" with ABI's TaqMan RT-PCR technology. Agencourt's platform "is a discovery technology, so you are doing a whole transcriptome," Corcoran said. "Then, if you want to do downstream validation, we see that lining up very well with our TaqMan assays."
 
Still, Affy has shown in internal development of next-gen sequencing technologies. In June, the company received US Patent No. 7,056,666, “Analysis of surface immobilized polymers utilizing microfluorescence detection."
 
The patent describes the means for simultaneous parallel sequence analysis of a large number of biological polymer macromolecules using fluorescent labels in repetitive chemistry to determine terminal monomers on solid phase immobilized polymers.

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