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Affy Sheds More Light on M&A Strategy, Discusses Priorities for USB Integration

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Affymetrix will seek to add targeting genotyping technology to its portfolio in an effort to cast a wider net in the genomic tools market, according a company official.
 
Chief Financial Officer John Batty said last week that the GeneChip vendor is seeking to “acquire technology that will allow us to compete in the broader genetic analysis market.”
 
Batty told investors at Merrill Lynch’s Global Pharmaceutical, Biotechnology and Medical Device Conference in New York last week that Affy is evaluating a move into the “targeted genotyping space and perhaps more extensively into the mid-[multiplex] area of the market.”
 
This week Doug Farrell, head of investor relations at Affy, told BioArray News in an e-mail that the firm is looking beyond arrays to grow its business. “We're looking at a wide variety of tools for genetic analysis,” he said.
 
Affy has been more open about its plans to buy companies and technologies that complement its core microarray business since it closed its acquisition of reagents maker USB last month for $75 million (see BAN 2/5/2008). 
 
During the firm’s fourth-quarter earnings call earlier this month, President Kevin King said that the company is bullish and aggressive about growing our business” and will do more acquisitions going forward” in order to cast a “pretty broad net across this whole field of genetic  analysis.” (see BAN 2/5/2008
 
At the Merrill Lynch conference, Batty said that over the past year Affy has increasingly focused on evaluating possible business-development activities and has added personnel to its business-development team.
 
“The management team spent a significant amount of time this year laying out the key strategies and the key technologies that it believes will become important in the coming years,” Batty said.
 

“We have no intention of discontinuing sales to any of our competitors.”

The discussions have compelled Affy to actively seek out technologies and evaluate them as potential acquisition targets. “If we find an attractive technology or business that is on our road map and we think we can accelerate time to market by acquiring that, we will do that assuming we can do so at reasonable valuations,” said Batty.
 
Affy has enough cash on hand for more acquisitions. Last November the firm raised $275 million through an offering of senior convertible notes, and last month rival Illumina agreed to pay Affy $90 million to settle all ongoing patent litigation between the companies (see BAN 11/20/2007, BAN 1/15/2008).
 
Other factors influencing Affy’s strategy is a lackluster stock market, which could entice private companies to become acquired. “When we raised the money last year, our sense was that, with the turbulence in the capital markets, many of these privately held companies’ exit strategies were going to be closed off,” said Batty.
 
“As their valuations begin to collapse [as well as] their exit strategies, we think strategic combinations can be much more attractive and, especially for us, it means that we can be more accretive, which is what we’ve been looking for,” he said. 
 
USB Priorities
 
Last week Doug Farrell, who also spoke at the Merrill Lynch conference, said Affy plans to use USB’s expertise to develop new sequencing-on-array technology as well as to directly sell more reagent kits to customers that currently buy reagent kits from third parties for use with Affy arrays.
 
During the firm’s fourth-quarter earnings call, King called USB a “tremendous asset” to Affy’s business plans. “We have the ability to upsell more reagents to our current customers [and] we have the ability to lower our cost of purchasing reagents through insourcing.”
 
According to Farrell, some of USB’s product lines are “not necessarily core” to Affy’s plans, so “there will be a reprioritizing of what needs to be done with USB.” Farrell told BioArray News this week that certain undisclosed competitors are currently using USB products and that Affy has “no intention of discontinuing sales to any of our competitors.
 
“We hope to work closely with them to advance the field of genetic analysis and grow our reagent business, Farrell said.

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