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As Affymetrix Tries to Salvage Deal, eBioscience Explores Other Options

NEW YORK (GenomeWeb News) – Affymetrix said this week that it has released eBioscience from certain obligations under the terms of their proposed merger as the Santa Clara, Calif.-based array firm continues in its efforts to salvage the $330 million deal.

The company also disclosed a deal with a firm named Cellular Research, founded by Stephen Fodor, who also founded Affy.

In a sign that the eBioscience merger may be facing significant challenges, Affymetrix said in its Form 10-K filed with the US Securities and Exchange Commission that it has waived "eBioscience's obligations under the non-solicitation provisions set forth in the merger agreement and we understand that eBioscience is considering alternatives to the merger."

Affy announced the deal to acquire eBioscience, a San Diego-based cytometry and reagent firm, in late November. The deal was expected to close by the end of 2011, but in December investment fund Tang Capital sued Affy alleging the purchase would constitute a fundamental change under the indenture that governs senior convertible notes held by Tang Capital, and since then the acquisition has unraveled even as company officials say that they remain excited about it and focused on completing the deal.

Affy had entered into a commitment letter to secure $190 million of senior secured credit for the deal, but as a result of a settlement agreement with Tang Capital to repurchase the entire $95.5 million aggregate principal amount of the notes, the financing of the deal will need to be restructured.

Affy said in its Form 10-K that it is in discussions with financing sources and eBioscience about restructuring the financing but no agreement has been reached. Affy's exclusivity period on the deal lasts through March 31, and during the company's fourth quarter and full-year earnings conference call earlier this month CEO Frank Witney said that Affy is not pursuing other M&A deals in the meantime.

GE Capital, Healthcare Financial Services has not terminated a commitment letter it issued to Affy in November, Affy said in its Form 10-K. However, some investment analysts are skeptical about the deal being successfully completed. For example, Quintin Lai of R.W. Baird said in a research note following Affy's fourth quarter earnings release, "At this time, we think it is prudent to assume that [Affymetrix] will likely move forward independently of eBioscience."

Affy executives were not available for comment, but a spokesperson for the firm told GenomeWeb Daily News in an e-mail today that regardless of the eBioscience outcome, "Affymetrix will continue to implement our current strategy, which is to further penetrate the genotyping and cytogenetics markets with our new innovative products, including filing for FDA approval for our CytoScan product.

"In addition, we plan to energize our gene expression franchise with solutions for translational medicine and clinical diagnostics with our array products and emerging molecular pathology platforms, including leveraging our FDA-cleared instruments and reagents," she said. "Finally, we will continue to drive our life science reagents business, which has shown good growth over the last several years."

On deadline, eBioscience did not respond to a request for comment.

Additionally, Affy disclosed an agreement with Cellular Research to assign that company one patent application and related know-how. Both Cellular Research and Affy were founded by Fodor, who also is Affy's current chairman.

Cellular Research will pay Affy royalties in the single digits on the sale of products covered by the assigned technology. Starting in December 2015, it also will pay Affy an annual minimum fee of $100,000.

Affy has the right of first refusal to collaborate with Cellular Research on the development of certain new products and to supply the company arrays. As of Dec. 31, Affy had received no royalties from the agreement.

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