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Agilent Completes Stratagene Buy, Improves Q3 Financial Forecast Despite Revenue Decline

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Agilent Technologies last week completed its acquisition of Stratagene for $10.94 a share, or $246 million, gaining access to the firm’s array-related software and reagent kits as well as growing its headcount by 450 and gaining Stratagene’s operations in Texas, California, Japan, and The Netherlands.
 
Separately, Agilent said that it expects third-quarter revenue to decline between 2 percent and 4.8 percent year over year, though it is a 1.5-percent improvement over earlier predictions.
 
Agilent first announced its intention to buy Stratagene in April. While Stratagene has never sold arrays, it has offered a variety of products to array users, including software, RNA controls for array experiments, and sample-preparation and labeling kits.
 
Now that Stratagene is part of Agilent, Agilent will gain revenues through sales of Stratagene’s software packages, such as ArrayAssist, a desktop-based analysis package, and ArrayAssist Enterprise, a server-based package that offers users centralized data-management products. Both are designed to be used with multiple array platforms, and Affymetrix has said the software is GeneChip-compatible.
 
Stratagene also sells Universal RNA samples for mouse, rat, and human, which could add to Agilent's array offering. The reference samples were used in the Microarray Quality Control project that published its first results last September (see BAN 9/12/2006).
 
Additionally, Stratagene sells RNA purification kits for use with arrays and 96-well microplates, and the FairPlay labeling microarray kit for cDNA array labeling.
 
Some users of products from both companies believe that Agilent stands to benefit more from Stratagene’s reagent kits than from its software as it moves forward with integrating Stratagene into the company.
 
Neil Winegarden, head of the microarray facility at the University of Toronto’s Universal Health Network hospital, recently told BioArray News that “Agilent’s interest in Stratagene has more to do with kits and reagents than software.”
 
Winegarden said that Agilent has had “some issues” in partnering with third parties to provide some of the necessary reagents and supplies for its array platform. “By purchasing Stratagene, Agilent’s array division now has direct access to RNA kits, Universal Reference RNA, et cetera,” he said.
 
Winegarden added that Agilent could follow a number of routes with regard to Stratagene’s software packages and that it is operating in a position of strength since it has its own microarray analysis software, GeneSpring, which it acquired from Silicon Genetics in 2004 (see BAN 9/1/2004). Furthermore, he said that Agilent has the option of discontinuing ArrayAssist in an effort to soften up Affy’s customer base by limiting its software options.
 
“GeneSpring is a more mature software package than ArrayAssist,” Winegarden said.
 

“For the time being, Stratagene will operate autonomously as a product division so Agilent does not anticipate making any changes in product lines at this time.”

“That being said, ArrayAssist has been developed over time to be more applicable to Affymetrix’s technology so perhaps Agilent will use this opportunity to either enhance its offerings in this area, thus making money off of [its] competitors’ [customers], or scuttling it to further limit the software choices for people using Affy’s arrays,” Winegarden said.
 
Winegarden isn’t the first to play with the idea that Agilent could tinker with ArrayAssist to hurt Affy.

Jim Woodgett, also at UHN, agreed that "microarrays are a very small part of Stratagene" and the acquisition is "far more to do with the life sciences biologicals" than Stratagene's array-related products.

 
"Given this, it's quite possible Agilent will consolidate the software into oblivion or reposition it," Woodgett told BioArray News in April. "It remains to be seen how integrated the solutions will become. The Stratagene software was obviously tailored to multiple platforms," he added (see BAN 4/10/2007).
 
Agilent spokesperson Stu Matlow told BioArray News this week that the company’s plan is to “maintain Stratagene as a separate division within Agilent’s Life Sciences Solutions Unit."
 
“For the time being, Stratagene will operate autonomously as a product division so Agilent does not anticipate making any changes in product lines at this time,” he said.
 
Fall in Decline
 
Separately last week, Agilent said that its revenues will decline in its fiscal third quarter, which ends on July 31, although they will not decline as much as forecasted previously. 
 
During its fiscal second quarter earnings report in May, Agilent had said it expected third-quarter revenue to decline between 3.5 percent and 6.2 percent. Last week, it said it expects revenue for the three months ended June 30 to decline to between $1.38 billion and $1.42 billion from $1.45 billion last year.
 
An Agilent spokesperson told BioArray News sister publication GenomeWeb Daily News last week that last year’s results included revenue from Verigy, the semiconductor business the company spun off during the year.
 
Adjusted for that discontinued operation for the third quarter of 2007, revenue should be $1.2 billion, meaning that Agilent’s revised guidance represents a growth of between 11 percent and 15 percent.

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