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Illumina and Affy Lay Out M&A Strategies at Investors Conferences

Illumina and Affymetrix last week said that the chances are “pretty high” that they will acquire complementary companies and technologies in coming years.
However, both companies cautioned that deals as large as Affy’s $75 million buy of reagents maker USB, which closed in January 2007, or Illumina’s $600 million purchase of Solexa last year are less likely.
Instead, the companies, which made their pronouncements during investor conferences last week, said they are more likely to make acquisitions that could provide them with diagnostic content or lower-plex genotyping capabilities. 
Illumina is heading into its acquisition strategy after buying Solexa last year. CEO Jay Flatley told investors at Bank of America’s Securities Health Care Conference in Las Vegas last week that the deal was an attractive buy because it added a next-generation sequencing platform to Illumina’s portfolio of microarray and digital microbead technology at a time when Solexa was just ready to go to market (see BAN 2/5/2007).
A couple of years earlier, Illumina had also looked to augment its internally developed array platform with externally developed technologies. In 2005, the company bought Wallingford, Conn.-based CyVera, whose VeraCode digital microbead technology forms the basis of Illumina’s BeadXpress platform. Illumina has positioned the BeadXpress, which it launched last year, for use in lower-multiplex studies and, potentially, diagnostics (see BAN 3/27/2007).
Looking ahead, Flatley last week said that Illumina is unlikely to buy another technology platform and will probably make acquisitions to bolster development of its diagnostics business.
“The number of deals that we look at is large,” said Flatley. “We have a lot of companies that come to see us because they have technology or they want to partner on distribution.
“I think the chances that we will do something are probably pretty high in the next year or two,” he said. “The chances of doing something as big as Solexa are pretty low. I think we are much more likely to do smaller technology acquisitions, or as part of our diagnostics strategy, content acquisitions that give us access to intellectual property in key content areas.” 
Since launching BeadXpress, Illumina has not indicated that it would use its array platform in diagnostics. Instead, Flatley has said that the BeadXpress is more accurate than array-based assays and is less labor intensive and has higher throughput than RT-PCR-based assays.

“It is unlikely in our view that arrays will be important in diagnostics.”

In terms of content, Illumina has ongoing partnerships with Iceland’s DeCode Genetics; Bangalore, India-based ReaMetrix; the Children's Hospital of Eastern Ontario; and Genizon Biosciences. In the DeCode collaboration, which began in 2006, the partners are developing tests to help determine risk factors for developing type II diabetes, myocardial infarction, and breast cancer (see BAN 5/17/2006).
In the past, Illumina has stated that its first diagnostic products could be on the market this year. However, Flatley said last week that the company now thinks it will begin commercializing its first diagnostic products in 2010.
Looking ahead, Flatley said that by 2013, it is possible that diagnostic sales could represent a quarter of Illumina’s revenues.
“If we can carve out a niche for Illumina [in the molecular diagnostics market], then that’s a long-term opportunity, but five years from now will still be relatively early in the adoption cycle of diagnostics,” Flatley said. “So you might think of a business that is 50 percent pure life sciences, diagnostics about 25 percent, and applied markets about 25 percent.”
Flatley told BioArray News in an e-mail this week that the company is no longer only considering BeadXpress for diagnostic applications. “BeadXpress will be a key platform for diagnostics, but sequencing certainly could as well,” said Flatley. “It is unlikely in our view that arrays will be important in diagnostics.”
Illumina had $119 million in cash and cash equivalents as of March 31.
In recent months, Affymetrix has been open about its M&A strategy. During the firm’s fourth-quarter earnings conference call in January, for example, President Kevin King said Affy 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 2/12/2008).
Last week, Chief Financial Officer John Batty said that Affy is seeking to “acquire technology that will allow us to compete in the broader genetic-analysis market.” Batty has previously said that the company is evaluating a move into the “targeted genotyping space and perhaps more extensively into the mid-[multiplex] area of the market” (see BAN 2/12/2008).
Speaking to investors at the Baird Growth Stock Conference last week in Chicago, Batty said that Affy will make decisions based on a strategic plan developed last year.
“We have over the course of the last year and a half developed a long-range strategic plan, and that strategic plan provides a roadmap for the technologies we need to develop internally or acquire from outside sources,” he said during his presentation.
“The reason why we might acquire new technologies from outside sources would be to accelerate that roadmap,” he added. “Essentially, [our aim is] to bring new products into a closer time frame.”
To date, Affy has typically made acquisitions related to its GeneChip microarray platform. Affy bought Neomorphic in 2000 to gain access to its computational genomics and bioinformatics capabilities. And in 2005, Affy purchased ParAllele Bioscience, whose molecular inversion probe technology is used in Affy’s recently launched Drug Metabolizing Enzymes and Transporters panel (see BAN 10/25/2005).
The acquisition of USB, which closed in January, was also related to Affy’s chip business. Specifically, Affy has discussed becoming a direct provider of reagents that were previously manufactured by other companies and bundled together with its GeneChip products. Meanwhile, the sequencing-on-array technology the company has in development will make use of enzymes gained through the USB deal (see BAN 1/15/2008).
According to Batty, though, the company is now ready to buy technologies that may not necessarily integrate into its array business. “We have pointed out in our discussions with investors that we are really platform agnostic,” he said.
“Our mission is really to be the leader in genetic analysis tools, and that means that we may add additional platforms to the Affymetrix portfolio to really expand the reach of our solutions across the entire workflow, from discovery all the way to validation and routine use,” Batty added.

Affy has not provided any more detail on what kinds of technologies it would buy. The company had $431 million in cash and cash equivalents as of March 31.

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