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Molecular Devices to Acquire Leading Scanner-Maker Axon for $140 Million

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A maker of the one of the key components in microarray technology — the scanner — is changing ownership.

On Monday, Sunnyvale, Calif.-based Molecular Devices announced that it will acquire Axon Instruments of Melbourne, Australia, in a cash-and-stock transaction valued at approximately $140 million. The company will also obtain Axon’s $29 million in cash and marketable securities in the deal.

The acquisition, which is subject to regulatory and shareholder approval, is expected to close by the start of the third quarter.

“We believe the combination would be an ideal strategic fit that would bring together complementary product lines in ion channel screening, and high throughput imaging, and would expand Molecular Devices’ product portfolio into the cellular neurosciences and genomics area,” Joseph Keegan, president and chief executive officer of Molecular Devices, said in a conference call.

Molecular Devices produces and sells instruments and reagents for drug discovery and life sciences research. The company has a market capitalization of approximately $280 million and expects the acquisition to improve its revenues by about $20 million to between $145 million and 150 million for 2004.

Axon, with the majority of its 128 employees in offices in Union City, Calif., a half hour away from the offices of Molecular Devices, trades on the Australian stock exchange and had revenues of $33.5 million in 2003. The company last week reported a net profit of just over $1 million for 2003, compared to a loss of $9.5 million for 2002.

The company, a pioneer in electrophysiology, sells a line of microarray scanners and software primarily targeting the microarray-industry’s homebrew market, those who spot 1x3 chips for analysis.

Scanners, however, are only one third of the company’s business, with the remainder coming from neuroscience and cell-based screening products.

While the company does not disclose the size of its installed base of microarray instrumentation, it does have more than 1,000 instruments in the field and is regarded as one of the leaders in the microarray scanner market. It competes primarily with Affymetrix, Agilent Technologies, and PerkinElmer.

“The genomics business has been steady of late,” Alan Finkel, Axon’s chief executive officer, said in a conference call. “The 1x3 [market] is a solid market but not growing rapidly.”

Finkel said that Axon is expecting high-throughput instrumentation to be a catalyst for its genomics business.

“Going forward, we expect growth to come from new formats, particularly in arrays of arrays, 96-well formats,” he said. “We have development plans to address that as it emerges.”

In March, the company announced that it would collaborate with Affymetrix to develop a high-throughput instrument to scan GeneChips in multiwell-plate formats, based on the ImageXpress instrument. Affymetrix purchased three of the ImageXpress instruments as part of the deal.

Axon has been in the microarray market since 1999 when it introduced the GenePix 4000A, a two-channel fluorescence scanner with integrated acquisition and analysis software, which it developed in-house.

The company introduced the GenePix Personal 4100A microarray scanner in August 2002. The instrument uses its laser to scan each channel sequentially. The company released the GenePix 4200A scanner in April 2003.

In 2002, the company also introduced the Acuity microarray database software.

Axon was founded in 1983 by the husband-and-wife team of Alan and Elizabeth Finkel to develop and sell instrumentation and software for cellular neurosciences and biophysical research.

Alan Finkel is being offered the position of vice president and chief technology officer for Molecular Devices, and will report to Keegan, who will remain president and chief executive officer, Molecular Devices said in a statement. Geoffrey Powell, the president of Axon, will retire.

This is the first acquisition for Molecular Devices in nearly two years. In June 2002, the company acquired Universal Imaging of Downington, Pa., in an all-cash acquisition of $22 million. Pre-viously, the company acquired Switzerland-based Cytion in 2001 in another cash-and-stock transaction.

Molecular Devices said the $20 million boost in revenue would occur in the second half of the year, and that it expects to save $4 to $5 million in expenses.

Growth for the combined entities will come from “new product development and the solutions we can put into the marketplace,” said Keegan.

For Axon, the merged entities will offer access to a larger sales and marketing organization, said Siobhan Pickett, vice president for functional genomics.

Present customers should see no drop-off in services, she said.

“Axon recognizes that our relationships with customers and the level of technical support have been a key to growing the business to where we are today,” she said. “We have no intention of changing that. Existing customers will continue to get the same level of support.”

For the immediate future, the merger will allow the merged entity to consider product combinations from either one’s portfolios.

Proteomics, while not an application that either company is heav-ily involved with today, is going to be a factor too, said Pickett.

“The whole proteomics area will be the next evolution from the data from the human genome project, and the gene profiling work done by microarrays,” she said. “Some of that will drive new technology because the level of complexity is so much greater. And some of it will certainly go beyond fluorescence. Right now, we can play in that market with the tools being used with protein arrays. In the future, [product offerings] will come in new technology or from further expansion of the business from the technology side.”

— MOK

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