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MWG in Talks with Potential Buyers for Units, But Will IP Issues Scuttle a Deal?

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MWG Biotech is in discussions with several potential buyers for its Genomic Diagnosis and Genomic Technology units and still expects to complete a sale by the end of the year, MWG CEO Wolfgang Pieken told BioArray News this week.

“The interest in both of those businesses exceeded our expectations,” Pieken said. But he declined to name any of the firms that MWG is negotiating with for the businesses.

The company has said that closing the units also is an option if it can’t find a buyer, and there are observers that question whether the firm will be able to sell both of them. Patrick Fuchs, an analyst with Frankfurt-based DZ Bank, is one such doubter. “I believe it is unlikely that the company can sell both units,” he wrote in an e-mail to BioArray News.

Fuchs cited the company’s weak patent position in both the microarray and lab automation fields as the primary reason why the firm will have difficulty selling both units. He said MWG has struggled to make the microarray business profitable due to its dependence on Affymetrix’s intellectual property and the related license payments per spot it must pay.

In addition, Fuchs noted that in the lab automation business MWG uses second-party technology from other companies and redesigns or develops protocols for the instruments. He wrote, “It seems they do not have a real-time PCR license and marketing the regular PCRs in the US might be difficult.”

The Ebersberg, Germany-based firm said two weeks ago that it would “massively reduce” its staff from 351 to 140 employees and “streamline the administration and sales structures.”

Although Pieken declined to say how many employees from the microarray and lab products business would be affected by the layoffs, he said the job cuts would occur in “all parts of the operation.” He added, “We’ve already implemented the layoffs in the US. Our High Point [N.C.] installation now operates with 35 people — before that it was about 75. In Germany, we’re laying off about 80 of our staff members here at headquarters in Ebersberg, and we’re closing most of our European sales subsidiaries.”

However, Pieken stressed that MWG “will serve all of our global markets in the future with DNA/RNA synthesis and gene sequencing with a dedicated staff of key account managers on the ground in each country.” The company also has said its production subsidiaries in the US and India remain “an important integral part of the company.”

MWG announced last month that it would seek a buyer for the microarray and lab automation units as it sought to refocus the firm on its core Genomic Synthesis unit, which makes oligonucleotides, and its Genomic Information business, which provides DNA sequencing services. (see BAN 10/13/2004)

“In the oligonucleotide synthesis [market] we have a strong position,” Pieken said. “Against a competitive backdrop of a difficult market in the last year, we’ve actu-ally performed strongly. We expect to grow that business on our own feet, and through mergers and acquisitions in the future.”

MWG has an alliance to deliver defined oligonucleotide content to Hitachi, which includes the oligos in its AceGene microarray products in Japan. Pieken said the firm “should be able to continue that relationship,” as it seeks to partner with other firms that need oligos.

“In gene sequencing, we see a very bright future,” he said. A lot of new things are happening on the technology front and on customer demand. We intend to actively participate in the future also with mergers and acquisitions.”

MWG went public in May 1999 and embarked on a path of rapid growth. Between 1999 and 2001, the firm’s revenues grew from €35.1 million to €52.4 million, and during that time its staff increased from 245 employees to 405. Meanwhile, its costs grew considerably and the firm posted losses of €16.1 million in 2000 and €18.1 million in 2001.

The firm recently reported that its revenue for the first nine months of 2004 was €26.5 million ($33.9 million) — an 18.7 percent drop from its revenue of €32.6 million for the first nine months of 2003.

Revenue for the Genomic Synthesis and Genomic Information units combined fell during the first nine months of 2004 to €17.9 million from €20.8 million in the comparable period in 2003. But MWG noted that revenue actually increased to €4.6 million from €4 million in its Genomic Synthesis business.

The Genomic Diagnosis (microarray) and Genomic Technology (lab automation) units brought in revenue of €8.5 million for the first nine months of 2004 compared to €11.5 million in the comparable period last year. For full-year 2003, the two units accounted for 37 percent of MWG’s total revenue of €43 million.

The firm is predicting total revenue of approximately €31 million and a net loss of roughly €9.4 million for 2004.

The sale of the microarray and lab automation product units would mark the most significant action by the company since it started a restructuring program in 2001. Prior to the announcement of this round of layoffs, MWG had trimmed its workforce 29 percent since the restructuring began.

Company officials believe selling the two units to focus on the core oligo synthesis and DNA sequencing businesses will create the basis for long-term profitability.

But doubts persist about MWG’s core business as well. “Unlike last year, the remaining core business is unable to demonstrate that it is profitable at the moment,” Fuchs wrote in an Oct. 27 research note, in which he placed a “sell” rating on the firm’s stock.

Asked if the divestiture and layoffs would make MWG a more attractive acquisition candidate, Pieken answered, “We’ve always had interest in our company from different sides. We expect that to continue. As we complete our restructuring and have a healthy business in front of us, I’m sure it has a certain attractiveness. We are under no pressure to entertain being acquired. But then again, we are open for all options, [though] it’s not something that is on our immediate horizon.”

— EW

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