Affymetrix last week took a logical step towards solidifying its position in the SNP-genotyping market by moving to acquire ParAllele Bioscience for $120 million in stock. ParAllele, a privately held South San Francisco, Calif.-based firm, began running its flagship genotyping assay on the Affy's Tag array platform two years ago and last year signed a co-marketing and distribution agreement with Affymetrix.
While the sizable purchase is Affy's first acquisition since the chip vendor bought privately held bioinformatics company Neomorphic for $76 million in 2000, Affy's primary competition in the genotyping sector shrugged off the potential impact the merger might have on the overall market and other rivals see the move as a potential boon to the developing market.
Investors also reacted coolly to the merger, and shares of Affy's stock barely rippled in the wake of the news. The company's stock was trading at $51.91 mid-day Tuesday, down $1.05, or 1.9 percent, from opening at $52.96 on June 1, the day after Affymetrix announced the agreement. Another cause for the decline may have been a report in Forbes’ online publication Tuesday morning that suggested Affy’s shares are overpriced based on the company’s price-to-earnings ratio.
"It doesn't have much of an impact for us," Jay Flatley, the CEO of Illumina, told BioArray News. Flatley explained that because of the long-standing partnership between Affymetrix and ParAllele, the acquisition is more of a formality from a market perspective than a strategic move. "We have already been competing with Affymetrix and ParAllele for a couple years. We don't see how the merger changes anything," Flatley said.
Illumina plans to introduce 100K- and 250K-SNP arrays to market by the end of this year and has promised a 1 million SNP array by mid-2006.
Other players in the genotyping space saw the acquisition as an opportunity, rather than a competitive threat, noting that Affy's commitment to genotyping could grow the market, which means more business for them.
"We actually think this is very positive in a way. It's a very, very clear commitment by Affymetrix that they want to become the dominant player in the whole-genome discovery field," Edvin Munk, a senior marketing manager at Sequenom, told BioArray News last week.
"For us it's a very good development because we do see that this will broaden the market, there will be more studies done, and what we [make our living] from is that people are following up on their microarray studies," Munk explained. Sequenom markets its mass spectrometry-based technology for follow-up genotyping studies on fewer SNPs.
"We like to see that the market for genotyping grows," Munk said. "Basically, if that grows, then the market for follow-ups will grow and we will grow as well."
More than Just Genotyping
Affymetrix CEO and founder Stephen Fodor said in a conference call last week that the acquisition of ParAllele would "help accelerate the commercialization and development of DNA analysis products."
"The potential applications are much broader," Fodor said, listing applications for detecting chromosomal copy number, DNA methylation, and targeted RNA analysis as prospective places in Affy's portfolio that could be strengthened by ParAllele's technology.
Andy Noble, a spokesperson for Affymetrix, pointed out in an e-mail to BioArray News that customers are already using the company's existing products for chromosome copy number studies and targeted RNA analysis.
"Researchers are using the Affymetrix GeneChip Mapping 100K Set to assess both copy number and genotype for 100K SNPs. For targeted RNA analysis, researchers are using Affymetrix GeneChip CustomExpress arrays to measure expression of any selected genes," Noble wrote.
Fodor called the market a "key growth driver" from Affymetrix, which has promised to release a 500,000-SNP array by the end of the year. According to Chief Financial Officer Greg Schiffman, who also spoke during the conference call, Affy is already providing the 500K SNP chip to early-access customers.
Fodor went on to explain that by obtaining the rights to ParAllele's proprietary Molecular Probes Inversion method, which enables up to tens of thousands of reactions to be multiplexed in a single tube, Affymetrix now has a "new market opportunity" to integrate the technology beyond genotyping products.
Affy did not provide details on which products may emerge first from the combined company.
"Initially, the two companies will be focused on delivering products that are currently in the ParAllele development pipeline," Noble said.
A spokesperson for ParAllele deferred all questions to Affymetrix, and an official comment from the acquired company could not be obtained.
According to Greg Schiffman, the acquisition is expected to close in the third quarter, and the $120 million will be paid in Affy stock. Schiffman said that Affy expected a $15 million merger-related charge "for in-process R&D" as well as operational charges of between $4 million and $7 million for the company's fiscal year '05 results.
Due to the incurred costs of the merger, Schiffman said that the company "expects this transaction to be financially neutral to [its] operating results in 2006" and will contribute to an increase in net income in 2007.
Affymetrix did not specify how ParAllele will be integrated into the larger company, although Fodor stated, and a spokesperson later confirmed, that the first part of ParAllele to be absorbed will be its sales and marketing team.
"ParAllele's commercial team will integrate with Affymetrix' global commercial infrastructure to accelerate sales and support of new product and market opportunities," Noble wrote in an e-mail to BioArray News.
"Affymetrix is already providing sales and support to current [ParAllele] customers as part of our existing collaboration."
While Affy did not specify why it felt motivated to buy ParAllele now, after two years of collaboration, another perk for the company will be its access to ParAllele's partners.
Earlier this year, ParAllele announced plans to partner with Eli Lilly and Genaissance to design and market its upcoming MegAllele DME-T assay panel, which will run on Affy's platform and will test around 160 genes that are involved in drug metabolism and transport pathways.
"ParAllele's ongoing relationships will now be able to take advantage of an expanded portfolio of solutions," Noble told BioArray News.
The MegAllele DME-T assay panel poses a potential threat to Applied Biosystems, which plans to launch its own set of drug metabolism enzyme assays based on TaqMan SNP genotyping chemistry this year. Josh Goldsmith, ABI's senior product line manager for TaqMan genotyping, said that ABI's assays would compete against Affy's because they are more affordable than array-based assays.
Goldsmith told BioArray News that his company sees the largest growth opportunities for genotyping "in projects where small subsets of [SNP] targets will be analyzed in clinical research studies involving large sample cohorts to validate markers for diagnostics use" — which is why Sequenom likes the acquisition.
Illumina's Flatley tagged his company's success in the genotyping market to the quality of its assays. The company is also planning to launch a wholly array-based genotyping assay this summer (see BAN 4/20/2005).
— Justin Petrone ([email protected])