Looks like it’s M&A time in the microarray world.
Last week Genomic Solutions, which had been busy streamlining itself in an effort to become profitable before it ran out of cash, decided to throw in the towel on its solo quest and merge with Boston area scientific equipment supplier Harvard Bioscience, in a transaction valued at $26 million.
Genomic Solutions will trim 30 percent of its staff to groom itself for the pending merger, which is slated to become final in the beginning of the fourth quarter if approved by the US Securities and Exchange Commission.
Under the merger, future sales and marketing of Genomic Solutions'''' preprinted arrays will continue. The company''''s license from Affymetrix is assignable, according to Affymetrix, so Harvard Bio can continue producing arrays under this license without fear of infringement suits from the market leader. (Note: A previous version of this story, which appeared in the print edition of BioArray News, reported that the license was non-assignable. BioArray News regrets that the correct information was not available at press time.)
The company’s GeneTac arraying, hybridization, and scanning equipment will also likely be deemphasized in future marketing efforts, according to Harvard Bioscience’s CEO Chane Graziano. “I think the products [Genomic Solutions] has [in the microarraying area] are quality, but today they are not a market leader,” Graziano said. “They are also on the high end of the market and there’s a lot of low-cost stuff out there.” (These instruments range in price from $50,000 to $125,000, with an average price of $60,000 to $70,000, said Genomic Solutions CEO Jeff Williams.)
This issue, however, is far from resolved. Williams, who will stay on as head of the Genomic Solutions business unit, told BioArray News, “we definitely do not see any of the DNA microarray products going away.” If anything, he said, this product line could be enhanced using the company’s expanded distribution network. Williams pointed out that sales of the company’s genomics-related instruments were up 25 percent in the first quarter, and that its automated hybridization station was particularly successful. “There’s a lot of belief in taking out what most people believe introduces the most variability, and that’s the hybridization step,” he said.
Graziano, a veteran of the biological instrumentation market who served as president of Waters for ten years, assured users that the company would continue to offer service and support for the microarraying equipment, and to add some products, “but I don’t see that market growing as rapidly as the proteomics or high-throughput screening area for Genomic Solutions.”
Market Moves from Innovation to Distribution
So why did Genomic Solutions change course from the austerity plan the company had adopted in January and agree to get acquired? Although Williams said he believed the company could have gotten profitable on its own before running out of cash (it was burning $1.5 million a quarter and had $7.2 million left as of March 31), the merger made better sense to him in this business climate. “The industry is likely to see consolidation, as there’s a small number of customers when you look at pharma, big biotech, and major universities,” Williams noted. Furthermore, he said, microarraying and other biological instrumentation sales are “not as big in pharma as [they] used to be,” and while academic, biotech, and chemical companies have taken up much of this slack, “pharma companies are trying to analyze the information from the systems they have now.”
The fact that Genomic Solutions’ stock had dipped below a dollar for so long that it received a deficiency notice by the Nasdaq in June also helped push along this merger, as Williams was taking heat from distraught investors. “There is an immediate benefit for shareholders,” he said. “We don’t do two 10-K’s, two annual reports, and just this lines up to being over a million [dollars] in savings alone.”
But there is another reason — access to distribution networks — that it made sense for Harvard Bioscience and Genomic Solutions to merge. Harvard Bioscience sells reagents and lab supplies through its catalog and e-mail networks, and has subsidiaries in the UK, Germany, and Belgium as well as a distribution agreement with Amersham Biosciences. Genomic Solutions has developed a global sales force as well as lined up distributors in Australia, Hong Kong/ China, New Zealand, South Korea, and Taiwan, and has a non-exclusive global distribution agreement with PerkinElmer. “We believe the market has moved from leading by innovation to leading by distribution,” Williams said. “Distribution has become key.”
EPPENdorf gets advanced
Williams’ comments — made last Thursday — seemed eerily prescient, as another global equipment supplier, Eppendorf of Hamburg, Germany, announced Friday it was acquiring a majority interest in Belgian microarray startup Advanced Array Technologies in order to manufacture a microarray product that it could sell through its well-established global distribution network.
Eppendorf has subsidiaries and distributors throughout the world through which it can sell the microarrays produced at the Advanced Array Technologies facility in Namur, Belgium. The company plans to introduce its first microarrays from this line before the end of 2002. In 2003, it plans to launch additional biochips as well as instruments for processing and analysis. (See full story p.4.)
If Harvard Bioscience resolves the Affymetrix licensing issue, it could actually compete with Eppendorf in this area, according to Williams. “We think there is pretty good leverage [with Harvard Bioscience’s] catalog distribution system and capabilities in distributing products around the world, especially for GeneMap preprinted arrays and smaller products,” he said. “They are very enamored with our direct sales capabilities” in the instrument area, he added.
In fact, the 25 members of Genomic Solutions’ direct sales team are the only ones who can breathe easily over the next month or so, as both Graziano and Williams have said they plan to keep this team in place, and in fact use them to expand sales of Harvard Bio’s COPAC instrument for animal experiments as well.
The cuts will be made in the administrative and management layers at Genomic Solutions’ Ann Arbor, Irvine, Calif., and Huntington, UK, facilities. “I would describe the company as fat,” said Graziano. “They have huge G&A [general and administrative] expenses.” Additionally, “R&D expenditures total 21 percent while the typical company is maybe seven, maybe 10 percent,” he said. “We will reduce that down in the 10 percent, maybe 12 percent of revenue range.” While sales and marketing personnel may not escape the hatchet altogether, Graziano said these cuts would be ”marginal” as the combined company does not want to disturb the revenue stream from its valuable distribution network.
Genomic Solutions has not announced specific cuts, but it looks like its chief financial officer Steve Richvalsky will be among those to part, and the company’s vice president of communications, Kathleen Murphy, has also indicated that she is definitely leaving the company. Tom Tisone, who founded Irvine, Calif.-based Cartesian Technologies and stayed on after Genomic Solutions acquired it in January, will stay to lead the Irvine facility. At this facility, the company will still be producing its arraying and other equipment, but is likely to cut back on the breadth of its products, said Williams.
Harvard Bio said it expected to make the Genomic Solutions unit immediately profitable, excluding a $1.5 million restructuring charge.
A remaining unknown in this merger is the Genomic Solutions-PerkinElmer relationship, which has been on the rocks ever since PerkinElmer acquired Genomic Solutions’ competitor Packard last November. Both Williams and Graziano, as well as PerkinElmer, said they are planning to continue their relationship.
The PerkinElmer relationship is unlikely to be make-or-break for the combined company, given the new access that it has to alternative distribution channels. But it is unlikely to disturb this or any other distribution channel it has in the short term. “I’ve been involved in 15 acquisitions over the last ten years...and the fundamental thing is to make sure you can ship the products and continue the revenue stream and the support of cutomers,” Graziano said. “This is our number one priority.”