Affymetrix’s decision to acquire reagent manufacturer USB for $75 million in cash last month may have been motivated more by economics than immediate scientific benefit.
The deal could eventually save Affy money in the manufacturing process by enabling it to rely less on outside consumables, while it could even help the shop develop a new platform, according to sources familiar with the company. Affymetrix officials have not discussed this possibility publicly. The firm plans to discuss the USB acquisition during its fourth-quarter earnings call, scheduled for Jan. 31.
Affy announced its plan to buy USB on Dec. 18, 2007. The Cleveland, Ohio-based company manufactures molecular biology enzymes, reagents, and kits; and biochemical reagents and products used in membrane protein research.
The acquisition, expected to close during the current quarter, will “greatly accelerate our ability to develop and commercialize more complete customer solutions,” said Affy President Kevin King, who called the buy a “strategic fit for Affymetrix' growth strategy” (see BAN 12/18/2007).
According to Herbert Auer, manager of the Functional Genomics Core at the Institute for Research in Biomedicine in Barcelona, Spain, one potential move Affy could make following the acquisition is bundling USB’s kits with its gene-expression or genotyping arrays to cut out third-party reagent suppliers in certain cases.
For example, Affy relies on Invitrogen to manufacture its HT One-Cycle cDNA Synthesis Kit for use with its high-throughput Array Station instrument. USB could enable Affy to produce kits like these in-house, Auer said.
“I assume that the reason for the acquisition is more of an economic than a scientific reason,” Auer, an Affy user, told BioArray News in an e-mail last week. “The chemistry that is sold now by Affy is produced by Invitrogen and Ambion. Maybe they want to become more independent and … produce chemistry on their own?” he suggested.
Auer said he does not know where USB’s technology could directly improve Affy’s products, but that “in terms of money it could be beneficial to have an in-house kit production.”
Despite a decrease in the price of chips over the past year, the price of reagents for applications remains high and reagent pricing is on the minds of some array users, particularly those involved in whole-genome genotyping studies that require thousands of chips to produce meaningful scientific results. The price and availability of reagents are also of concern to diagnostics companies who are less familiar with array technology.
Laurent Gatto, a bioinformaticist at Belgium-based DNAVision, told BioArray News in an e-mail last week that having USB in-house could help Affy offer customers an “all-in-one, off-the-shelf solution, which is not yet the case for all their products; in some cases you still need a third party’s kits.” DNAVision is a certified Affymetrix service provider.
Gatto said that a scenario where Affy could independently manufacture more of its reagents is “surely a plus to promote their products on the diagnostic and personal medicine front” because the combined offering would be more accessible to “non-experts” who need to use arrays.
“I would have supposed that Affy would have been making an acquisition in the next-gen area. Apparently, that’s not to be.”
However, Divyen Patel, CEO of Memphis, Tenn.-based Genome Explorations, a certified Affymetrix service provider, questioned how USB could help Affy bolster its reagents offering. “Affymetrix has traditionally kept out of the reagents market and this has served their users well because it gave us the opportunity to work with various different vendors to try and optimize each part of their overall labeling protocol,” Patel told BioArray News this week.
Patel said that certain reagents from third-party vendors work better for different parts of the array workflow, adding that if Affy bundles USB’s reagents with its chips it could either result in a kit that is “sub-optimal for yield and/or quality,” or they could instead work with USB and other vendors to generate a “completely optimized kit that is turn-key for all users and results in perfect quality and yields.”
Alastair Mackay, an analyst who follows the chip market for GARP Research and Securities in Baltimore, predicts Affy will bundle at least some of USB’s reagents with its kits.
“It makes sense, because there are a lot of consumables and enzymes that go into the sample preparation and chip hybridization steps,” Mackay told BioArray News last week. “One presumes that Affymetrix will use USB as a sole-source supplier for some high-value reagents in the kits that go out with the SNP 6.0 and newer chips.”
Out of Sequence
Mackay and other analysts covering Affymetrix said they somewhat expected Affy’s decision to buy a reagents company rather than pick up a next-generation sequencing instrument, as rivals Roche, Applied Biosystems, and Illumina have recently done.
Over the last year, Affy has dismissed notions that it would acquire a next-gen sequencer, hinting instead that the market for the technologies is too immature and too costly to merit a serious investment.
“It’s clearly the early days of that market,” Doug Farrell, Affy’s head of investor relations said in September. “[Imagine] if you had gone out in the first four years of gene expression and tried to acquire an asset to compete with Affymetrix,” he said, implying that it would likely become a losing proposition (see BAN 9/11/2007)
Affy instead sees sequencers as discovery tools that will enable it to sell more chips without selling a sequencing instrument. “Many of these sequencing technologies are running at roughly $100,000 per experiment,” Farrell said at the time. “We are able to put that on a chip for a $400 to $500 experiment; it’s a very value-driven proposition for the customer.”
Despite these denials, analysts and users are guessing that USB might have a technology or method in its portfolio that could later complement a sequencer if Affy ever buys one, or become integral to a new platform that could provide genomic data on par with next-gen sequencers on the market today.
“Affy has yet to place a bet on a next-gen system, and with the success that other platforms have shown, I would have supposed that Affy would have been making an acquisition in the next-gen area,” said GARP’s Mackay. “Apparently, that’s not to be.”
Mackay said that it's possible that Affy decided that acquiring a sequencer is not crucial to its strategy, but that USB’s assets could help Affy develop a newer platform.
“There are limits to the quantification of expression analysis data” using arrays, he said. “One would think that this is something that Affy would not remain sanguine about.”
DNAVision’s Gatto also suspects that there could be a tie-in to a next-generation platform in the USB buy. “USB’s know-how may be a strong help for the development of new technologies, especially when you think about the ultra-high-throughput sequencers that are on the market nowadays,” he said last week.
“If Affymetrix still wants to play a big role in the research field — in contrast to diagnostics and personal medicine — they will have to come up with something new in the coming years,” said Gatto. “Increasing the number of features on a GeneChip won't make it here. USB may be part of this development.”