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With Orchid Tech in the Bag, Beckman Coulter Sets Sights on Sequenom, ABI

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One month after buying Orchid Biosciences’ genotyping-tools business, Beckman Coulter is making no secret of its plans to compete in the market that showed Orchid the door.

Eager to challenge Sequenom and newcomer platforms from Illumina and Applied Biosystems, Beckman is poised to hit the ground running: The com-pany is profitable, it has a wad of cash in the bank, and an enviable customer base. What’s more, its beefy sales and marketing machine will be a welcome change for Orchid’s platform.

“We think it’s a great product,” Brendan Yee, strategic marketing manager of Beckman’s biological systems operations, said of the Orchid platform. “It’s a well-accepted technology that’s used in many other platforms, and … has a lot of room to grow.”

Beckman took control of Orchid’s instrumentation business, the unreleased Chromosome Browser software, reagents, a non-exclusive license to use Orchid’s SNP-IT analysis technology in diagnostics, and an exclusive license to use SNP-IT in products sold to research and specialty-testing markets.

Not surprisingly, most industry analysts met the business acquisition with a yawn. Though neither Beckman nor Orchid would disclose financial details, industry watchers believe the deal, which included the rights to Orchid’s SNP-genotyping instrumentation, reagents, and some software, is worth less than $10 million. When asked recently what Beckman paid for the lot, Jay Steffenhagen, Beckman’s VP of corporate strategic planning and business development, said “not much.”

Additionally, the instrumentation portion of Orchid’s business, which acted more like a parachute than a growth engine, is expected to generate between $3 million and $5 million in revenue for Beckman, according to Steffenhagen — a pittance for a company that reported more than $500 million in receipts and more than $32 million in profits in the third quarter of 2002.

To Beckman, though, the acquisition represents an opportunity to wade in a market the consulting firm Front Line predicts will reach $800 million by 2007. Plus, Beckman plans to fold the technology into existing and impending products, like a new microarray-based proteomics tool scheduled for release later this year.

Calculating Risk

Some question the wisdom of buying a technology from a company whose experience selling it was so daunting that it was forced eventually to jettison it. What’s more, Beckman plans to go head-to-head with market leader Sequenom and face a pair of new, powerful entrées from Illumina and ABI.

“We took a very long and hard look at this and we do believe there will be a very large opportunity to really understand disease association and SNPs,” Yee said. Plus, it’s not as if Beckman swooped in from out of the clear blue, checkbook in hand. Last January, in fact, the proteomics and lab-automation giant licensed Orchid’s SNP-IT system and incorporated it into its own reagent kits, software, and SNP-scoring products. One month later, Beckman would extend the deal and acquire a license to make and sell certain analyte-specific reagents for use with the SNP-IT technology.

Today, Beckman recognizes the biggest roadblocks to wider use of any genotyping platform are cost-per-genotype and throughput, according to Yee. Current Orchid customers “are able to get pretty high throughput at 70,000 genotypes per day at $.20 per genotype,” he said. It may not be the cheapest genotype around, but Yee said Beckman expects “dramatically to reduce” that in two years.

Illustrating the point, Yee said that while ABI is a “potential up-and-coming player in this market … we believe that the high setup costs of the [Illumina] system will be a major deterrent.”

Beckman has another, greater, get-out-of-jail-free card: Its success is not closely tied to its new genotyping platform; indeed, any direct revenue the technology might add or detract is a “drop in the ocean,” as one analyst put it. Orchid’s success, by comparison, was stifled in part by a crowded market and a slumping economy.

When the acquisition was announced a few days before Christmas last year, Orchid had recently sacked CEO Dale Pfost — whom the company has not yet replaced at press time — and has been trying to prevent its stock from being delisted by the Nasdaq exchange. (On Jan. 13 the company, whose shares have traded below $1 since Sept. 3, said it was considering a stock split as one potential remedy.) And despite posting strong revenue growth and narrowed net losses in the third quarter, the company’s balance sheet was haunted by shrinking coffers.

Orchid’s cash-burn rate, which newly hired CFO Andrew Savadelis last November said would be in the single digits during the first nine months of 2003, threatened to bleed the company dry by the end of last year. Instead, Orchid’s bank account received its own Christmas present, albeit two days late, in the form of a $10 million revolving line of credit.

There were other financial bright spots. Revenues in the quarter ended Sept. 30, the most recent period reported, were just under $17 million and reflected growth across the board. Product receipts increased by $1.2 million, service revenue swelled by $8.3 million, and even cash from collaborations and licenses increased by $61,000.

What Beckman took home Dec. 20 was not only Orchid’s instrumentation business, the unreleased Chromosome Browser software, and reagents — which Beckman shrewdly will market back to Orchid. The firm also won an exclusive license to use Orchid’s SNP-IT analysis technology in products sold to research and specialty-testing markets, and a non-exclusive license to use SNP-IT in diagnostics.

Beckman also assumed “certain obligations” to Orchid’s reagents and instrument leases. It was not immediately clear how all of Orchid’s customers, licensees, or collaborators would fare. The company has relationships with Estonian genotyping company Asper Biotech, AstraZeneca, the British government, Ellipsis, First Genetic Trust, GlaxoSmithKline, Invitrogen, Lilly, Merck, PerkinElmer, livestock breeder PIC, British life-science company Tepnel, and Thermo BioStar.

Orchid, meantime, retained rights to use SNP-IT in the diagnostics market and in its genoprofiling-service businesses. The company would also continue using SNP-IT for its pharmaceutical and agricultural customers and has retained the rights to its portfolio of SNP-technology patents.

With the acquisition came worldwide distribution rights, enfeebled by Orchid’s limp sales efforts. Immediately, Beckman set out to train and mobilize its own staff over the next two months to “relaunch” the platform.

Beckman also plans to flex its substantial marketing muscle to ensure its new acquisition hits the ground running. “We are planning to fold this into our existing campaign, and we have some pretty large initiatives under way. Orchid has already done some fair amount of advertising and I believe people are aware of the technology,” said Yee. “Now I believe we have to prove to [customers] that we are a credible supplier and we are able to support this product.”

Beckman intends to manufacture and supply the reagents and instruments. And though the company will eventually court non-profits, academia, and industry, Yee said Beckman’s primary focus will be on academia, which will serve as a proving ground for the technology.

Meantime, Orchid’s rebirth — or “refocus,” as Savadelis calls it — is not quite finished. The firm, which is shooting to become profitable by the end of the year, is considering selling another asset, and additional layoffs are not being ruled out. But Orchid has come out of the divestiture leaner and better able to focus on its core identity-genomics business.

“We love it,” Savadelis told SNPtech Reporter when asked about his firm’s new place in the forensics, paternity, personalized medicine, and agricultural prionics arenas. An Orchid spokeswoman said these markets, which the company collectively calls genetic profiling, will be worth $200 million in 2003 in North America and the UK.

“The market that we are going into is … on a substantial growth curve for which there is not enough capacity to handle over the next several years.”

— KL

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