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Selling Celera Dx Stake to Celera Genomics, ABI Bets That Its Tools Will See FDA OK for Dx Apps


Applied Biosystems is getting into the platform side of the molecular diagnostics game after selling its half of the Celera Diagnostics joint venture to the firm's other owner, Applera sister company Celera Genomics, and setting its sights on eventually clearing some of its platforms with the US Food and Drug Administration for molecular diagnostics applications.

At the same time, Celera Genomics is largely getting out of the drug-discovery and development business and shedding 180 employees to focus largely on drug-target discovery and molecular diagnostics. An additional 60 layoffs will occur in July from Celera's former South San Francisco, Calif. drug-development team, but the company will still retain the capacity to work on drug development in partnerships, Ordonez told Pharmacogenomics Reporter. The fully integrated Celera will have approximately 300 employees.

By divesting its half of the joint venture, ABI hopes to extend its operations "into end-user clinical diagnostic instrumentation," said Tony White, Applera CEO, during a conference call with investors this week. Among the Applera companies, that field was previously reserved only for Celera Diagnostics.

As part of the move, which went into effect Jan. 1, ABI will also get a "package of considerations" from Celera Genomics, including $30 million in cash and a promise by the company to forgive future royalties due through 2017 on sales of select ABI products, the companies said in a statement.

As the dust clears, ABI and Celera Genomics will fix much of their attention on molecular diagnostics, working together more closely on research and development and in "regulatory support" for ABI diagnostic instrument systems.

The push toward creating clinical diagnostic instruments seems like a natural one for ABI. Its various platforms for sequencing, mass spectrometry, and PCR are in common use in research and clinical laboratories, but the company has been constrained by the terms of its joint venture to sell "research-only" applications.

With freedom to move the small distance into the diagnostics space, ABI hopes to shepherd platforms through the FDA's clearance process. Although no company officers said so explicitly, Burzik's comments suggested these might include its mass spectrometers and DNA sequencers, at least.

"We currently are in the process of assessing the order in which we will pursue development and registration of products for the diagnostics market," ABI President Cathy Burzik said in a conference call this week. "We anticipate adoption will vary by product line and by geography," with the company introducing its instruments into clinical diagnostics markets "within the next couple of years," she said.

The move is intended to allow ABI to enhance its competitiveness, as well as open another source for growth, said Burzik.

The Applera officers hosting the conference call offered no clear indication of which platforms held highest priority for FDA clearance. The obvious choice would be ABI's PCR platforms, but Burzik singled out the company's sequencers and mass specs.

"We have what we consider a large opportunity to build a business around diagnostic sequencing," moving it from a discovery- and validation-platform track to one in which "commercialization can occur," she said during the conference call. Burzik also noted that many customers have also put applications on ABI's general-purpose mass specs for clinical testing in hospitals. "We see this as a mass spec opportunity, not just an opportunity for our sequencers and our PCR systems," she said.

Shakeup at Celera Redirects Focus on Diagnostics

Changes of equal or greater magnitude are happening in Celera territory, too, as Celera Diagnostics becomes completely absorbed by Celera Genomics. The simultaneous restructuring of Celera Genomics will result in a reduction in its workforce by a total of 240 employees, the first batch of 180 of which will come from its small-molecule development business. A further 60 layoffs will follow as the company sells off or otherwise rids itself of small-molecule programs, said Kathy Ordonez, the company's president, during this week's conference call with investors.

Celera Genomics is discussing "with several companies" the purchase of its small-molecule development programs, or exploring other means of transferring them to new owners, said Ordonez. "Programs that are not partnered will be terminated," she said. The company's proteomic and genomic target-discovery businesses will remain.

Celera Genomics' board and management believe the new structure, aimed at redirecting the company's R&D focus on diagnostics, will prove to be "less risky" and produce an "earlier reward profile," Ordonez said.

The layoffs will result in "substantially" reduced expenses for Celera, and they will be associated with as-yet unknown restructuring charges, Ordonez said. "We expect to revise our guidance for the remainder of fiscal 2006 when we report our second-quarter fiscal 2006 results," she said.

The company's second fiscal quarter, 2006, ended on December 31, 2005.

The cash-flow impact of the layoffs will be "a material reduction in negative cash flow," and, possibly by the end of the fiscal year, "there will be no negative cash flow from small molecules," said Dennis Winger, Applera CFO, during the call. But estimating the size of the financial impact will be difficult until the company knows "how the partnering relationships are going to evolve and what needs the partners will have for services," he said.

As the dust clears, both ABI and Celera will fix much of their attention on molecular diagnostics. The two plan to work together more closely on research and development, and in "regulatory support" for ABI diagnostic instrument systems, said Burzik.

In particular, Celera will use its GMP facilities to produce assays for ABI's customers, providing their clinical research makes good business sense. "We envision that certain Applied Biosystems customers will want to commercialize diagnostic assays they create from their research discoveries," said Burzik. "How they will be sold will be decided on a case-by-case basis," she said.

In another example of cooperation, Celera will help ABI develop PCR- and sequencing-based reagents and products for the research and applied markets, said Burzik.

ABI will also be the preferred supplier of instruments to the ongoing Celera/Abbott Labs alliance, while those two companies will be the preferred marketers of ABI instruments.

In its own time, Celera will continue to work with Abbott "in most aspects of molecular diagnostics," said Ordonez.

When UBS Warburg analyst Derek Debruin asked Ordonez during the call about the timing of new diagnostic product launches, she declined to answer, suggesting that greater detail would be provided in Celera's presentation at the JP Morgan meeting in San Francisco the following day, Jan. 11. However, Ordonez cited analyte-specific reagents for thrombosis, Factor II and Factor IV Leiden, and MTHFR that the company introduced this week as evidence of the firm's progress, adding that its Fragile-X test "is quite close to market."

Molecular Securities provided restructuring advice, Morgan Stanley provided a financial analysis of the transaction's fair value, and LEK Consulting "provided input to the market analysis developed by Celera Diagnostics," said Applera CEO White.

Using different assumptions, Molecular Securities estimated a range of potential values for Celera Diagnostics, "including how the business develops over several years," along with evaluations of "a package of potential considerations from Celera Genomics to Applied Biosystems," White said. "When taken together, it was the conclusion of the board … that the value of the consideration to Applied Biosystems approximates the value of Applied Biosystems' 50-percent interest in the joint venture." he said.

— Chris Womack ([email protected])

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