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Stratagene Hopes Hycor Purchase Will Open Doors to Molecular Diagnostics

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Responding to a creeping commoditization within the genomic tool market, Stratagene is gambling that its acquisition of Hycor will help it diversify into molecular diagnostics.

The merger, which is expected to close in the fourth quarter, will enable privately held Stratagene to focus more of its R&D efforts on growing Hycor’s clinical diagnostics footprint while accelerating the pace of its own research-based PCR and Q-PCR products.

“We now see that there’s some applications to the types of products and technologies we’ve been developing in the diagnostics area, and we would like to expand our scope into the diagnostics area,” Stratagene CEO Joe Sorge told SNPtech Reporter this week.

Last week, Stratagene, of La Jolla, Calif., said it would acquire Hycor in part to create a molecular diagnostics component that will combine Hycor’s instrumentation systems and reagents technologies with Stratagene’s gene-discovery and target-identification products.

The new company, which will retain the Stratagene name and headquarters and make Hycor a wholly owned subsidiary, expects to bring in a combined $85 million in revenues for 2003, and will become profitable in 2004, the firms said.

David Tholen, Hycor president and CEO, will resign as an officer and become a member of the Stratagene board of directors, as Reg Jones, senior vice president and CFO of Hycor, will become CFO of the new company. Meantime, Sorge, who is also a Stratagene founder, will retain his position as president and CEO, and will become a member of a reconstituted board of directors.

New Fields and Streams

The acquisition will divert much of Stratagene’s focus considerably downstream. The company currently manufactures and markets host cells for gene cloning and gene expression; mutagenesis kits; enzymes for PCR research; quantitative PCR kits and instruments; and other life-science tools. Sorge stressed that Stratagene will not change the scope of its 2,500-product catalog.

“We are continuing to invest in the quantitative-PCR area and are going to look at how we might be able to apply that technology” to other clinical areas, like infectious-disease screening, Sorge said.

Stratagene’s plan is for Hycor to contribute to this goal by applying its experience with the US Food and Drug Administration’s regulatory-approval process. “That’s not something Stratagene has had experience with in the past, and I think we can learn a lot from Hycor’s ability to do that,” said Sorge. “Stratagene can also take advantage of Hycor’s GMP-approved manufacturing facilities.” He said that Stratagene will likely spend “just north” of 15 percent of revenue on R&D once the acquisition is complete.

Additionally, though some of Stratagene’s sales in the research-lab market has centered on core reagents used in PCR and Q-PCR work, and the firm has in the past developed probe kits for SNP detection and RNA-level expression, “that has not been a focus for us,” said Sorge. “We have not developed these types of products for more that a year and a half. We have just been providing core kits for anyone who wants to do Q-PCR or PCR on the genes or RNA of their own interest.”

Asked if Stratagene now hopes to expand in this area through the Hycor acquisition, Sorge said, “Yeah. I think we would like to explore that — though I think the specific opportunities will have to be evaluated individually.”

Hycor, for its part, has significant experience selling to clinical markets FDA-approved kits for immune diseases and urinalysis testing. For example, in February, Hycor penned an R&D collaboration with Bayer Diagnostics to reformat its autoimmune test to work on Bayer’s clinical platform. The deal is exclusive, so any autoimmune test that Bayer develops will use Hycor’s materials and reagents.

“Hycor intends to look for other types of arrangements like that, and I believe that we can perhaps expand the scope beyond autoimmune into the areas of allergies and infectious disease, and possibly genetic screening,” said Sorge. He said one aim will be to sell the technology directly to companies like Bayer Diagnostics.

Additionally, Strategene hopes the Hycor acquisition will help it delve deeper into the microarray technology arena, said Sorge. The firm has had experience in this space for around three years, although it doesn’t sell the arrays. Rather, the company sells controls and kits for arrays. Hycor had also been interested in applying microarray technology “to some of its testing areas, particularly to the allergy area, said Sorge. (Hycor already sells enzyme-linked immunoassays for allergy testing.) “We believe there might be opportunities to spot scores of allergens on a microarray so that an allergen screen can be done relatively inexpensively for dozens, if not hundreds, of allergens.” Sorge stressed that Stratagene will only begin plotting a course for this area after the FDA finalizes its regulations.

In another step designed to support its microarry plans, Stratagene will fold back into the company its bioinformatics subsidiary, Iobion, which was spun out two years ago. According to Sorge, Iobion’s recently released Windows-based software “now supports the microarray analysis market extremely well, and we’re actually seeing some real success in the Iobion area,” he said. It also performs pathway analysis and “some” core gene and protein-sequence analysis. “It’s a product line that the Stratagene sales force now has some confidence that it can begin to sell,” said Sorge [read the article on the software launch in Bioinform, SNPtech Reporter’s sister publication]. Sorge said Iobion will become a part of Stratagene as soon as the Hycor acquisition closes.

Customers for this forthcoming microarray tools suite would be clinical labs, like Quest Diagnostics and smaller regional centers, that perform allergy screening, and Strategene’s strategy would be to entice these labs to switch from 96-well plates to a microarray format.

“The Hycor people have done some market research and received some feedback, but I’d say it’s too early to comment on whether we believe this will be a commercially successful area,” Sorge cautioned. “It’s going to depend on the cost of the test.” He also said the company will wait until the FDA squares its molecular diagnostics regulations before embarking into the market.

Stratagene will remain a competitor of Invitrogen, Qiagen, and other large life-science catalog companies. “We’re not in any way abandoning the research market,” said Sorge. “It’s not our immediate intention to go into this [diagnostics] market directly. Rather, what we believe we can do is to develop technologies and kits that other diagnostics [companies] might be able to sell.”

Stratagene’s move to acquire Hycor was largely a response to commoditization of the tools sector, and a slowdown in new technology development over the last decade. This phenomenon has driven a number of recent acquisitions in the tool space, and has defined the modus operandi of one of Stratagene’s biggest competitors, Invitrogen.

“We believe that maybe over time there may be some commoditization in the types of products that we and some of our competitors sell,” Sorge told SNPtech Reporter.

“We’re looking for new markets to apply this technology,” Sorge went on. “We see the diagnostics market as a very, very large market where some of the molecular technologies have been developed for the research market in the past can now be applied to the diagnostics market.”

— KL

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