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Agilent Buys Silicon Genetics: Is the End Near for Mom-and-Pop Software Shops?

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The gene expression analysis software market will undergo a seismic shift in a few months, when Silicon Genetics — the most well-known company in that segment of the bioinformatics sector — becomes part of Agilent Technologies under an acquisition deal the companies announced in late August.

Silicon Genetics is a rare bioinformatics success story. The privately held firm has been profitable ever since it launched its flagship GeneSpring software in 1998, and now claims more than 4,000 users for that product. But the company’s acquisition (the terms of which have not been disclosed) sends a bit of a mixed message to the remaining vendors in the gene expression analysis market: It illustrates the value that large platform vendors — and their customers — are placing on bioinformatics tools, but it’s an additional reminder that the wave of consolidation that began last year within the sector has not yet run its course.

Since early 2003, microarray analysis shops Molecular Mining, X-Mine, Xpogen, AnVil, and BioLab Software have all shut their doors. The acquisition of Silicon Genetics is another sign that further consolidation in the crowded market is inevitable. In addition, this deal could even accelerate the pace of the shakeout: With the formidable sales and marketing force of Agilent behind Silicon Genetics’ software, how will smaller software firms compete?

These companies will certainly be keeping a close eye on several factors that will determine the impact of this deal on the broader gene expression analysis software marketplace: the length of the integration process; customer support for Silicon Genetics’ software following the acquisition; and whether Silicon Genetics continues to support the Affymetrix platform under the Agilent umbrella.

Increasing Informatics Investment

Agilent has stressed its “commitment” to keeping Silicon Genetics’ software compatible with multiple microarray platforms. “We always have and will continue to support open architectures,” Fran DiNuzzo, vice president and general manager of Agilent’s Integrated Biology Solutions business, told BioInform. Agilent spokeswoman Christine Maehr added that it’s in the company’s best interest to maintain compatibility with competing microarray platforms because many of its customers run the Agilent system alongside systems from Affy and other firms.

“The trend among small software companies is to see all the other informatics companies as competition, but we don’t see it that way,” she said. “We see the software as enabling our customers to do their work, so it needs to be able to work with whatever systems they use.”

Agilent expects to benefit from Silicon Genetics’ large installed user base, made up primarily of smaller labs running the popular GeneSpring desktop package. This will complement the customer base for the more expensive, enterprise-scale software packages that Agilent currently distributes as part of its longstanding collaboration with Rosetta Biosoftware, DiNuzzo said.

On the same day that it announced its plans to acquire Silicon Genetics, Agilent issued a press release stating that it had also “increased its commitment” to the Rosetta partnership. While the companies did not disclose the terms of this expanded agreement, Maehr said the goal of the announcement was two-fold: “One, to really send the message that we are increasing our investments in informatics. The second is to reassure customers that all of these product platforms are going to continue. And not just that we’re continuing to support them, but that we’re continuing to develop them.”

Maehr said that Agilent expects to take on nearly all of Silicon Genetics’ 50 or so employees, which will nearly double the size of Agilent’s current bioinformatics group. She said the companies will follow a “reverse integration” model that will keep the smaller firm organizationally intact “to minimize disruption,” while the Agilent informatics employees will be folded into that group. “In terms of the organizational structure, we’re going to try and keep that as much the same as possible so that we don’t wreck a good thing,” she said.

The acquisition is scheduled to close within two to three months.

Win-Win?

For Silicon Genetics, the acquisition will offer an opportunity to move into new product areas, said Kevin Wandryk, vice president of marketing and business development for the company. Wandryk said that the possibility of an acquisition partner came up last year as the firm began developing its Varia genotyping software. “One of the things we have to do as a small company is really work hard to allocate enough resources to [developing new products], but not so many resources to distract the rest of the organization,” he said. “That was one of the catalysts where we said if we really want to be able to fulfill the kinds of things that our customers want us to fulfill, the best thing to do is to partner and get pretty close to a large organization.”

Wandryk said that Silicon Genetics spoke to a “wide variety” of potential acquisition partners, but Agilent shared the same “vision” for the role of informatics across life science research. Agilent recently consolidated its gene expression, genotyping, and proteomics businesses into the newly created Integrated Biology Solutions group, and the company plans to provide a suite of tools to integrate the data from those various platforms. Wandryk said that Silicon Genetics has been heading in a similar direction since the launch of Varia.

“One of the big requests we’re getting from customers today is how can they correlate data from Varia and data from GeneSpring to make one integrated discovery process. And they want to do the same thing with proteomics, and they’re interested in doing the same thing with metabolomics and a whole lot of other areas.”

DiNuzzo said that the Silicon Genetics purchase is an important piece of the company’s IBS informatics strategy, but he said it’s still too early to tell what form the group’s final integrated informatics offering may take. First, he said, “we need to get a chance to look inside the war chest of the components” following the acquisition.

The acquisition will net Agilent an instant bioinformatics development team, along with a comprehensive software portfolio that ranges from desktop solutions to enterprise offerings, and access to a large base of potential microarray customers.

But there are also some risks involved. The integration process following an acquisition typically takes several months to a year, and customer uncertainty can spread like crabgrass during the transition period. Affymetrix customers could postpone their GeneSpring purchases until they are certain that the company will continue to support that platform, or opt for another software system altogether. Despite pledges from both Silicon Genetics and Agilent that support for the Affy platform will continue after the acquisition, several observers said that even if this is true, the level of that support is likely to diminish over time as Silicon Genetics’ developers focus on optimizing their software for Agilent’s platform. In addition, the benefits that a big company like Agilent can offer — namely, a larger sales force — could be offset by an inability to react as quickly as a smaller firm could to a rapidly evolving market .

So even though Agilent’s entry into the gene expression software market poses a threat for some firms, others see a window of opportunity opening over the next few months as the sector realigns in the wake of the acquisition. “Our investors are thrilled by this development,” said Thomas Ranken, CEO of VizX Labs. “Agilent has acknowledged in a very real way that data analysis is a significant bottleneck in microarray research and that software can help improve the sales of chips.”

In addition, Ranken said, “There is always the demand to refocus on the needs of the ‘mothership’ following an acquisition” — a situation that could leave the Agilent/Silicon Genetics business vulnerable and open the market to smaller players like VizX.

Whether the acquisition ultimately helps or hinders the remaining standalone software firms in the microarray analysis sector, most observers agree that the shakeout is not over yet. “I suspect that there will be some more consolidation that will happen pretty soon,” said S. Sowmyanarayan, assistant manager of business development at Strand Genomics. “The informatics market is very scattered at this point. There are many players, and the microarray market is really not big enough to support so many players.”

— BT

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