Last week Applied Biosystems announced a $3 million equity investment in Genomica while Amersham Pharmacia Biotech invested an even heftier $10 million in a new class of InforMax preferred stock.
And market watchers expect more and more companies to strike similar deals as a growing number of players try to turn genomic knowledge into profitable diagnostic tools and treatments.
Were still early in the SNP [single-nucleotide polymorphism] story and there are big and small companies that are aligning like mad to either pull together the toolkit in selective areas or pull together the capability to have a competitive advantage in some area, said Steven Burrill, CEO of Burrill & Co., a San Francisco merchant bank that specializes in the life sciences.
I think most of the deals are strategic like this, not mergers and acquisitions, but well see selective M&A as well, Burrill added.
By forming alliances rather than looking for suitors, bioinformatics companies such as InforMax and Genomica can maintain their independence, get equity capital to expand their businesses, and boost their credibility via links to a reputable strategic partner.
From the standpoint of Applied Biosystems and Amersham, a partnership with a software company allows them to expand their capabilities without having to face the sometimes overwhelming task of merging corporate cultures.
By and large, I would argue that the big companies would rather partner than acquire. And partnering is usually a much more efficient way than the acquisition, said Burrill. Alliances tend to be simpler, cheaper, and just as effective if not more so than an acquisition.
Such an arrangement could be a first step towards an acquisition, but in most cases, a partnership does not lead to a buyout. Burrill said that his company is involved in 300 to 500 partnering transactions a year, compared with some 50 mergers.
However, if a merger is the ultimate goal, most companies seek to acquire another entity after having been alliance partners. The catch there is that the value of the strategic relationship may dramatically enhance the value of the smaller company, making it more expensive.
APB, which manufactures and sells high-throughput systems for drug discovery, has signed a 20-year agreement with InforMax to enhance GenoMax, InforMaxs enterprise bioinformatics tools.
Andrew Whiteley, APBs vice president of bioinformatics, said that together the two companies will develop database infrastructure that will allow pharmaceutical companies to link data from APBs sequencing machines with applications for genotyping, microarray analysis, drug screening, and proteomic analysis.
APB, the life sciences division of Nycomed Amersham, sells the MegaBace sequencing machine, the rival of Applieds ABI 3700 hardware. APB has sales approaching $1 billion per year and a staff of more than 4,000.
We are working with InforMax because we can leverage the relationships that we have with big pharma at developing these types of enterprise-capable systems, said Whiteley.
APB of Uppsala, Sweden and InforMax of Rockville, Md., will divide the revenues from sales of the new system. Whiteley declined to discuss the terms of the licensing agreement.
Whiteley said that APB was not interested in acquiring InforMax in part because this type of strategic relationship would allow APB to move more quickly.
APB plans to form more collaborations, but Whiteley declined to name the areas that the company is targeting. Whiteley, who has been in his post for about six months, is also establishing a bioinformatics division within the company.
Meanwhile, Applied Biosystems also intends to incorporate Genomicas technology in order to enhance its instruments. Under the terms of their deal, Genomica will license its genetic-analysis object model to Applied Biosystems. This object model will allow Applied Biosystems to store genotyping results generated from its various instruments in a common Oracle database.
Genomicas bioinformatics software products can then be used to access the genotyping results for scientific analysis.
The object model enhances the capability to pool data, said Jay Rhodes, a spokesman for Applied Biosystems. The enhanced Applied Biosystems system is what gets sold.
Rhodes declined to disclose the terms of the licensing agreement or percentage of Genomicas equity Applied Biosystems will own following the deal.
A spokesperson for Genomica was not immediately available for comment.
Genomica and Applied Biosystems previously partnered to develop software products to be used with Applieds hardware.
--Matthew Dougherty and Jennifer Friedlin