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Affymetrix Bets Fisher Distribution Deal Will Open Doors to Smaller Labs, Universities


By Justin Petrone

Affymetrix last week provided an update on its distribution pact with Thermo Fisher Scientific, saying the deal will increase demand for its arrays and benchtop GeneAtlas instrument by giving the company access to customers it previously missed, specifically smaller labs and universities.

A senior Affy official also said the company is currently looking for cash-based merger or acquisition deals that would complement the routine-testing and -validation segment of its business, which it is eager to grow.

Describing the Fisher deal, Affy's Chief Financial Officer Tim Barabe said, "hopefully, it will drive consumable sales, and consumables are 85 percent of our business right now. The end game for us is getting the instruments into the marketplace so that we can get the consumables sales."

For Fisher, the deal, penned in January, will enable it to distribute Affy's benchtop GeneAtlas instrument in North America. Launched last year, the tool can process four of Affy's arrays simultaneously (BAN 6/9/2010).

The agreement also enables Affy to retain distribution rights for the GeneAtlas outside of North America.

"The reason we signed the distribution agreement with Fisher was because this was a channel that we were not tapping," Barabe said. "We feel that Fisher has the greatest reach in order to get into these smaller labs and universities that we just don't have the bandwidth to get to."

Affy trained Fisher's sales force in February, and it is currently marketing the GeneAtlas to its clients.

While Affy has always marketed the GeneAtlas to this kind of customer base, Barabe conceded the company had "no way to tap [it] given the size of our sales force and the size of our company, quite frankly."

For Fisher, meantime, the GeneAtlas is a "premier product … so it's not one of the normal products that they would be taking orders for," said Barabe, who made his remarks last week at the Bank of America Merrill Lynch Healthcare Conference, held in Las Vegas and webcast.

The deal is particularly noteworthy for Affy because it could help to reinvigorate its instrument sales. Instrument revenues were down 36 percent in the first quarter.

Additionally, a recent Leerink Swann survey of lab directors found that more than half of respondents do not plan to buy a new array system this year, while those who do plan to buy one said they favor instruments made by Affy competitors (BAN 3/31/2011).

Despite this, Affy CEO Kevin King is optimistic about the company's instrument business, saying sales should grow this year, in part because of the Fisher deal.

"We expect to begin seeing the benefits of the relationship [with Fisher] over the balance of 2011," he said last month during the firm's Q1 earnings call (BAN 5/3/2011).

King said that Fisher has already acquired an initial inventory for product demonstrations and "has a fairly large dedicated sales force in genomics that are calling on new customers."

"Our market surveys indicate that this is potentially a very large market of users and instrument placements," King said. "I think the ramp [up in sales] will be progressive as they continue to get leads and close those leads out and would expect that we'll finish the year quite strong."

Eyeing M&As

During his talk in Las Vegas, Barabe also discussed Affy's acquisition strategy. In 2008 the company spent nearly $175 million to acquire three firms: reagent maker USB, tools vendor Panomics, and startup True Materials.

Though it hasn't made a purchase since (BAN 12/16/2008), Affy has continued to assert it is open to more acquisitions.

Backing this up, Barabe noted that Affy has about $150 million in cash on hand for such deals, and said the firm has a business-development team looking at various M&A opportunities. He said the company is currently looking for cash deals that can complement the routine testing and validation segment of its business, which it is eager to grow.

Considering its market capitalization, which is around $435 million today, "if we can find something that fits well, and that we can pay cash for, fantastic," Barabe said. "We have a lot of cash and that's fine, [but] once we start thinking about something that's big enough where we have to use stock, we become very critical.

"We believe ourselves to be undervalued, and we don't want to pay up for an asset … unless it's really going to be game changing," he added.

Barabe also said the company is considering investing in smaller companies that "need our technology but may benefit from us helping them." The firm has around a dozen so-called "Powered by Affymetrix" partners that use its arrays to develop tests.

"In the future, we would consider helping our PbA partners get started, but at the same time taking a small equity stake so if they do become successful, we can take the next step, which might be to acquire them or cash in on the investment we made," Barabe said.

Have topics you'd like to see covered in BioArray News? Contact the editor at jpetrone [at] genomeweb [.] com.

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