Seeking to expand its presence in North America and gain a foothold in drug discovery, the NextGen Group, based in Cambridge, UK, last week purchased Proteomic Research Services for $1.7 million in cash and stock.
Under the terms of the deal, NextGen paid PRS $498,500 when the purchase closed on Nov. 3, and will pay up to $1.2 million more during the next three years if certain revenue targets are met.
PRS offers, among other things, services for protein identification and characterization, proteome mapping, and differential analysis. NextGen is a protein-synthesis company.
The sale of PRS comes at time when proteomics as a business is incrementally growing but not quickly enough for stand-alone proteomic service firms to thrive.
In earnings results released during the past few weeks, companies with proteomic divisions said those segments posted strong revenue growth. In addition, during the summer, the University of Massachusetts Medical School’s Proteomic Fractionation Group partnered with BioMachines to create a new division within BioMachines offering proteomic analysis services [See PM 07/20/06].
But in a stark reminder about the tenuous state of companies focused narrowly on proteomic services, the Brain Research Center in Vancouver, Canada, recently found itself having to take over PepMetric Technologies’ proteomic services business when anemic sales forced that company to stop offering them [See PM 10/05/06].
Michael Pisano, president and CEO of PRS, which now is a wholly owned subsidiary of NextGen, said that pharmaceutical companies, biotech firms, and academic researchers are once again becoming interested in proteomic research, but remain reluctant to invest in the infrastructure needed to build proteomics labs. The consequence is that many have to outsource their proteomics research to companies such as PRS.
While privately-held PRS could have remained a stand-alone company for the foreseeable future — with an annual revenue growth rate of 10 to 15 percent — its deal with NextGen gives it a cash infusion allowing it to pursue opportunities it otherwise would not, said Pisano who now serves also as chief scientific officer for NextGen. He declined to say what those plans may be.
“We haven’t had the financial wherewithal, if you will, to be able to grow the company, to purchase instrumentation, to hire people, to grow the way we really want to grow, and to do some of the initiatives that we want to get started,” Pisano said.
From NextGen’s perspective, the purchase of PRS provides a platform to increase its presence in North America which the company said “has been pivotal to our strategy from the outset.”
In particular, NextGen CEO James Heffernan told ProteoMonitor this week that having a North American presence is crucial to working with large drug companies in drug discovery, a goal of both NextGen and PRS.
“We didn’t have a full-service base in North America…and the North American drug discovery market is anywhere between 50 to 70 percent of the global drug discovery market,” he said. “You’ve got to be very present in North America if you want to be a successful company.”
“You’ve got to be very present in North America if you want to be a successful company.”
Neither NextGen nor PRS had been involved in the drug discovery market. “Certainly now as part of this acquisition, that area is open to us,” Heffernan said.
Before the acquisition, the two companies had been working together for almost a year. In January, PRS entered into an agreement for NextGen to market and sell PRS’s proteomic analysis services globally.
While Heffernan said that there was no intention on the part of NextGen then to eventually buy PRS, Pisano said that his company had “approached the commercial alliance at the beginning with the longer-term plan of potentially, if everything worked out, to eventually get married.”
Regardless, both said that the past 11 months made it clear that each was a good match for the other. Because the two companies offer different services, redundancy is not an issue, Heffernan said.
All seven employees of PRS, based in Ann Arbor, Mich., are being retained by NextGen, which has about 40 employees. Pisano has an agreement to stay with the company for at least three years.
In 2005, NextGen, which went public in December, posted a net loss of ₤2.5 million ($4.8 million) on revenue of $1.9 million. Privately held PRS had a loss of $272,518 last year on revenue of $1.2 million, NextGen said.
In order to finance the transaction, NextGen placed 90 million shares of its common stock through Ellis Stockbrokers Limited to raise $1.4 million.