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Cell Biosciences Accelerates Transition to Commercial Entity, Plans to Buy Alpha Innotech for $20M

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This story originally ran on Sept. 15.

Cell Biosciences last week announced it had entered into a definitive agreement to acquire Alpha Innotech for $20 million in a deal that further accelerates Cell Biosciences' transition to a full commercial operation.

Under the terms of the deal, anticipated to close in 60 days, Cell Biosciences would pay $1.50 for each share of Alpha Innotech stock for a total of $17.9 million in cash. It also would assume $2.1 million of outstanding debt from Alpha Innotech.

The new company, whose name has not yet been decided, would operate as a privately held company, the same status as Cell Biosciences. Alpha Innotech shares are traded on the over-the-counter bulletin board.

In order to pay for the purchase, Cell Biosciences has entered into agreements to raise $19 million in cash in a second closing of its Series C Preferred Stock financing and a Series D Preferred Stock financing by its largest investor, the Wellcome Trust. Existing investors Domain Associates, Novo A/S, Latterell Venture Partners, the Vertical Group, and the Royal Bank of Canada have also agreed to participate in the financing, the company said.

For a firm that launched its first product commercially only five months ago, the proposed deal represents a major move to grow its footprint. Just over a year ago, Cell Biosciences underwent a total reorganization in its management to segue from being a technology startup to a company focused on commercializing its products [See PM 01/15/09].

"We really think that the sweet spot for the acquisition is at the high end of the Alpha portfolio and the lower end of our portfolio," Tim Harkness, CEO of Cell Biosciences, told ProteoMonitor this week. "Today, we have a product in the $200,000 price range, and their highest-end product is at $50,000. We think that there's a great opportunity to build a defendable niche in the high-end quantitative Western [blot] market, and we think the combination of our technology and Alpha's technology will enable us to build out that niche."

Based in Santa Clara, Calif., Cell Biosciences bills itself as a nanoproteomics company that develops systems, software, and assays. In April, five years after the company was formed, it made its first official and only commercial launch with the CB1000 protein analysis system, which uses capillary-based nanofluidic immunoassays [See PM 04/16/09].

Alpha Innotech, based in San Leandro, Calif., develops and manufactures high-sensitivity digital imaging systems for proteomics and genomics research. Among its products are gel and fluorescent imagers and small volume spectrophotometers.

One strength of the deal, according to Harkness, is that each company's products can be used either independently or as pieces of one workflow.

"I think that we do have very good overlap in our markets," he said. "I see their product and our product as a continuum. …Workflow-wise, I would imagine that every researcher who's interested in looking at a protein in the CB1000 will have done a single 1D Western blot. In that case, they may have used an Alpha imager as the tool for the Western blot."

Harkness estimated the 1D gel imaging market to be as much as "a couple of hundred million dollars."

Alpha Innotech, which was formed in 1992, has sold more than 10,000 of its systems worldwide. Company CEO Ron Bissinger did not respond to a request for an interview, but in a statement announcing the deal, said the technology of Cell Biosciences makes it an "ideal" partner for his firm. "I expect the combined company to create great value for our customers and employees, and to generate exceptional products for the protein research community."

Seeking Alpha

According to Harkness, Alpha Innotech has been on his radar from even before he joined Cell Biosciences in June 2008. Before then, he was CFO of Molecular Devices and had a long history in the life-science space. He was aware of Alpha Innotech "and have believed since the day I joined Cell Bio that it would be a great fit."

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Cell Biosciences first approached Alpha Innotech in the spring about a potential acquisition.

The deal comes in the midst of a number of acquisitions in recent weeks in the proteomics and life-science space, highlighted by Danaher's $1.1 billion bid for the Applied Bioscience/MDS mass spectrometry joint venture and MDS Analytical Technologies [See PM 09/10/09] and Agilent's pending $1.5 billion purchase of Varian [See PM 07/30/09].

With an economy still waiting to exhale, putting many smaller firms in a financial bind, the pricing on potential acquisitions may be better today than it has been for many years, according to some analysts. Harkness would not say that the price for Alpha Innotech was too good to pass up, but said, "I think that we believe that the price paid was fair … for both Cell Bio shareholders and Alpha Innotech shareholders. …I think we're all comfortable with where this transaction ended up."

The deal, he added, "just looked like a good opportunity to acquire a business that's a healthy profitable business with an infrastructure." Last year, Alpha Innotech achieved a profit of $67,576 after posting a loss of $700,000 in 2007 and a loss of $1 million in 2006.

During the summer, however, GE Healthcare told the company that it was terminating their supply agreement effective May 2010, a potentially severe blow to Alpha Innotech's business.

GEHC was far and away Alpha Innotech's largest customer, accounting for 18 percent, or $3.2 million, of the company's total sales of $17.6 million in 2008, according to its 10-K filing with the US Securities and Exchange Commission. No other customer accounted for more than 8 percent of the Alpha Innotech's total sales.

Harkness, however, said that did not sway him from proceeding with the deal.

"We were fully aware of it … going into the transaction … so that was fully built into our plan," he said.

In addition to the technology that comes with Alpha Innotech, the acquisition provides Cell Biosciences with an operational infrastructure — which includes a distribution channel, manufacturing, and order processing — that it doesn't yet have and would have cost Cell Biosciences a significant investment to build, Harkness said.

"From our standpoint, purchasing that infrastructure was important," he said. "We were going to have to make those investments over the next year or two, and we're able to accelerate that development, [and] take our technology to market quicker with this. From a timing perspective, that makes sense to us to get the infrastructure today as opposed to building over time."

With the acquisition, Cell Biosciences would now have access to Asia, which it currently doesn't, while Cell Biosciences provides a distribution channel in Europe where Alpha Innotech doesn't have a presence.

At the same time, Cell Biosciences has a "deep applications and scientific effort, deeper than Alpha's, so the combination of our science R&D group along with their distribution and operating infrastructure was a good match," Harkness said.

Alpha Innotech has 62 employees located primarily at its headquarters while Cell Biosciences employs 49 workers. Rather than any layoffs resulting from the acquisition, Harkness said that investments will be made to grow the post-transaction firm. As a small company, Alpha Innotech may have been overly saddled with costs associated with being publicly traded, he said.

"As a result, all of those public company-related costs were disproportionate to its size in the [profits and losses]," Harkness said. "We'll be able to get rid of all the public company costs, and that's clearly savings that we plan on."

He declined to disclose the management structure of the newly combined company, saying that the two firms are "still working that through as we head toward the close."

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