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Preparing for ABI Buy, Invitrogen Stresses Importance of Second-, Third-Gen Sequencing

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Invitrogen provided more details about its pending merger with Applied Biosystems last week and stressed the importance of next-generation sequencing for its future business.
 
Among the new light it shed on the deal, Invitrogen said it will continue to provide reagent kits for use with several sequencing systems, including those from third parties, as it develops its own, third-generation system.
 
During a conference call last week to discuss the company’s second-quarter earnings, CEO and chairman Greg Lucier told investors and analysts that “we have every intention of being a leader in commercializing a third-generation sequencing product that will sequence a genome at the lowest possible cost in the shortest amount of time.”
 
He said the technology originated in-house and that Invitrogen has been working on it for “a fair amount of time.”
 
In addition to working on the system internally, the company will “continue to make investments in engaging collaborations,” he said. As an example, he cited Invitrogen’s recent partnership with Active Motif to explore the use of field programmable gate array technology for analyzing next-generation sequencing data (see In Sequence 7/22/2008).
 
Lucier declined to provide more information about the third-generation sequencing program “until we are closer to having a commercially viable product.”
 
However, a recent recruitment campaign by Invitrogen provides some clues to the possible nature of the technology.
 
In a mass e-mail sent to undisclosed recipients last week, Invitrogen said it is seeking to fill four positions for its third-generation sequencing initiative.
 
One of these is for an engineer for advanced optics, suggesting that the sequencing system is going to use an optical rather than an electrical readout. Another position is for a leader for reactions and assays with experience in fluorescence resonance energy transfer, suggesting that the technology involves FRET.
 
Another company working on a FRET-based sequencing technology is VisiGen Biotechnologies of Houston. The company, which has been working on a real-time, single-molecule technology, started a collaboration with ABI in late 2005 and obtained an undisclosed equity investment from ABI at that time (see In Sequence 5/8/2007).
 
Earlier this year, VisiGen said it is planning to offer a sequencing service on its platform by the end of next year.
 

“We have every intention of being a leader in commercializing a third-generation sequencing product that will sequence a genome at the lowest possible cost in the shortest amount of time.”

VisiGen did not respond to requests for comment on its current involvement with ABI, or a possible future involvement with Invitrogen.
 
But Invitrogen is also committed to the current, second-generation sequencing market. “Invitrogen has some unique enabling reagents for sequencing, and now, with ABI, those reagents plus SOLiD will make us a leader in the current generation of genomic analysis systems,” Lucier said.
 
The company is also developing kits for use with other second-generation sequencing platforms, and will continue to do so. “We will sell to anybody who wants to buy from us,” Lucier said.
 
“Our strategy, independent of the ABI acquisition, is to provide kits to scientific end-users to optimize those platforms,” he explained. “As you know, [those] platforms are complicated [and] require a fair amount of training, and there is a wonderful opportunity for a business like Invitrogen to make it simpler, faster with our kit technology.”
 
He said that the sequencing systems from ABI, Illumina, and Roche/454 are already “leading to downstream consumable purchases, and we are a great beneficiary of that trend.”
 
Mulling the Merger
 
Lucier also addressed the pending acquisition of ABI. He said that a team led by Paul Grossman, Invitrogen’s senior vice president of strategy and corporate development, conducted due diligence over “many weeks” prior to the merger decision. Grossman joined Invitrogen a year ago after spending more than 20 years with ABI, most recently as vice president of strategy and business development.
 
Invitrogen also hired consulting firm L.E.K. to interview customers and “go deep into ABI’s qPCR and sequencing business, including both the [capillary electrophoresis] and next-generation sequencing segments,” Lucier said.
 
Several internal Invitrogen teams also reviewed ABI’s business areas, including technical teams that evaluated the SOLiD platform and compared it to other sequencing platforms on the market. “All of this led us to feel very comfortable with ABI’s businesses and their future potential,” according to Lucier.
 
Invitrogen also investigated the size of potential cost savings and synergies after a merger with ABI, both through an internal review and by hiring consulting firm Deloitte. As a result, “we feel confident in our ability to deliver upon the synergies we have communicated,” Lucier said, namely $60 million of synergies in the first year post-merger and $175 in total synergies by the third year.
 
ABI and Invitrogen have already begun to prepare for the merger, setting up integration teams across both companies. “We are starting to work to harmonize our cultures and connect our employee bases,” Lucier said.
 
The companies will also have “retention programs in place to ensure we keep all mission-critical personnel,” he added.
 
Invitrogen said it believes the deal will close in late October or early November.
 
Earnings Strong in Q2
 
For the three months ended June 30, Invitrogen posted revenues of $367.8 million, up 14.3 percent from $321.7 million during the year-ago period.
 
BioDiscovery revenues grew to $253 million, up 13.6 percent from a year ago, and Cell Systems climbed 16 percent to $115 million.
 
Within BioDiscovery, molecular biology products had “their strongest quarter in many years,” according to chief financial officer and senior vice president David Hoffmeister, who added that “next-generation sequencing is generating demand for a number of our core molecular biology products.”
 
Invitrogen’s net income rose to $53.2 million, up 30.2 percent from $40.9 million a year ago.
 
Its research and development costs rose 16 percent to $33.2 million for the quarter, up from $28.6 million a year ago.
 
R&D expenses will likely stay flat in the future. “We are making trade-off decisions in order to fund the high-growth areas, like stem cell research or next-generation sequencing, by pruning back other programs that perhaps are not returning as much,” Hoffmeister said.
 
SG&A costs increased 7.7 percent to $115.5 million for the quarter, from $107.2 million last year.
 
Invitrogen reported $646.1 million in cash and short-term investments as of June 30.

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