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Horizons 

MARKET COMPASS 

Persistent financial pressures feed continuing consolidation among struggling genomics companies

By Malorye Branca

With no startup money in sight, it's not surprising that the action in genomics has been mainly mergers and acquisitions. But the tone of deals is changing.

Until recently, there was at least a veneer of propriety to these transactions. Invitrogen's acquisition of InforMax and Hyseq's "merger" with Variagenics last winter to form Nuvelo, for example, were couched in strategic terms even though cash was the obvious key motivation.

Now, as tension escalates in boardrooms, few executives are bothering with niceties. Management is focused on soothing shareholders, snapping up undervalued assets, and improving cash positions.

Slippery Slope 
 The Mirus Genomic Index is calculated as the sum of the market capitalizations of all included companies and is consequently a value-weighted index.

RCW Mirus Inc. does not assume any liability for errors or omissions.

According to a story in BioWorld, Celltech Group CEO Peter Fellner, when announcing a hostile takeover bid for Oxford GlycoSciences (OGS), stated bluntly, "This clearly for us is not a strategic or transforming acquisition. But it is an opportunity for us to acquire these assets." These assets include OGS's £130 million in cash, its extensive proteomic database, and its high-speed proteomic and bioinformatic platforms.

Celltech's offer may have derailed a planned merger between OGS and Cambridge Antibody Technology (CAT). Following the Celltech offer, three more companies stepped in to discuss acquiring OGS. Ultimately none made an offer. The proteomics company's management considers Celltech's bid, which is approximately $160 million, "inadequate," according to an OGS press release. But that offer is still higher than CAT's, which is worth about £109 million, all in stock. (As of mid-April, when this issue went to press, it appeared Celltech would prevail.)

Genaissance Pharmaceuticals recently gobbled up a piece of bankrupt DNA Sciences. "The price was right," explains Gerald Vovis, executive vice president at Genaissance. The pharmacogenomics company agreed to pay $1.3 million for assets that include a GLP (Good Laboratory Practices)-certified genotyping facility. "Some $100 million or so was invested in DNA Sciences," Vovis says. Genaissance believes it can get good value out of that.

Invitrogen continued its shopping spree, paying $95 million for Vertex subsidiary PanVera, which has biochemical and cellular assay technology. Tool-hungry Harvard Bioscience picked up the assets of genomic instrument maker GeneMachines for about $8 million.

Companies with money are picking up some good buys; those without are begging for cash. At a recent biotech investor forum in Boston, the message was clear. "The market has been inverted," said speaker William Mills, a partner at private equity group Advent International. VCs are paying less, asking for more onerous terms, and putting most of their cash into keeping late-stage investments alive.

Companies are responding accordingly, staying lean, and emphasizing management, milestone achievement, and realistic market expectations. This strategy is paying off for some. Orchid Biosciences, Cellzome, and Epigenomics raised $16 million, $32 million, and $22.5 million, respectively, in recent late-financing rounds. Deltagen secured $10 million in equity and a $5-million bridge loan.

Mirus Genomic Index 

The Mirus Genomic Index is calculated as the sum of the market capitalizations of all included companies and is consequently a value-weighted index. It serves as an indicator of the financial health of the industry.

Current Index 
  
Those financings prove that investors are still listening to genomics companies. The examples of Orchid and Deltagen are particularly intriguing. Both companies have changed their business plans more than once, and both recently received delisting warnings from NASDAQ.

Most important, clinical trials milestones are being met (see "Genomic Pipelines: Good Omens," page 1). If this progress can continue, and the hoped-for "postwar market recovery" actually occurs, the sector might have a chance to get its bearings.











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