One by one, the companies involved with second-generation genetic sequencing are being snapped up by larger firms. 454 Life Sciences, majority-owned by CuraGen (NASDAQ:CRGN), is the latest to go.
The Applied Sciences division of Roche (OTC: RHHBY.PK) will acquire 454 in a deal worth as much as $154.9 million. CuraGen should receive roughly $85 million in proceeds from the sale, before fees and expenses.
As a next-generation sequencing company, 454 is commercializing instruments and reagents that generate genetic data more quickly and cheaply. Second-generation sequencing uses chemical and enzymatic techniques other than the traditional Sanger sequencing method, run in a highly parallel fashion. It discovers thousands of short bits of sequence information, which are subsequently assembled via computer algorithms into fuller genetic sequences.
Investors in CuraGen didn't seem to care for the deal, or the conference call that detailed the pending transaction. Many subsequently headed for the exits, driving the share price down to $3, more than 20% off the prior day's close. The company derived the bulk of its revenues from sales of 454 instruments and reagent, mainly via a prior sales agreement with Roche.
The funds from the sale will certainly bolster the company's balance sheet, which was burdened with more debt than cash, and provide the money needed to advance CuraGen's clinical pipeline. The company currently has three oncology products in various phase II clinical trials. Shedding the 454 genetic-sequencing business makes CuraGen a pure play in oncology-drug development.
Investors' disappointment likely stems from the price Curagen obtained for 454, relative those recently paid for its rivals. In July of 2006, Applied Biosystems (NYSE:ABI), the company that developed and effectively commercialized the Sanger sequencing technology -- and used it to sequence the human genome with sister company Celera (NYSE:CRA) -- bought Agencourt Personal Genomics for $120 million. More recently, Illumina (NASDAQ:ILMN) purchased Solexa for $600 million. Of these second-generation sequencing firms, 454 was arguably the most mature; it had already begun to provide its technology to the market.
In all these mergers, the buyers sell products that use and benefit from databases of sequence information. Both Illumina and Applied Biosystems sell research-oriented products, while Roche is active in the medical-diagnostics industry.
Helicos Biosciences is almost certainly watching 454's sale closely. The company is developing a technology for high-throughput genetic analysis by direct sequencing, with the goal of achieving single-molecule detection. Helicos had recently filed papers for a proposed initial public offering (IPO), with an anticipated valuation of $100 million.
Read another Foolish take on genetic sequencing in "Neanderthal DNA Enlightens Investors."
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Fool contributor Ralph Casale is a biochemist by trade. He owns shares in Celera as a holdover from his time as an Applied Biosystems employee -- where he labored under the guidance of persons in the current management of both 454 and Helicos Biosciences. He does not own positions in any of the other firms mentioned in this article. The Motley Fool has a disclosure policy.
