Life Technologies Said to Be in Takeover Talks- Bloomberg

This article smells like it was planted to chum the waters for a deal.

I think that LIFE is generally fairly valued by the markets, so they're going to have to get one of the corporate buyers (Roche, Danaher, etc) excited enough to overpay.(I don't see that happening in the case of very-disciplined Danaher, or most of the other companies named, but then again, I was shocked at what Merck KgA paid for Millipore.)

Also, as I've mentioned before, the decision of whether or not to put a company up for sale very often is solely a question of whether or not a CEO wants to move on. (This is especially true in banking M&A), so I guess Greg Lucier is ready to move on to his next challenge. I wish more Boards in that event would decide to turn the company over to a new CEO internally sourced rather than  undertaking a sale. 

Life Technologies Said to Be in Takeover Talks- Bloomberg

by Cristina Alesci, bloomberg.com
January 18th 2013 11:01 PM
Life Technologies Corp. (LIFE), a maker of DNA-sequencing equipment and laboratory materials, is in discussions with private-equity firms and health-care companies about a potential sale of the company, according to people familiar with the process.

Blackstone Group LP (BX) and KKR & Co. (KKR) are among four private- equity firms weighing bids, said two people, who asked not to be named because the discussions are confidential. Health-care companies also have expressed interest in a takeover and potential suitors have until late January to submit offers, the people said. Life said yesterday it had hired Deutsche Bank AG and Moelis & Co. to assist in a strategic review of the company.

The Carlsbad, California-based company has a current market value of about $10.5 billion, after shares rose yesterday to their highest-ever price based on takeover speculation. Life may sell for about $13 billion, with a buyout fund writing an equity check of $4 billion to $5 billion for the deal, one of the people said.

Life's "valuation has been relatively depressed," Ross Muken, an analyst with ISI Group, said in a telephone interview. "They've had an ongoing battle in terms of messaging, positioning and capital deployment."

Life trades at about 15 times estimated earnings, compared with about 33 times for Illumina Inc. (ILMN), its competitor in DNA- sequencing machines.

Life's shares rose 11 percent to $60.79 at the close yesterday in New York, the biggest single-day gain in almost four years and the highest value since shares started trading publicly in February 1999.
The company's board retained Deutsche Bank and Moelis "to assist in its annual strategic review," Life said in a statement. "The board of directors has not decided on any specific course of action."
The company's statement implies Life has "potentially received an offer from an acquirer, is contemplating a LBO or is potentially in the process of shopping the company for a strategic buyer," William Quirk, an analyst with Piper Jaffray & Co., wrote in a research note. He cited Roche (ROG) Holding AG, Thermo Fisher Scientific Inc. and General Electric Co. (GE) as potential strategic buyers.
Gene-sequencing companies such as Life and San Diego-based Illumina are attractive takeover targets because their technology can be used to provide a blueprint of a person's DNA, information that may eventually be used to diagnose disease, identify the risks of certain conditions or better target medicines.
Roche, the world's biggest maker of cancer drugs, failed last year in a hostile bid for Illumina. Life is more diversified than Illumina, with "slow-growth research consumables" dominating its portfolio, said Quirk. For that reason, "we believe an acquirer interested in the faster- growing next-gen sequencing business has better options."

ISI Group's Muken put the possibility of a leveraged buyout at 10 percent, pegging the price at $55 to $65 a share. He said a sale to a strategic buyer, such as a large pharmaceutical firm or equipment company like Danaher Corp. (DHR), may have a 40 percent chance of occurring, at $60 to $70 a share.

Roche backed away from its $6.7 billion bid for Illumina last year after investors asked for a higher offer. Roche doesn't comment on rumors or speculation, Daniel Grotzky, a spokesman for the Basel, Switzerland-based company, said by e- mail in response to a question about Life.
Seth Martin, a spokesman for GE, said the company doesn't comment on rumors or speculation. Ron O'Brien, for Thermo Fisher, declined to comment. Matt McGrew, chief of investor relations for Danaher, couldn't be reached for comment.


Original Page: http://pocket.co/sGbVD
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10 Truths (or Fictions) About Virtual Biotech Startups - FierceBiotech

Great, great series of articles from the FierceBiotech team:

http://www.fiercebiotech.com/special-reports/10-truths-or-fictions-about-virtual-biotech-startups?utm_medium=nl&utm_source=internal

Genomes-R-Us: Is BGI now Complete?

Here's a post-Morton on Complete Genomics (GNOM). I'm surprised that BGI didn't go public on the basis of CGOM's public listing. I guess that they don't want the people who put up $1.5B to finance BGI to find out that BGI is worth ony a fraction of that amount.

Genomes-R-Us: Is BGI now Complete?

September 25th 2012 

The sad endgame in the acquisition of Complete Genomics (NASDAQ: GNOM) came last week: having failed to create a sustainable business, CGI was put up for sale in June of this year,culminating in a takeover by sequencing powerhouse BGI for $117.6 million in cash plus $30 million in bridge financing.

Behind that headline is a fascinating story: a U.S. company losing despite being right about its market; a Chinese company succeeding by vigorous price competition and then buying its rival; and a glimpse of the future of genomics-driven medicine.

On the surface, the sale of Complete Genomics looks like a case of overreach by the company's investors and management coupled with poor execution. Complete, founded in 2005, had early on identified a superior business model for the coming era of cheap and frequent sequencing: take the sequencing activity and much of the interpretation out of the hands of hospitals and other healthcare providers and instead provide it on an outsource basis—both the sequence data itself as well as the all-important interpretation. For an apt analogy, think of Google's core search business: why own a server farm when what you need are the search results?

I strongly remember meeting the late, visionary venture capitalist Alex Barkas of Prospect Ventures at the JP Morgan Healthcare Conference in early 2008 and hearing him forecast a glorious future for Complete Genomics. Even though the market was at that time buzzing about the next high-speed sequencing technology play, Pacific Biosciences (NASDAQ: PACB), Barkas was supremely confident that CGI's innovative business model would rule the day. That vision, driven by Complete Genomics CEO Cliff Reid as well as by Barkas and other investors, brought in VC and public investment of more than $250 million. The company went public at $9 a share and sold for as much as $17 a share before plummeting into the $2 a share range, where PacBio also now languishes. BGI's purchase price correlates to $3.15 a share.

There were some momentary triumphs along the way, including technical breakthroughs, such as increasing the accuracy of sequencing. But, as Technology Review put it, "Though a 2011 paperpublished in Nature Biotechnology found that Complete Genomics produced more accurate DNA data than competitors, superior accuracy never translated into financial success." CGI scored some small commercial successes along the way, such as landing the Mayo Clinic as a client in February of this year. Along the way, CGI was able to drop the price of a full human genome sequence to $4,200 in 2011, down from $12,000 in 2010.

But CGI's revenues and, presumably, its margins dropped along with the price and the company never made up the difference on volume. Even worse, the company lagged in processing the genomes it had promised to sequence. The backlog in the end numbered in the hundreds of genomes. And even if CGI had been able to keep up with the influx of genomes it had, the customers did not come in sufficient numbers to create growth. A CGI business development executive told me in February that

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the only thing that would drive a higher stock price would be when the company proved its value and thereby showed big revenue gains. That executive has since left the company and, far from being able to build a sustainable business around this model, CGI first had to downsize and then had to be sold. And the buyer, in what must seem to insiders like a bitter irony, is a former competitor, the U.S. subsidiary of Shenzhen, China-based BGI.

BGI is not just any competitor. In fact, BGI had arguably represented the biggest obstacle standing in the way of Complete's success. As CGI tried to increase its market share by cutting prices, BGI responded by cutting them still further. BGI, using sequencers from Illumina, had a lower cost of capital due to the patience and strategic orientation of its investors. Like Amazon.com, the company and its investors focused not so much on quarterly earnings statements, but rather on BGI's market share. They chose to operate BGI at what must have been a loss for several years and succeeded at driving CGI to the auction block. (BGI was founded in 1999, and in 2010 it received $1.5 billion in funding from the China Development Bank to expand its operations, according to Isaac Ro of Goldman Sachs.) BGI apparently succeeded in a big way. In January, 2011, Nature estimated that of the 30,000 human genomes that would be sequenced that year, BGI would be responsible for 10,000 to 20,000 of them. The lower prices were good for customers but bad for competitors (bye, bye, CGI).

A transition waiting to happen

So if BGI emerged triumphant from the bruising price war, why did it buy its former rival? Several reasons, all of them interesting. Like every other player in the commercial world of genomic sequencing and analysis, BGI is on a journey from research to clinical applications. BGI hopes that the market finally (finally) expands once sequencing becomes a routine clinical activity ordered by physicians and reimbursed by insurance companies. In other words, like CGI was, BGI is eagerly preparing for sequencing to become part of routine disease diagnosis and determination of therapy.

The transition to clinical adoption of sequencing has been "just about to happen" for the last five or six years. If and when it does (and I am still betting that it will), BGI needed to be prepared. It was facing several obstacles, all of which can be overcome or at least reduced with the pickup of CGI:

Reduce or eliminate dependence on Illumina: Illumina is increasing and speeding up its service offerings. BGI had become dependent on sequencers from Illumina, the market leader in sequencer sales with over 60 percent share, which had provided most of its 100-plus machines. (According to a research note published by Wall Street analyst Peter Lawson of Mizuho on Monday, Sep. 24, Illumina's market share has actually reached 66 percent.) Now that Illumina is moving into sequencing-as-a-service in a much bigger way, it will be more of a competitor to BGI. Thus, owning CGI and its proprietary sequencing technology (and different reagent suppliers) will give BGI an advantage.

Improve turnaround time: Shipping samples across the Pacific was not an efficient way for BGI to deliver data to customers in the U.S. market. Research institutes might have put up with it but clinicians will not. By buying Complete Genomics and its California-based sequencing "factory," BGI is moving closer to its customers.

Add customers and capacity: BGI picks up not just CGI's customers (like the Mayo Clinic) but also its 25 or so sequencers. Isaac Ro of Goldman Sachs last week told GenomeWeb that the deal accelerates BGI's expansion into the U.S. and gives it "an immediate infrastructure and service offering that will complement the facilities in China." Former CGI developer Zhanzhi Hu told me

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in a phone interview that "If CGI has a healthy factory, it could crank out 1000 genomes a month—a not insignificant number." BGI will need that capacity and more. A reliable industry source told me that the Mayo Clinic deal is expected to require sequencing of 200,000 human genomes over the next five years. Too bad for CGI that they could not hang on long enough to do all that sequencing!

Become a clinical laboratory: This is perhaps the most important reason. CGI applied in July to the U.S. government to attain status as a CLIA lab. The decision, expected to be positive, should come in late 2012 or early 2013. The decision to buy CGI echoes the recent $50 million acquisition of former personal genomics company Navigenics by the second-largest sequencing manufacturer Life Technologies (NASDAQ LIFE). In its acquisition announcement, LifeTech declared that it will shut down the Navigenics consumer business while maintaining its CLIA lab. (Illumina has had a CLIA lab since 2009).

Growing up and being clinical

If sequencing goes clinical, BGI will be able to play sooner and better based on its pickup of CGI. Although BGI already has a U.S. sales presence, it has no way of serving clinical customers in the United States. If the CLIA lab designation comes through, then BGI will be able to sell clinical sequencing right away. One of the immediate drivers of the deal may have been Illumina's predicted hesitancy (according to my industry sources) to sell clinical-rated instruments to BGI rather than research-only instruments once Illumina receives its expected 510(k) clearance from FDA.

There is also a cultural aspect. BGI has built a stellar reputation as a provider of genome sequence data. But it is not a U.S. company. By keeping CGI up and running as a U.S. subsidiary, BGI can—assuming that the deal goes through—sell its services more easily as it competes with U.S. players like Illumina and LifeTech.

The race for improved sequencing hardware will not slow down. But as this acquisition shows, the more interesting battlefield, at least for the healthcare field, is in the interpretation of clinically obtained genomic data. The same week that CGI was acquired, Foundation Medicine secured a $42.5 million financing (funded in part by major clinical diagnostics players Roche and Laboratory Corporation of America) to pursue forward-looking genomic medicine in oncology; and the University of Texas M.D. Anderson Cancer Center announced an up to $3 billion "Moon Shots" initiative to significantly improve cancer care outcomes, in part by paying closer attention to genomic data.

Clinical sequencing is coming, first in diagnosing especially pediatric diseases of unknown origin and in oncology, then later in gastrointestinal disease (gut microbes…), and perhaps even, much later, in population screening. It just (barely) did not arrive in time to make a success of Complete Genomics. I suspect that BGI and its patient investors will have a better chance.

Original Page: http://xconomy.com/boston/2012/09/25/genomes-r-us-is-bgi-now-complete/

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Big ego VC says Pharma needs more big ego VCs

Read it here:

http://www.xconomy.com/san-diego/2012/09/27/kinsella-redux-charting-a-way-back-for-life-sciences-startups/?single_page=true

I'm not convinced that venture returns are meaningfully impacted by the venture partner involved. In the article above, a big ego VC wistfully urges that his sector return to the glory days. One of his funds from 15+ years ago is offered as evidence that he's brilliant and Big Pharma is stoopid.

Not that Big Pharma is blameless, but there are better explanations for declining returns even as drug discovery has gotten more capital efficient. Here's a few that occurred to me:

1) VC's own movement away from investing in early technologies to later stage deals. VCs basically don't do old-fashioned $500,000 seed stage deals anymore. They're now all about financing companies graduating to Phase II. Gee, Mr. Kinsella, I wonder why there aren't as many early-stage companies.

2) the hangover from VC over investment in the early genomics era. Remember the year 2000 hype behind genomics companies like HGSI, Millennium, and others? Yeah, I can't imagine why Pharma stopped trusting VC.

3) the rotation in investing strategy from FIDDCo (fully integrated drug discovery companies) and platform technologies to target driven companies each based on a small amount of closely-related leads. 

4) a lack of public market liquidity for small cap biotech, partly influenced by structural changes (like increased financial regulation reducing the attractiveness of IPOs), but more driven by increasing VC fund sizes. VCs are paid based on assets under management (size of fund = size of paycheck), and with larger fund, it is less economical to make smaller, earlier investments, which also require longer holding times, so VCs moved their money towards PIPES - investments in already-public companies.

There's four reasons generated in about 10 minutes. I'm sure I could come up with 10 more if I spent another hour on the idea, but I'd hate to accidentally give any credence to VC vanity.

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Venture firms see signs of rebirth in life sciences

Here's some reasons to be hopeful that the early-stage life science sector is on the upswing. (though i am skeptical that the e-health ventures will deliver (in general.) investors are bringing dot-com growth expectations to regulated markets where behavior doesn't change fast. (And i'm speaking of consumer, practitioner, and payor behavior.)

http://www.reuters.com/article/2012/09/24/us-venture-capital-life-sciences-idUSBRE88N0EK20120924

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