Affymetrix Scoops up eBioscience

Genetic products maker Affymetrix (AFFX - Analyst Report) recently announced that it has agreed to acquire privately-held eBioscience, a global leader in immunology and oncology flow cytometry reagents, in a deal worth $330 million.

San Diego, California-based eBioscience offers a vast selection of antibodies, enzyme-linked immunosorbent assays (ELISAs) and proteins for life science research and diagnostics. It is an industry leader in flow cytometry (a technique for analysing microscopic particles) and immunoassay reagents for immunology and oncology research and diagnostics.

The transaction, which is subject to customary closing conditions, is expected to consummate in late fourth-quarter 2011. Affymetrix will fund the acquisition using a combination of roughly 50% in cash and balance in committed debt. The purchase price represents roughly 4.5 times of eBioscience’s revenues for 2011, which is forecast to exceed $70 million.

The acquisition will significantly boost Affymetrix’s foothold in the fast-growing immunology, oncology and translational medicine markets, representing nearly $3 billion annual opportunity. It will diversify the company’s revenue base, expand its product range (to include a vast array of reagents) and reinforce its growing molecular diagnostics business.

Affymetrix is a leading provider of microarray-based products and services to the global research community. Along with Illumina Inc. (ILMN - Snapshot Report), it is one of the two major providers of microarray technologies, primarily used in the field of genetic research. Affymetrix holds a leading position in the gene expression products and services market.

Affymetrix is pursuing a number of strategies (including expansion into new markets such as cytogenetics and cancer research) aimed at expanding its top line. The company is shifting its R&D focus from discovery and exploration markets to the faster-growing validation and routine testing markets.

However, Affymetrix is operating in an intensely competitive industry and faces risks associated with lower R&D spending by its customers due to a soft economy and government actions including budget cuts.

Affymetrix is exposed to a volatile funding environment. Decline in government research grants may substantially affect the company’s revenues. We are currently Neutral on Affymetrix, which is in tandem with a short-term Zacks #3 Rank (Hold).

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