West Coast Editor

Illumina Inc.'s plan to take over Solexa Inc. in a $600 million stock swap recalls the buyout of CyVera Corp. early last year, which provided Illumina an entry into the diagnostics field.

This time around, San Diego-based Illumina - specializing in large-scale testing for genetic variations - is expanding its product lineup to include Solexa's next-generation sequencing platform, the 1G Genome Analyzer, and creating a combined company that will offer analogue and digital gene expression.

Solexa's Genome Analysis System, which combines clonal single-molecule array technology and Reversible Terminator chemistry, can put sequence data together at an expected scale of more than 1 billion bases per run, and resequence individual human genomes for less than $100,000 per sample. Shipping of the 1G system started in the second quarter.

Whole-genome and targeted resequencing will be "the next high-growth markets in life sciences," Jay Flatley, president and CEO of Illumina, said during a conference call, pointing to "natural synergies" between the two firms. The combined companies will "shortly have three powerful platforms in the market," with "some of the broadest [capability] in our industry," he said.

Hayward, Calif.-based Solexa's stockholders will get shares of Illumina valued at $14 per Solexa share (NASDAQ:SLXA), a 44 percent premium to the Friday closing price of $9.70. Solexa ended Monday at $12.56, up $2.86, or 29.5 percent. Illumina's stock (NASDAQ:ILMN) finished at $38.91, down $5.14. The offer price is subject to certain collar provisions.

As part of the deal, Illumina also will invest $50 million in Solexa by buying newly issued shares. The two firms estimated the sequencing market is worth about $1 billion, which means a market opportunity for the combined company - which will offer genome-scale technology for genotyping and gene expression as well - in excess of $2.25 billion.

Illumina plans to keep Solexa's operations in San Diego and in Cambridge, UK. Two members of Solexa's board will join Illumina's board, and the merger is expected to close by the first quarter of next year. The transaction likely will be "modestly accretive" in 2008 and significantly accretive thereafter. Illumina's earnings forecast for this year have not changed, and the firm will provide 2007 guidance when the merger is done.

Last year, Illumina bought Wallingford, Conn.-based CyVera for $17.5 million in cash and stock, adding a microbead platform to Illumina's BeadArray genotyping technology. (See BioWorld Today, Feb. 24, 2005.)

In March 2004, Hayward, Calif.-based Lynx Therapeutics Inc. acquired with Solexa (then based in Essex, UK) the rights to DNA colony generation from another overseas firm: Manteia SA, of Coinsins, Switzerland, setting the stage for the $56 million merger of Solexa and Lynx, which took place in the fall of that year. (See BioWorld Today, June 30, 2004.)

At the end of this year's second quarter, Solexa had about $58 million in cash and cash equivalents. The firm in September entered a equity financing commitment with Azimuth Opportunity Ltd., which over two years would - at Solexa's discretion - buy up to $75 million in stock at a discount between 3.62 percent and 5.37 percent to the price at the time.

After the merger, John West, Solexa's CEO, will join Illumina as senior vice president and general manager of the new firm's sequencing business.