Shortly after announcing a definitive agreement to merge with Lynx Therapeutics Inc., Solexa Ltd. closed a $14.4 million financing round that will enable the company to further develop and commercialize its technologies.

But it's the merger, valued at about $56.4 million for Solexa's shareholders, that brought interest from Wall Street on Wednesday. Lynx's stock (NASDAQ:LYNX) shot up 31.4 percent, or 60 cents, to close at $2.51.

"The stock market appears to be embracing the announcement," said John West, Solexa's CEO, in a conference call. West will serve as CEO of the combined entity.

Lynx plans to issue up to 29.5 million shares in exchange for all of the outstanding shares and options to purchases shares of Solexa capital stock. Lynx's closing stock price on Tuesday gives the merger the $56.4 million value. The merger should close by late this year, following approval by shareholders of both companies.

"The combination is expected to build a leading company in the area of DNA sequencing technologies," said Kevin Corcoran, president and CEO of Haywood, Calif.-based Lynx.

In addition to the merger transaction, Lynx received a $1.25 million loan from Solexa, of Essex, UK, and will receive an additional $500,000 upon the signing of the merger agreement. In October, Lynx will receive another $750,000.

The companies first hinted at a merger in August, with Lynx signing a non-binding letter of intent to merge with Solexa. (See BioWorld Today, Aug. 16, 2004.)

Earlier this year, Lynx and Solexa jointly acquired intellectual property rights for DNA amplification on single-molecule arrays from Manteia SA, of Coinsins, Switzerland. The amplified arrays are cluster technology, and the combined company will market both cluster systems and single-molecule systems.

Both companies have been working for more than five years on next-generation DNA sequencing based on molecular arrays.

"We're looking forward to having our first product ready for the market by the end of 2005," West said.

The system is expected to advance the pursuit of whole-genome resequencing and of gene-expression measurement by sequencing. Initially, the capabilities will be marketed to various research institutions, a group that spends more than $1 billion annually on DNA sequencing and gene expression.

Once the merger closes, the company will trade on the Nasdaq SmallCap Market under the "LYNX" ticker symbol. West will become CEO and other senior management members of both companies will assume key positions. The board will include Lynx's chairman, Craig Taylor, as well as West and four venture capital members of the current Solexa board.

"The combined company will continue to operate in both countries," Corcoran said.

West said that Solexa's extensive experience in single-molecule sequencing has enabled the company to crack many of the chemical and enzymatic challenges that have kept others from commercializing the technology. Solexa has inexpensively manufactured its enzymes and can provide advanced surface chemistry nucleotide design and genome-level informatics.

Lynx brings to the merger an experienced commercial instrument development team and an instrument design in its third generation. Lynx has manufactured dozens of those instruments, West said, and also will bring a number of valuable customer relationships to the merger.

Lynx is prepared to move from its bead-based system to a molecular array-based system that will be more amenable to commercial sale, Corcoran said.

The Series B financing completed by Solexa was led by London-based Amadeus Capital Partners, with existing investors Abingworth Management and Schroder Ventures Life Sciences, both of London, and Boston-based Oxford Bioscience Partners. With the $14.4 million, the company has raised about $40 million to date.

West said the round comes at a time in which Solexa is transforming itself from a company focused on innovation and invention to one preparing for product development and commercialization. The new investment will go toward the company's systems for the ultra-high-throughput analysis of individual genomes, based on its single-molecule-based sequencing technology, and to begin worldwide commercialization of its services and systems.

Seven Hills Partners LLC acted as the exclusive financial adviser to Lynx in the merger transaction.

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