West Coast Editor

Brightening the picture for Illumina Inc. were two pieces of news: the sale of its San Diego facilities for $42 million (with a 10-year lease-back agreement) and the settlement of a court battle with Applera Corp.

"They're both important in very different ways," said Jay Flatley, president and CEO of Illumina. The company's stock (NASDAQ:ILMN) closed Friday at $5.41, up 44 cents.

After paying off the mortgage on the property and transaction expenses, Illumina gets net proceeds of more than $15 million. The company, focused on the large-scale analysis of genetic variation, had several buildings and "we leased back all three," Flatley said.

"There's also an undeveloped plot of land," he added. "We just don't need that expansion space."

The litigation with Applera and its Foster City, Calif.-based Applied Biosystems Group involves two lawsuits related to a joint development deal entered late in 1999. Several years later the deal went bad, with both sides claiming a breach of the agreement and Applera filing a lawsuit against Illumina for patent infringement.

Included in the settlement are an exchange of royalty-free cross-licenses to certain intellectual property rights, an official end to the joint development agreement, and dismissal of Applera's patent lawsuit along with a claim by Illumina pending in San Diego Superior Court.

As part of the original deal, Applera provided Illumina $10 million in research and development funds, repayable from profits to be gained from products resulting from the collaboration. Illumina, thanks to the settlement, is removing the $10 million liability from its balance sheet and paying $8.5 million to Applera, thus recording a $1.5 million gain.

However, "it's hard to call a winner or a loser" in the legal skirmish, Flatley said. "We got licenses to the technology they thought was a problem, but we never thought it was a problem. The best way to say it is, both companies lost."

He said the "biggest tragedy in the whole thing" was that the product Illumina and Applera hoped to launch together was delayed.

"We built and launched it, but we don't have the worldwide reach and distribution" the two firms would have had together, he said. The high-throughput genotyping system based on the company's BeadArray technology went to market in July 2002, "at the time the partnership blew up."

Founded six years ago, Illumina raised $30.7 million in a registered direct offering earlier this year and expects to become cash-flow positive in 2005. (See BioWorld Today, May 12, 2004.)

The two latest news events leave Illumina with about $72 million in cash, Flatley told BioWorld Today, not including spending from this quarter. Illumina's burn rate amounts to $2 million to $3 million every three months.

"It's going down, quarter to quarter," he said.

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