BioWorld International Correspondent

Pyrosequencing AB, a Swedish sequencing instrumentation specialist, is buying its neighbor, Personal Chemistry i Uppsala AB, in a stock-based transaction valued at approximately SEK185.6 million (US$22.8 million).

The deal, which is expected to close later this month, involves the issuing of approximately 23.6 million shares in Uppsala-based Pyrosequencing to Personal Chemistry, representing 40 percent of the enlarged company's stock. Shareholders in the latter firm also will receive 11.6 million warrants for shares in the enlarged company. They will have a four-year term and will be priced at SEK16 per share, or twice Pyrosequencing's share price immediately before the transaction was disclosed.

About 90 percent of Pyrosequencing's sales come from the SNP analysis market, which is dominated by Applied Biosystems Group, of Foster City, Calif., and Sequenom Inc., of San Diego. The company, which was founded in 1997, is also building a market position for sequencing short DNA tags for microbial identification and analysis.

"Our target is to become the No. 1 there," Pyrosequencing Chairman Jeff Bork told BioWorld International.

Personal Chemistry, which was formed in 1998, has developed an automated platform for accelerating medicinal and combinatorial chemistry work through the use of proprietary techniques, chemistry informatics software, robotic liquid handling and microwave technology.

The companies' differing cash positions played a significant part in determining the shape of the deal, Bork said. At June 30, Pyrosequencing held SEK369 million (US$45.2 million), whereas Personal Chemistry had just SEK47 million, and would have required additional funding of US$5 million to US$8 million, said Personal Chemistry CEO Hans Johansson. Set against that, the latter firm has a greater opportunity for short-term success, he said, as its chemistry platform faces less competition than Pyrosequencing's genetic analysis technology.

But the combination appears to be a friendly one in any case. "There is a strong wish from the owners of both sides to make this happen," Johansson told BioWorld International.

The companies operate in different market segments, but expect to gain annual cost savings of SEK50 million to SEK70 million by combining their respective administrative organizations in Uppsala and their U.S. sales subsidiaries in Boston. The two companies see additional potential gains in improving sales productivity. Personal Chemistry's customer base primarily is in industry, while most of Pyrosequencing's users are in academic research. "So we do foresee some cross-selling synergies," Johansson said.

Both companies are still in the red - their combined operating losses for the first half of the year amounted to SEK146 million - but they expect to become cash-neutral during 2004. Their cash burn should decrease in time, Bork said, conserving more of their combined cash pile of SEK416 million. "When we are cash-neutral we will have the major part of that left," he said. That cash will be available for acquisitions of companies with complementary technologies in areas such as sequencing, sample preparation, real-time PCR, chemical purification and rational drug design.