By Brady Huggett
Orchid BioSciences Inc. is acquiring Lifecodes Corp. to solidify a spot in the identity genomics field and bring in revenue through an additional route.
Princeton, N.J.-based Orchid signed an agreement to snap up Lifecodes, of Stamford, Conn., by issuing about 6.5 million shares of its common stock in return for all of Lifecodes¿ outstanding shares. Based on Orchid¿s $1.95 stock price at the close of business Monday, the deal was valued at about $12.7 million.
Orchid¿s stock (NASDAQ:ORCH) moved up 19 cents Tuesday to close at $2.14. After the transaction, the company will have about 46.5 million shares outstanding.
Although no further financial details were provided, Orchid CEO, President and Chairman Dale Pfost commented on the unique construction of the share exchange.
¿This was the first time our counsel had ever seen it,¿ Pfost said. ¿It allows our current shareholders not to lose the benefit of this acquisition.¿
Pfost explained that while Orchid felt most Lifecodes shareholders receiving Orchid shares would want to hold onto them, some instead may want liquidity. The deal is structured so that during the first six months following the exchange, there is a lock-up release. Following that, stockholders wishing to sell their shares will be able to do so only in phases.
Pfost said there are several business aspects of genomics, some more valuable than others.
¿There are different parts of the genomics market ¿ some have a future potential that is greater than others,¿ he said. ¿Identity genomics is probably the best established. We are making that into a real business.¿
Identity genomics ¿ used to identify people in forensics cases and paternity tests, among other applications ¿ was famously thrust into America¿s consciousness by the O.J. Simpson murder trial in 1995. Since then it has been used to prosecute the Unabomber, and has been applied to numerous previously tried cases, sometimes clearing the names of wrongly jailed individuals. Lifecodes¿ Cellmark unit was used by law enforcement agencies in both the O.J. and Unabomber trials. That sort of cemented experience is allowing Orchid to predict that the acquisition will double Orchid¿s 2002 revenues, to more than $50 million between the combined companies.
The Lifecodes transaction is not Orchid¿s first foray into this area ¿ it bought Dallas-based GeneScreen Inc., a company that performed genetic diversity analysis, in early 2000 and London-based AstraZeneca plc¿s subsidiary, Cellmark Diagnostics, also a provider of genetic diversity testing, about a year later. The worldwide market for identity genomics is about $500 million, Pfost said, using both private and government testing, a large chunk of which is spent in the United States and the United Kingdom. But it¿s growing, he added, and said the technology has now ¿caught on in the rest of the world.¿ (See BioWorld Today, Jan. 6, 2000, and Feb. 14, 2001.)
Orchid also has its single nucleotide polymorphism analysis technology and markets its SNPstream instruments and SNPware consumables. And while those areas certainly aren¿t going away, Orchid now has given itself another path to bring in revenue.
¿[The acquisition] is cash accretive in 12 months,¿ Pfost said. ¿It will allow us to establish Orchid Diagnostics ¿ we will have a strategic business unit with $12 million in revenue [annually].¿
Pfost said taking on Lifecodes and the additional money it will generate has allowed Orchid to shorten its estimated time to profitability by 12 months ¿ it now expects to be in the black by early 2004. The company is scheduled to release third-quarter earnings on Nov. 8, but second-quarter figures showed Orchid had about $70 million in cash as of June 30, and it posted a $14.3 million loss over the period. Pfost said Lifecodes is merely ¿an extension of the direction we have already taken through the acquisitions of GeneScreen and Cellmark¿ and part of Orchid¿s responsibility to use its technologies ¿in as many ways as we can to make money.¿
¿What this merger does for us is transforms us from being an emerging technology company to being a leader in genetic diversity,¿ Pfost said. ¿In one fell swoop it transforms us into a well-established company.¿