28 Apr Entrepreneurial lessons: NimbleGen did not set out to be an acquisition target
Madison, Wis. – Start-up technology businesses, take note: Perhaps the secret to becoming an acquisition target for a corporate giant like Roche is to not set out to be a target in the first place.
That’s the saga of the Madison biotechnology firm NimbleGen, a manufacturer of gene chips for pharmaceutical research. Having made a name for itself in the field of high-definition genomics, NimbleGen was pursuing an initial public offering last year when Roche, the Swiss pharmaceutical giant, entered the picture. The courting of NimbleGen by one of the world’s largest pharmaceutical companies eventually led to a $272 million acquisition deal that far exceeded the $75 million the Madison company hoped to raise in the IPO.
“We were completely committed to taking the company public,” recalled CEO Stan Rose.
Rose, who has been with NimbleGen since 2003, explained its evolution as an “accidental” acquisition target during a talk on successful exit strategies. The presentation was part of the Wisconsin Alumni Research Foundation’s Gilson Discovery Series.
Four pillars
In 1999, NimbleGen was spun out of technology developed at the University of Wisconsin-Madison, but its focus was to simply develop its business by emphasizing pillars like technology, quality management, sustainable market advantage, and financing. Becoming an attractive acquisition target was not on its long-term agenda.
“Ironically, companies that set a goal to be acquired may never get there,” Rose told WTN prior to the Gilson program, “and companies trying to develop and grow their business often become acquisition targets.”
Over the years, NimbleGen executives had quite a bit of contact with people from Roche at industry conferences – “Our people knew each other; it’s a small industry in several respects,” Rose said – and they had discussed various kinds of collaboration. After filing for the IPO, Roche was one of several companies that expressed interest in buying NimbleGen.
The four key elements that piqued Roche’s curiosity started with microarray technology that has been patented by WARF, which is UW-Madison’s licensing arm. The company makes microarrays, or slides, for genetic research that contain thousands of individual genetic samples. The samples are arranged in a grid to allow scientists and companies to obtain complex genetic data sets that previously were not available, and researchers use them to enhance their understanding of the genetic causes and predisposition factors of disease, for comparative genomic analysis, and to identify potential drug targets.
Rose, who has been in the biotech industry for 20 years, believed in the technology because he knew what pharma customers needed. “I had a very strong feeling that his was important technology that could have a big impact,” he said.
Roche thought so, too. Best known for pharmaceutical products like Tamiflu and Valium, Roche acquired NimbleGen to gain entry into genomics research, which it considers to be a high-growth global market of about $600 million. Earlier this month, the two companies announced the commercial launch of a technology product that targets select regions of the genome for high-throughput sequencing.
Rose was not with NimbleGen at its inception, but he is part of a management team that enjoys a solid reputation beyond Madison’s borders. In addition to Rose, the team now includes Emile Nuwaysir, senior vice president, David Snyder, vice president and CFO, and Greg McGuinness, VP of international business.
Along the way, NimbleGen has added the scientific and business acumen of board members like Leroy Hood, co-founder and president of the Seattle-based Institute for Systems Biology. Hood, who has been inducted into the National Inventor’s Hall of Fame, gained notoriety by helping to create a DNA sequencer to map the human genome.
Market and financing
That management team, Rose said, was essential to the company’s ability to attract capital because investors believed it was capable of executing the business plan. The basis of that plan was a well-defined market opportunity, but it took awhile to develop a technology that could address real problems.
Rose joined the company at the transition point from product development to commercialization. “You can demonstrate the technology,” Rose said, “but people could still be skeptical because your management people don’t have a track record.”
Even if the technology isn’t quite where it needs to be, Rose said quality management will give others the confidence to invest and partner with you.
Eventually, NimbleGen’s management team developed a great deal of confidence in the technology’s value and market potential. Months before the Roche deal was announced, NimbleGen said it would have its scientific research tools sold worldwide as the result of licensing and supply agreements with Oxford Gene Technology, a microarray consultancy service headquartered in Oxford, England.
The Oxford deal followed the acquisition of intellectual property rights from the Santa Clara, Calif.-based Affymetrix, Inc., which should enable NimbleGen to extend its reach in the growing microarray market. In what NimbleGen president and CEO Stan Rose called “a major milestone,” the licensing agreement allows NimbleGen to commercialize products, including technology used to study the relationships between genes and health, that are covered by Affymetrix patents.
The transaction allowed NimbleGen to manufacture and sell arrays to scientists for use in their own laboratories; in the past, if those scientists wanted access to NimbleGen technology, their only option was to send in samples for analysis at NimbleGen’s service laboratory in Reykjavik, Iceland. NimbleGen has operated a laboratory and production facility in Reykjavik because Iceland is a hub of research related to the human genome.
Market opportunities have to be real, Rose said, for investors to pony up. An exciting, patent protected technology won’t attract investors unless there is a market need for it, but that wasn’t a problem for NimbleGen. The company pursued an IPO in part because it has raised more than $60 million in venture in venture investments, and it needed an exit strategy to provide investors with a return on that investment.
“We were constantly in fund-raising mode,” Rose recalled. “I must have spent two-thirds of my time raising money.”
The marriage
Under the terms of the acquisition, NimbleGen became a fully integrated part of Roche Applied Science, a global business area in Roche’s diagnostic division. Roche retained all of NimbleGen’s employees, and maintained NimbleGen facilities in Madison, Reykjavik, and Waldkraiburg, Germany.
The Madison company will have access to Roche’s worldwide sales and distribution network, and accelerate its opportunities in the high-density DNA microarray business. With the resources of Roche at its back, it can reach these goals much faster than if it had to build the required infrastructure on its own.
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