Life Technologies Buys GeneART

Life Technologies today bought 58% of synthetic DNA provider GeneART, with a public tender planned for shares outstanding (Yahoo Finance, GeneART Press Release).  Previously, before changing its name, Invitrogen entered into a strategic agreement to buy the exclusive worldwide rights to distribute Blue Heron Biotechnologies gene synthesis services.

What should we make of this?

First, Life is led by Gregory Lucier, who used to be way high up at GE and is a former protege of Jack Welch.  In my observation, and in my experience, Life is trying to the be the GE of biology.  What does that mean?  GE is obviously a conglomerate, and it operates not so much as a maker and seller of things but as a finance operation that seeks growth through return on capital.  As such, GE buys other companies aggressively -- this is, vastly oversimplified, the Jack Welch strategy.  Life is operating the same way.  The company is aggressively acquiring biotech companies of all sizes. The web was full of rumors earlier in 2010 that GE, seeing something it liked and a familiar strategy, was trying to buy Life Tech.  Who knows -- that may be real and may still happen.  It would be another interesting indication of a certain kind of maturity in the market for biological technologies.

Second, Life obviously sells lots of cloning reagents -- a market that is threatened by synthesis -- so the move could be somewhat defensive in nature.  Life is getting reputation, market share, and expertise in an area that they do not yet dominate.

Third, while GeneART is big, they are a European shop paying German wages to a bunch of people running around with plates and pipetters.  GeneART gets some cash and a big marketing arm, and Life gets ... hummm ... an operation that may have difficulty competing with Chinese labor (Genescript) and automation (Blue Heron).  Presumably, Life looked at the balance sheet and the marketing forecasts and decided the deal makes sense.  But it might be a complex calculation involving not just return on capital, but also access to IP, expertise, and factors that nobody outside Life can do more than guess at, like balancing sales of cloning reagents against sales of synthetic genes.

Now, what might be the implications for the synthetic biology community?  Probably not much.  Prices for synthetic DNA continue to fall.  The $.39 per base price established last autumn as a "special" is now, no surprise, the industry standard.  We will probably see additional consolidation and shifting around as margins get squeezed.  The industry is expecting prices to be at $.05 to $.15 per base within 5 years.  Though even within the same conversation you might hear $.10-$.25 per base, thereby managing consumer expectations, which makes me wonder if people are starting to quail a bit at the exponential and its implications for their business.  You will still have the option to pay more for rush jobs or for genes that are tricky to synthesize.

As I have observed previously (most recently in Nature Biotechnology, here), the maximum profit margin on synthetic genes is evaporating exponentially.  That is not hyperbole, but rather a quantitative observation based on market prices over more than ten years; it is data.  That said, even as prices fall it will still be possible for some companies to increase their revenues as competitors leave the market or go out of business.  But I would be surprised if the market dynamics that enabled Intel to exploit Moore's Law for many decades reemerged in synthetic genes.  Intel knew it could ship exponentially more transistors every quarter -- which meant it could rapidly grow even in the face of falling prices -- but I do not have any evidence that the total market for synthetic genes is expanding much faster than the price is falling.  Conversations with industry executives lead me to believe the total dollar value in the market is continuing to rise, if somewhat slowly.  The rate of increase is hard to pin down, however, given the hiccup that was 2009.  This year's volume and revenues should be bigger, but it isn't clear that one should attribute this to more than the broader economic recovery.

All in all, this seems like business as usual for an industry that is experiencing a rapid transition to commodity status while simultaneously suffering from globalization and lowered barriers to entry.  It probably isn't so different in overall impact from the demise of Codon Devices.  This is just another step towards maturity in an area that will have much more impact on our lives in the future than it has thus far.