The agreement allows Qiagen to offload a business that has been suffering from competition and pricing presures of late, improving its operating margins at a stroke, but keep the high-growing small interfering RNA (siRNA) business.
Peer Schatz, Qiagen's chief executive, said in a conference call: "Oligonucleotides have always been a flanking business to Qiagen and in recent years were exposed to a significantly unbalanced market environment and lower margins."
The new company, to be named Operon Biotechnologies, is to be headed up by a management team previously employed at Qiagen and backed by private investors. Qiagen will receive $24.3 million (€20 million) for the business, with $17.8 million in cash.
A spokesperson for Qiagen said: "The nucleic acid market suffered greatly by the decline in R&D research funding of 2002. Qiagen actually issued a profit warning [as its] nucleic acid synthesis operations suffered greatly from competitors and new companies involved with oligonucleotides."
She cited Illumina's move in 2002 to expand nucleic acid synthesis capacity to over 10 million oligonucleotides per year, doubling previous capacity and allowing them to cut customer prices to just $0.16 per base - 11 per cent lower than previous levels.
This move boosted revenues for the sector but did not have a positive effect on profits, and the market has still not fully recovered from this.
"The nucleic acid market has always been very volatile," she said. "But based on analyses of the overall market, experience and feedback from our sales team we think the scope is there to do very good business."
She added that the upturn seems to have been driven by genomics-based research and the development of higher margin products, such as custom-made oligonucleotides.
Under the terms of the deal, Qiagen retains what it described as 'preferred' access to Operon's synthetic nucleic acid manufacturing capacities and purchasing rights, as well as exclusive rights to utilise manufacturing capacities and contract manufacturing of the siRNA products that Qiagen will continue to market.
It will sell to Operon the synthetic DNA (assets and business), custom oligonucleotide, modified oligonucleotide, off-the-shelf products for use in microarrays (AROS; array-ready olignucleotide sets) and antibody and peptide businesses. As noted, all the siRNA functions (research, marketing and sales) will remain with Qiagen
At the heart of Qiagen's siRNA business is its proprietary TOM-amidite chemistry, used to improved the efficiency and purity of RNA oligonucleotide synthesis.
RNAi is a gene silencing tool that can be used to rapidly yield an idea of the function of each of our gene, as well as acting as potential therapeutics. They are estimated as being 100 to 1000-fold more potent than antisense, meaning small amounts of RNAi inducers can effectively silence genes. This should not only simplify delivery, but also may mean that even modestly effective ways of getting RNAi-based medicines into targeted cells may yield therapeutic benefits while potentially limiting any negative side effects.
A market report recently published by Research and Markets notes that the RNAi sector is difficult to define at present, as the major use of RNAi reagents is in research but partially overlaps that of drug discovery and therapeutic development.
The report estimates that the research market is around $300 million currently and will increase to $400 million in 2005 and $850 million by 2010. The value of the drug discovery market based on RNAi can be assessed at $500 million currently with increase to $650 million in the year 2005 and further doubling to $1 billion in the year 2010. Even if a few products get into the market by the year 2010, this market will expand to $3.5 billion based on revenues from sales of RNAi-based drugs.