llumina (San Diego) and Solexa (Hayward, California) reported that they have entered into a definitive merger agreement under which Illumina will acquire Solexa in a stock-for-stock merger valued at $600 million.

Under the merger agreement, unanimously approved by the boards of both companies, Solexa's stockholders will receive, subject to certain "collar" provisions, shares of Illumina common stock valued at $14 per Solexa share. The exchange ratio will be set at closing, according to Illumina President and CEO Jay Flatley.

In addition, Illumina has entered into a definitive securities purchase agreement with Solexa in which it has agreed to invest an additional $50 million in Solexa in exchange for newly issued Solexa shares, subject to customary closing conditions.

Flatley said during a conference call, that he believes the transaction "creates a powerful life sciences franchise," saying that Solexa is a "natural" addition to its business, because it allows for sequencing at lower costs.

Solexa, which has "substantial operations" in Cambridge, UK, has developed a "next-generation" genetic analysis system for use in whole genome sequencing, targeted resequencing, digital gene expression and microRNA analysis, it said.

Flatley said that the Illumina 1G Genome Analyzer is ideally suited for looking for gene variations, or single nucleotide polymorphisms (SNPs), and that sequencing and genotyping are "closely related techniques."

By identifying SNPs, the hope is that this could lead to genetic markers, and the ultimate goal for such markers is to be validated for clinical diagnostics to allow for "early detection of mutant cells that are clearly indicators of disease."

"Sequencing will be the application of choice in developing clinical diagnostics," Flatley said

The market opportunity in sequencing is estimated at $1 billion, creating a market opportunity for the combined company in excess of $2.25 billion, the companies said. Together, Illumina and Solexa will create the only company with genome-scale technology for genotyping, gene expression and sequencing, the three cornerstones of modern genetic analysis, they said.

"Illumina is at the forefront of advanced genetic analysis, with the goal of providing the tools to understand the molecular basis of disease. This transaction adds next generation sequencing to our core technologies, allowing us to integrate the essential applications in modern genetic analysis," said Flatley. "This unique genetic analysis portfolio addresses the fastest growing segments of the life sciences market and will speed our customers' quest to understand, cure and ultimately prevent disease."

Illumina and Solexa anticipate that the 1G Genome Analyzer and future products will enable researchers to conduct whole genome resequencing, targeted resequencing and other applications at unparalleled throughput and costs, much as Illumina's BeadArray products have done in the genotyping field, the companies said.

That combination is expected to accelerate the commercialization and market expansion of the 1G through Illumina's worldwide direct sales and support network. Additionally, it will expand Illumina's penetration into complementary markets, similar to how its acquisition of CyVera provided access to the lower multiplex, clinical diagnostics marketplace.

John West, CEO of Solexa, who will be joining Illumina as senior vice president and general manager of the Sequencing Business, said: "This transaction is expected to provide significant benefits to Solexa stockholders, customers and employees. "

West said he expects that the combined company will "reach and exceed the milestone of the $100,000 genome."

Solexa stockholders, option holders and warrant holders will receive newly issued shares of Illumina common stock, options and warrants, respectively, for their Solexa shares, options and warrants.

Illumina said it expects to maintain Solexa's operations in both California and Cambridge, and two members of Solexa's board will be joining Illumina's board, Flatley said.

The merger is subject to the approval of Illumina and Solexa stockholders and customary closing conditions, including regulatory approvals, and is expected to close by the end of 1Q07.

Merrill Lynch & Co. is acting as exclusive financial advisor to Illumina, and Dewey Ballantine is acting as legal counsel. Lazard Fr res & Co. is acting as exclusive financial advisor to Solexa, and Cooley Godward Kronish is acting as legal counsel.

In other dealmaking news:

• Amphion Innovations (London), a developer of life sciences and technology businesses, reported that one of its partner companies, Supertron Technologies (Newark, New Jersey), a developer of high performance clinical and preclinical imaging products for magnetic resonance imaging (MRI), has acquired Spin Systems (Brisbane, Australia), a manufacturer of MRI coils and other imaging accessories.

Following the acquisition, the enlarged company will change its name to m2m Imaging (m2m; also Newark) to encapsulate the broad spectrum of "molecule-to-man" imaging products the new combined company is developing.

Spin Systems was acquired by Supertron for 313,878 Series C preferred shares valued at $5 per share and $752,284 in cash. The total consideration of the acquisition was about $2.3 million.

Supertron CEO C. Richard Hullihen will serve as the CEO of the combined company. Amphion will be the largest strategic investor in m2m with a 23.5% ownership interest. The post acquisition value for m2m is $20 million based on the offering price of the Series C round, closed in July.

m2m will combine Spin Systems' portfolio of MRI coils and accessories with Supertron's cryogenic coil technology. The cryogenic coil has been shown to dramatically improve the performance of the MRI scanner, producing significantly clearer images in less time, the companies said.

• Tm Bioscience (Toronto), a diagnostics company developing a suite of DNA-based tests for genetic disorders, drug metabolism (pharmacogenetics) and infectious diseases, reported that its board has initiated a process to explore strategic alternatives to enhance shareholder value, including, but not limited to, the sale or merger with another entity offering strategic opportunities.

The board has established a special committee of directors to review, consider and analyze potential strategic opportunities. The company also has retained the investment banking firms Leerink Swann & Company (Boston) and Westwind Partners (Toronto) as financial advisors in this process.

"Tm Bioscience has commercialized a series of genetic tests that generate a significant recurring revenue stream, established a solid U.S. customer base, and is developing an exciting pipeline of novel products. The strategic alternatives process we are initiating is aimed at enhancing shareholder value by placing the company in a position to further realize the growth potential inherent in its existing products and more importantly secure the global reach and scale required to fully exploit its next wave of products," said Paul Lucas, chairman of Tm Bioscience.

The company also said it does not plan to disclose the results of this search effort unless and until its board approves a specific transaction.