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Lark Deal Gives Genaissance Base in Europe. Are Euro-Pharmas Hungry Enough for PGx?

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Genaissance Pharmaceuticals has gotten a taste of Europe, and it wants some more.

When the company acquires Lark Technologies for $20 million in stock later this year, it will obtain a presence on the Continent, a scrappy sales team, and a complementary array of services to blend with its own offerings.

The new European footprint, following on a pair of recent deals with mid-sized European biopharmas, will also buoy Genaissance’s financial outlook for 2003 — if only in pro forma standards.

Indeed, as competition in the pharmacogenomics marketplace continues to balloon in the United States — the supply of companies providing pharmacogenomics-related sales and services in the country currently exceeds demand for these programs — more and more companies are eyeing the relatively young European market, especially its mid-size drug makers.

In fact, Genaissance has itself recently increased its presence among these companies, having penned collaborations with Novo Nordisk and Ferring Pharmaceuticals last month. Kevin Rakin, CEO of Genaissance, said it is the fertile promise of pharmacogenomics collaborations among these kinds of drug makers that might make Europe a rewarding market for the company.

Like their American counterparts, European biopharmaceutical companies don’t readily break down R&D spending. However, most analysts agree investment in genotyping and gene-expression technologies and services among mid-size European biopharmas lags behind similar American companies. But they also agree that the numbers are growing quickly. The challenge for pharmacogenomics tool companies will be to get to potential customers ahead of competitors.

Genaissance expects that a presence in Europe will help ensure that it’s on the ground floor when drug makers fully catch on to pharmacogenomics. “Pharmacogenomics is one of those areas that, because you are handling clinical samples, you need some feet on the ground in terms of processing samples, and you want to be closer to where the clinical trials are occurring,” Rakin told SNPtech Reporter this week.

“One thing we’ve come to appreciate about pharmacogenomics is that you need a fair amount of face-time going up and talking to the clinical development person or the marketing person, or even the clinical research purchaser,” he said. “Having a new [European] addition to our sales and marketing team is a huge advantage for us.”

Genaissance also stands to benefit from some of Lark’s services, especially its GLP sequencing arm, which ties in with Genaissance’s broader pharmacogenomics initiatives and services.

“When you’re doing GLP work, it can be contracted out by one group, and, at least for the biologics, there’s a lot of sequencing work that can tie in with some of the genotyping work — maybe more in the manufacturing stage, but it all blends together in terms of thinking about the product life cycle, and the genetic-analysis needs the product might have,” said Rakin.

Occidental Tourist

The prospect of gaining wider reach in Europe made sense for Genaissance. According to Rakin, who is British, mid-size pharmas based in Europe are “getting into pharmacogenomics now.” Another issue is logistics. He said the “question continually arises ... from European-based clinical trials is, ‘Why do we have to send our clinical samples all the way over to the United States, and deal with all the customs issues and transport issues? Why can’t you do genotyping in Europe?’” he said. “And as we see that trend emerging, we didn’t want to set up a facility from scratch. We said, ‘Lark is out there ... and in their shop we can drop a genotyping capability.”

To be sure, Genaissance is not a European neophyte. Last month, the company penned a HAP-technology licensing agreement with Novo Nordisk, a mid-size drug maker based in Denmark [see page 7], and a gene-banking and HAP-technology deal with Ferring Pharmaceuticals, which is headquartered in Germany [see 12/18/03 SNPtech Reporter]. The company also signed a broad collaboration with Germany’s Bayer last year [see 1/31/03 SNPtech Reporter], and with Sweden’s Pharmacia in 2002.

Rakin said Lark does around one-third of its business in Europe; the company has four sales people based near Cambridge, UK, and six in its headquarters in Houston. Lark is slated to generate approximately $9 million in revenue in 2003; it earned $724,949, or $.20 per share in 2002, up from $35,571, or $.01 per share, one year earlier. By comparison, Genaissance employs eight business-development and sales people in the United States, all of whom are based in the company’s New Haven, Conn., headquarters, and expects to draw between $11.8 million and $13.8 million in revenue in 2003; the company posted a loss of $33.3 million, or $1.46 per share, in 2002, compared with $47.6 million, or $2.09, one year earlier.

“Lark is a small company but when you put it next to Genaissance, suddenly we’ll have $25 million in pro forma revenue,” said Rakin.

Lark, which will retain its name as it becomes a wholly owned Genaissance subsidiary, performs a number of genomics-related services, including GLP-rated gene sequencing, quantitative PCR, microarray support, genotyping, gene detection, and testing for genetically modified organisms. Of these, the array support, Q-PCR, and low-throughput genotyping units comprise “a small percentage” of the company’s total business, said Rakin. He added that Genaissance “sees a lot of growth” in these areas. The biggest revenue drivers for Lark are its gene-sequencing and GMO businesses. Rakin stressed that Genaissance plans to keep all of Lark’s components.

Being acquired by Genaissance will also likely be a boon for Lark shareholders and customers. If the deal closes in the first half of the year — it is subject to shareholder approval — Genaissance will issue 6.7 million shares of its stock, valued at $2.99 per share, or around $19.9 million, and Lark shareholders will receive 1.81 of the shares for each Lark share they own. Lark itself will gain access to Genaissance’s high-throughput genotyping services and its HAP technology.

Together, the companies will be able to increase the level of their GLP services and DNA and RNA banking. “I think that’s where we have a unique footprint — on the GLP front,” said Rakin. “We really wanted to expand that business because we saw that as a very nice sweet spot of the services side. By getting the Lark GLP sequencing, it really covers the spectrum of genetic-analysis services.”

—KL

 

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