To focus on drug repositioning and development, Gene Logic has sold its genomics arm to India’s Ocimum Biosystems for $10 million.
Founded in 1994 as a bioinformatics firm, Gene Logic has modified its business model several times over the years in response to a steady downturn in the market for gene expression data. The sale of the business represents a final page in this transformation.
Revenues for the company’s genomics business have been plummeting — falling to $24.3 million in 2006 from $56.6 million in 2005 — and the $10 million selling price for the division underscores the unit’s diminishing value.
“When you look at the prospects for the knowledge products business sales revenue over the next couple of years, it is in a very steep decline,” Charles Dimmler, CEO of Gene Logic, told BioInform. “So therefore, my argument is that looking forward, the $10 million price is a reasonable, a logical, a sensible price.”
Dimmler said that in addition to Ocimum, there were three other contenders for Gene Logic’s genomics business, though he could not disclose their names. He said the company went with what they considered to be the best all-round offer.
Ocimum will pay $7 million upon closing of the acquisition, slated to occur in December, and the other $3 million 18 months later. In addition, Ocimum is assuming “some of the liabilities of the business,” Dimmler said.
For example, the agreement includes Gene Logic’s lease holdings at its corporate headquarters in Gaithersburg, Md., “which are a measurable part of the deal,” Dimmler said. “I am not at liberty to disclose the amount, but the value of the deal exceeds the $10 million of proceeds.”
Ocimum, meantime, sees the acquisition as an opportunity to expand its market presence. Ocimum’s CEO, Anu Acharya, told BioInform via e-mail that the agreement is part of a strategy to advance the company’s “premier presence in the genomics market.”
Ocimum is based in Hyderabad, India, with US headquarters in Indianapolis and European headquarters in IJsselstein, the Netherlands. The company offers a range of genomics products and services via three divisions — Bio-IT, Bio-Molecules, and Bio-Research.
The acquisition provides Ocimum with Gene Logic’s entire informatics business, including its BioExpress and ToxExpress databases and Genesis, Ascenta, Sciantis, and ToxShield software products.
Ocimum has also picked up Gene Logic’s genomic services business, which includes access to its biorepository of more than 80,000 samples, data generation on multiple platforms, and biostatistical and other data analysis services. Ocimum said it will continue to operate this business out of Gene Logic’s facility in Gaithersburg.
Acharya said that with the acquisition, Ocimum will have access to customers who are looking at not just regular gene expression services, which the company already offers, but highly specific areas like pharmacogenomics and toxicogenomics. Some of Ocimum’s clients in these areas include Acuity Pharmaceuticals, Cleveland Clinic, and Alnylam Pharmaceuticals, for example.
“Gene Logic fills in the gaps that we had as a complete solution provider,” Acharya said. Specifically, she said, “Gene Logic adds the database component and the highly specific services, which make it very attractive for our partners as a one-stop shop.”
Acharya said that Ocimum will continue to develop the Gene Logic product line, but declined to provide specific product-development plans.
“The principal use that the pharmaceutical companies made of this information was for target identification, and the pharmaceutical industry is essentially awash in unvalidated targets. So the demand for gene expression data has significantly been reduced.”
“Our idea is to be able to provide our customers value by offering them the same quality services with an option to offshore it to India, providing them better costs,” Acharya said.
Gene Logic’s Plans
Gene Logic spokesperson Chris Colatta told BioInform that the company will maintain a management and administrative presence in Gaithersburg through the end of 2008. It is unclear where the company will be after that, and how much of their present location they will retain until that time after settlement of the deal.
Under the terms of the deal with Ocimum, Gene Logic still retains full rights to use the genomic databases as “key elements” in building its drug-repositioning and -development business.
Additionally, Gene Logic will retain assets related to molecular diagnostics “and will continue to explore strategic alternatives for these assets.”
Dimmler said that while the gene expression database business “was a very good business for us while it was sustainable,” recent trends in the pharmaceutical market made it untenable.
“The principal use that the pharmaceutical companies made of this information was for target identification, and the pharmaceutical industry is essentially awash in unvalidated targets. So the demand for gene expression data has significantly been reduced,” Dimmler said.
In response, to this trend, the company has made a number of moves over the past year to hone its focus on drug repositioning. Last November, the company got rid of its preclinical division and restructured its genomics arm [BioInform 11-10-06].
In the following months, Gene Logic spoke about selling off its genomics division. In April, the company said it was “considering strategic alternatives” for the unit, and in August hired Aquilo Partners to help outline some of its options regarding the sale of its genomics assets.
The company is now betting its future entirely on the drug-repositioning business, which generated $36,000 in revenue in 2006, compared to $588,000 in 2005.
Gene Logic has not provided financial guidance regarding time-to-profitability for this business.
The company has penned repositioning deals with Pfizer, Roche, Abbott, Merck Serono, Organon, Solvay, and H. Lundbeck. According to SEC filings, the company had evaluated more than 70 drug candidates for these partners as of June 30, and was able to develop “alternative indication hypotheses” for 25 percent to 33 percent of these candidates. Gene Logic does not expect any of these candidates to re-enter clinical trials until after 2007, however.
As of June 30, Gene Logic had $20.8 million in cash and cash equivalents and $15.8 million in marketable securities.