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In Silico Drug Discovery Companies Structural Bioinformatics, GeneFormatics to Merge

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Structural Bioinformatics and GeneFormatics announced last week they had signed a merger agreement, with most of the new management team coming from Structural Bioinformatics (SBI), and SBI shareholders gaining a majority interest in the new company.

Executives from the two San Diego-based in silico drug discovery companies said they are merging to create a company that can provide soup-to-nuts structural proteomics services, a fatter drug lead pipeline, and enough cash to last through the present funding drought.

John Chiplin, CEO of GeneFormatics, said the company chose SBI as a merger partner because it had “scientific synergies,” as well as a strong balance sheet that could be combined with GeneFormatics’ own funds.

“The merger gives us more than three years of cash,” said Edward Maggio, CEO of SBI.

The Perseus-Soros BioPharmaceutical Fund, which has investments in both privately owned companies, brought them together. “We believe that SBI and GeneFormatics make an excellent strategic fit,” said Dennis Purcell, senior managing partner of the fund, in an e-mail.

Maggio, who will stay on as CEO of the new company, likes to emphasize the “broad product offering” that it will have. Not only will it include both SBI’s x-ray crystallography and GeneFormatics’ nuclear magnetic resonance for structure determination, but each company also brings its own group of databases and computational expertise.

SBI’s ProMax database contains about 6,000 unique computationally determined structures not available from the Protein Databank, 98 percent of which fall within 2 angstroms of the x-ray structure, according to Maggio. Its other databases are StructureBank, a customizable relational database to which users can add their own structures, and Variome, a database of protein structures from polymorphic sequences.

GeneFormatics has its own database of protein structure and function information using both NMR and computational methods, and informatics technology for rapidly processing genome sequences and pulling out new protein-based drug targets. The company’s relational database holds information on protein sequences for nearly 100,000 human sequences and sequences from nine other genomes.

Both companies also have received major investments from IBM, and use IBM equipment. Both have clusters of eServer xSeries systems running Linux, and use DB2 as their database architecture. GeneFormatics also has an Enterprise storage server, and SBI has IBM WebSphere as its infrastructure for access to protein structures on the web.

But there is some overlap. “If you want to boil the merger down to a nutshell, we keep all of our molecular and structural biology. SBI keeps all of their cellular biology and medicinal chemistry. We have taken some of our annotation services and combined them with SBI’s computer modeling expertise,” said Chiplin.

SBI has about 75 employees, and GeneFormatics has somewhere between 50 and 60, said Maggio. The combined total headcount will be 73 people, with the bulk of layoffs happening in the areas of administration, finance, accounting, and human resources.

In addition to Maggio, the new executive team will include president and COO David Muth, and vice president and CSO Karl Ramnarayan, both of whom held the same jobs at SBI; and CFO John Schmid, who was the CFO at GeneFormatics. Chiplin will stay on as a consultant for the merger and for the Asian market.

With Maggio at the helm, the new company will pursue the hybrid strategy of not only selling protein structure services, but also developing drug leads internally. SBI has already developed leads for sickle cell disease, anthrax lethal factor inhibitors, allergy, HIV, and diabetes.

The merger has been approved by the boards of both companies but still awaits final approval from the shareholders and the California Department of Corporations, and will take about 75 days to become final, said Chiplin. The companies also have to decide which facility to make their new headquarters.

Despite stepping down from his executive role, Chiplin is happy to have gotten to this point. “People say there will be a wave of M&A in biotech, but personally I doubt it because there are so many pitfalls in these transactions,” he said. “I am just pleased we could get the deal done in such a tough financing environment.”

— MMJ

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