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Win-Win Merger Gives Celera Chem Capability, Bolsters Axys Bioinformatics

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Celera Genomics took a decisive step toward its goal of becoming a fully integrated drug discovery company last week with its acquisition of Axys Pharmaceuticals in a stock transaction valued at $173.4 million.

While the Rockvile, Md.-based company has been telling investors for months that it intended to make an aggressive push toward the clinic, the merger marks the first external move Celera has taken to expand its resources beyond its core capabilities.

Celera said it hopes to use Axys’ chemical libraries of small molecules and its experience in structural and medicinal chemistry to identify potential drugs for protein targets that Celera identifies through its proteomics program.

Under the merger, Axys’ team of chemists and biologists based in South San Francisco, Calif., will work together with Celera’s scientific team. Michael Venuti, Axys’ vice president for research and development, will report to Craig Venter, Celera’s president, and Paul Hastings, Axys’ CEO, will report to Peter Chambre, Celera’s COO.

Venuti said that Axys’ current research staff of around 130 comprises 55 chemists, with the remainder being biologists and enzymologists. There are no plans to downsize the company’s current bioinformatics group of around 10 people. “We’re keeping them and will probably need to grow them here,” Venuti said.

“The prosecution of new targets and the target validation that needs to go on will generate information that needs to be transferred here and our group needs to incorporate that information in our molecular biology work in order to construct families to work on,” Venuti added.

Venuti said bioinformatics at Axys has “never been a significant effort.” The group has focused on two areas: targeted genomics to identify new protease family members and gene expression analysis to identify genes up- and down-regulated in the process of angiogenesis. “Those capabilities in terms of database searching and database management and other kinds of transfer of knowledge from genomic databases into molecular biology will be enhanced through the merger,” Venuti said.

Axys is currently building a new 43,000 square foot medicinal chemistry facility in South San Francisco that is expected to be completed this year. Venuti said Axys plans to increase its chemistry staff to 80 by the end of the year.

In a conference call to discuss the merger, Chambre said that Celera would support Axys’ current collaborations with Merck to develop lead drug compounds for osteoporosis, and with Aventis to identify lead compounds for inflammatory and autoimmune diseases. Axys also has its own drug development efforts in oncology, but Venter noted that Celera did not buy Axys for its pipeline, but for its strengths in biology and chemistry.

“We did not do this based on the pipeline that has existed or does exist,” he said. “But we’re not going to ignore it either.”

Venter said that Celera has targeted four key disease areas in its drug discovery efforts, including colon, pancreas, lung, and breast cancer.

While all sides agreed that the capabilities of the two companies dovetail nicely, Celera executives conceded that several additional pieces must be put in place be- fore the company becomes a full-scale diagnostics and therapeutics company.

“We’ve made significant strides but much needs to be done,” said Tony White, CEO of Celera’s parent company Applera. “We’re evaluating possibilities for the next phase of development.”

Both White and Venter said Celera needs to build or acquire capabilities in target validation. Venuti said Axys and Celera researchers would be looking at enhanced use of antisense as a target validation technique “on an industrial scale,” but an acquisition in this area has not been ruled out.

Analysts applauded the merger as a win for both sides, but noted that it is still an early step in Celera’s building process. “It’ll be some time before they get all the way downstream into marketing and commercializing their own products,” said Eric Schmidt of SG Cowen Securities. “A fully integrated drug discovery company means you’ve got a pipeline with drugs on the market.”

James Reddoch of Banc of America Securities noted in a report that target validation would likely be Celera’s next acquisition area as it seeks to “fill in additional components of the gene-to-drug continuum.”

Reddoch added, however, that the move signals a transition from Celera’s role as a content provider, noting that “the database business is complementary and helps pay the bills, but drug discovery is clearly the focus now.”

Axys and Celera expect the merger to close in early fall.

— BT

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