Gene Logic to buy Oncormed $38 million stock deal called a good fit by both companies

Biotechnology

July 08, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

Gene Logic Inc., a Gaithersburg genomics company, said yesterday that it has agreed to buy financially struggling Oncormed Inc. in a stock swap valued at $38 million.

"This fully expands us from the [drug] discovery side of the business to the clinical trials side. It's a very complementary match," said Mark Gessler, Gene Logic's chief financial officer.

The acquisition is subject to approval by a majority of the shareholders of each company.

Oncormed, also of Gaithersburg, lost $10.7 million on $96,000 in revenue last year. It has never turned a profit and in April announced that it had enough cash to remain in business for a few months.

During the past year, the company has been shedding its genetic diagnostic business, which has been unprofitable. It has been shifting into providing genetic testing for pharmaceutical companies and their clinical trials of new drugs, and has been successful at striking a number of significant agreements.

Oncormed studies how people's genetic makeup might affect how they react to drugs and other medicines.

"This is a tremendous fit for us," said Leslie M. Alexandre, vice president for corporate affairs and marketing at Oncormed. "This will create a fully integrated genomics and bio-informatics company. They have tremendous expertise in the gene discovery side, while we have great expertise in gene patterns and mutation detection."

Gene Logic uses a proprietary technology to determine what genes are active during disease and how that information might be used to develop new drug candidates.

Among the assets Gene Logic acquires in the deal is Oncormed's large repository of human tissue samples, which are used for genetic analysis to look for mutations or rarities. Through agreements with major hospitals and other medical institutions, Oncormed has one of the largest repositories of such "flash frozen" tissue samples in the country.

Gessler said Gene Logic had been contemplating launching its own pharmacogenomics business, but decided that acquiring Oncormed presented better value and would speed the company's ability to broaden its array of genomic-related services.

Gene Logic also acquires in the deal clinical testing alliances Oncormed has with a number of drug developers, including Merck & Co., Schering-Plough, Rhone-Poulenc Rorer and Zeneca Diagnostics.

Gessler declined to estimate the percentage of revenue pharmacogenomics will generate for Gene Logic in the long term.

"I think what we can say is that it will be a fundamentally important part of the business," said Gessler.

Large pharmaceutical companies are interested in genetics with an eye toward building databases of genetic traits to help guide them in designing drugs and other treatments.

Some industry experts predict that one day, drug prescriptions may be tailored specifically to complement an individual's genetic traits.

Gessler said Gene Logic anticipates eliminating about 20 of the 55 jobs at Oncormed as a result of the merger. Most of those cuts will be redundant administrative posts, he said.

Under the terms of the agreement, Oncormed shareholders will get 0.48 of a Gene Logic share for each Oncormed share held. The value of each share swapped won't exceed $3.79, said Gessler.

The exact value of the swapped shares to be issued will depend on the average closing price of Gene Logic stock during the 15 days before the close of the deal, the company said.

"There will be no premium at all," said Gessler.

Shares in Gene Logic closed down 25 cents yesterday at $7.94. Shares in Oncormed dropped 38 cents, to $2.94.

Oncormed went public in September 1994 at $6 a share and issued 2 million shares in January 1996 at $7.75 each.

Gene Logic expects to issue up to 4.85 million shares of common stock in the deal. Once the swap is completed, Oncormed shareholders will own about 23 percent of Gene Logic stock, said Gessler.

Company executives said they expect the transaction to occur in October, November or December.

After the merger, Oncormed will operate as a subsidiary of Gene Logic in Gene Logic's facility in Gaithersburg.

When the deal closes, Oncormed's founder, Timothy J. Triche, will step down as chairman and chief executive officer but will remain as a consultant to Gene Logic, the companies said.

Dr. Douglas Dolginow, Oncormed's president and chief operating officer, will become a senior vice president of Gene Logic, focusing on the pharmacogenomics business.

Pub Date: 7/08/98

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