By Malorye A. Branca
April 15, 2003 | Companies are jockeying for position in the emerging genomic services industry, hoping that outsourcing will increase as pharma and biotech push for new drug approvals.
In late February, genomic database pioneer Gene Logic announced the acquisition of contract research organization TherImmune Research for $52 million.The same day, Agencourt announced the purchase of Genome Therapeutics’ GenomeVision Services, a custom genomic sequencing business.
Gene Logic is one of the last of the bioinformatics bubble survivors—companies left with seemingly no future but a lot of cash after a brief investment boom in the late 1990s. The company has proprietary gene expression databases for drug discovery and toxicology to which most top pharmas subscribe. But companies like Celera Genomics and Incyte are living proof it’s hard if not impossible to grow a genomic database business..
This deal takes Gene Logic exactly where management has long said the company was headed—downstream to drug development and clinical trials. Those divisions typically have bigger budgets than preclinical drug discovery departments have.
To keep investors interested, most struggling genomic tool companies have turned into pharmaceutical companies. “The margins for services are smaller than for having a drug,” says Gene Logic CEO Mark Gessler. “But our discovery service already has high margins, and the areas we are moving into are the highest and most profitable of the service business.” Besides selling database subscriptions, Gene Logic does custom work for customers such as developing new models to test for drug toxicity.
TherImmune offers services that range from discovery through early stage clinical trials. Both companies are located in Gaithersburg, Md., and the new, merged entity will remain there and have about 500 employees. TherImmune also performs preclinical toxicity screening, but the overlap between the two companies’ client bases are small -- about 12 percent, according to Gessler -- because most of TherImmune’s clients are biopharmas while most of Gene Logic’s are big pharma. One goal is to sell the combined services across biotech and pharma.
“I like the deal and as a result upgraded Gene Logic from an underweight to an equal weight,” says Edward Tentoff, an analyst at ThinkEquity Partners. “This forward integrates their offering and expands their customer base.” It also brings new revenues to the bottom line this year and leaves Gene Logic with a healthy bank account of about $136 million.
The Agencourt/GenomeVision deal unites two leading sequencing groups. “By moving there [Agencourt], we are creating an even stronger team,” says Lynn Doucette-Stamm, who headed the GenomeVision Services at Genome Therapeutics and has moved to Agencourt as vice president of business development.
“I’m seeing growth in both companies,” Doucette-Stamm says. “At one point pharma companies were bringing a lot of genomics and proteomics in-house. Now they are finding it is much more cost-effective to outsource that.” But Agencourt will also target clients further downstream in development and beyond.
Not all the financial details have been disclosed, but Genome Therapeutics is transferring accounts, staff, and equipment to Agencourt. It will receive a percentage of revenues from some of the transferred accounts for the next two years as well as an undisclosed equity stake in Agencourt. GenomeTherapeutics is keeping the PathoGenome Database product.
Last October, Charles River Laboratories and Proteome Systems inked a deal to develop a proteomic service. That service is already up and running. Charles River, which has an 80 percent stake in the venture, is an established preclinical services provider. The new service uses Proteome Systems’ ProteomIQ platform, bioinformatics, and other tools. The deal gave Charles River a handy way to expand its offerings with minimal investment and gives the proteomics startup an entrée into a tough market.
Tentoff says he thinks demand for services will grow. “The big pharmas might increase their outsourcing a little,” he says. “But I think the bolus is in biotech, where there are hundreds of compounds in preclinical development that have to go forward.”