Gaithersburg-based Gene Logic is exiting genomics

In a deal that would leave Gene Logic Inc. with an entirely new identity, the Gaithersburg firm Monday said it has accepted a $10 million offer for the genomics business on which it was founded.

The deal with Indianapolis-based Ocimum Biosolutions Inc. leaves Gene Logic with only its drug repositioning and development division, which it began three years ago to partner with drug firms to find new purposes for failed therapeutic candidates.

The genomics division includes genomic and toxicogenomic databases and software tools, which Gene Logic developed and has licensed to biotechnology and drug development firms throughout the world.

The drug repositioning division uses that information -- to which Gene Logic retains rights under the deal -- to find new applications for the drugs it analyzes.

Gene Logic shares, traded as GLGC on the Nasdaq, sagged on news of the deal Monday, losing 11 cents, or 9.57 percent, to close at $1.04.

The agreement, still subject to a shareholder vote, is "a truly transformational event," said President and CEO Charles L. Dimmler III.

It also means an uncertain future for the 65 genomics division employees in Gaithersburg.

Ocimum officials said Monday only that the company would assume operation of the genomics business's 58,000-square-foot Gaithersburg lab.

"My sense is, at the end of the day, these employees will remain in place, but that's not, ultimately, my decision," Dimmler said.

The deal could mean a move for Gene Logic out of Maryland, where it was founded in 1994, to Cambridge, Mass., where the drug- repositioning business is located, said Dimmler.

The firm employs about 55 in Cambridge, a number that could grow to 75 by mid-2008, the CEO said.

Gene Logic will stay in Maryland at least through 2008, but officials have not seriously considered what will happen beyond that, Dimmler said.

"We are not in any hurry to relocate," he said. "If we decide to relocate ... it'll have to be for a good reason. At this point, we're not even thinking about it."

The company has deep roots in Maryland, particularly as one of the greatest successes of the state Department of Business and Economic Development's Maryland Venture Fund.

That venture investment program's $500,000 investment in Gene Logic, in return for shares in the firm, brought more than $17 million to the state when Gene Logic went public -- one of the largest returns ever from the program.

Gene Logic was one of the first companies to jump into the field of genomics, the study of the entire human genetic makeup.

But the firm late last year decided its future was in drug repositioning, rather than genomics.

Large pharmaceutical companies have been seeking new revenue streams as their patents run out and new drug development processes becomes even more expensive, Dimmler explained.

Drug repositioning could be an affordable alternative, he said.

"We have the capability to satisfy the increasing demand of the pharmaceutical industry for new product innovation," Dimmler said.

Last December, Gene Logic sold its preclinical contract research services division to Bridge Pharmaceuticals of San Francisco for $15 million.

Since then, Gene Logic had been working with Aquilo Partners to find a buyer for the genomics division, a process that involved meetings with 65 potential buyers and serious negotiations with four, Dimmler said.

The genomics business was Gene Logic's only revenue-generating division -- it generated $24.3 million last year, down from $56.6 million the year before.

Last year, the drug repositioning business generated $36,000, down from $588,000 in 2005.

But the future of Gene Logic is based on milestone payments and even royalties from its partners, should any of its repositioned drug candidates succeed and reach the market.

The company also is developing a treatment for irritable bowel disorder. It hopes to request permission from federal regulators to test the drug in humans early next year, Dimmler said.

That product, known as GL1001, could have a $1 billion worldwide market, Gene Logic estimates.

For now, though, the company plans to survive on the genomics division's purchase price, if shareholders approve it, the CEO added.

"We do not anticipate producing any revenue for some period of time," Dimmler said of the drug-repositioning business.

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