Washington Editor

Genaissance Pharmaceuticals Inc. expects to expand its pharmacogenomic-based services by purchasing Lark Technologies Inc. in an all-stock transaction valued at $19.9 million.

The deal, expected to close in mid-2004, also gives Genaissance an immediate presence in Europe and a well-trained staff including 10 marketing and sales people who will "cross-sell" other products offered by Genaissance, a firm that analyzes genes to predict drug response.

Lark, headquartered in Houston with European offices near Cambridge, UK, offers Good Laboratory Practices (GLP) compliant and research genomic services for use in pharmaceutical, diagnostic and agricultural product research and development.

Genaissance intends to maintain operations at both facilities and to retain Lark's staff, which is broken into 37 people in the U.S. and 16 in the UK. Carl Balezentis, Lark's president and CEO, will join Genaissance as senior vice president and president, Lark Technologies.

Gerald Vovis, executive vice president and chief technology officer of New Haven, Conn.-based Genaissance, told BioWorld Today company officials are excited about the acquisition and the opportunities it will bring Genaissance. Incidentally, the Lark purchase marks Genaissance's second this year. In May, Genaissance paid about $1.4 million in cash to acquire the assets of DNA Sciences Inc., a Fremont, Calif.-based company in bankruptcy.

Under the terms with Lark, Genaissance will issue about 6.7 million shares of its common stock to Lark's stockholders, who will receive about 1.8 shares of Genaissance's common stock for each share of Lark's common stock that they own, and will assume outstanding Lark options exercisable for an aggregate of about 1.5 million shares of Genaissance common stock. The transaction is valued at about $19.9 million, based on the closing price of Genaissance's common stock price of $2.99 per share on Dec. 18.

Friday, Genaissance's stock (NASDAQ:GNSC) rose 1 cent to close at $3.

After the transaction, Genaissance expects to have projected pro-forma revenues in excess of $25 million for calendar year 2004.

As for Lark's finances, Vovis said the company's profitability made it an attractive buy. For the nine months ended Sept. 30, Lark reported revenues of $6.8 million, net income of $1.2 million and operating income of $1.6 million.

Beyond Lark's profitable revenue stream and its presence in Europe, Genaissance believes the acquisition will help expand its GLP-sequencing services. "In a rough sense, [Lark's technologies] are totally complementary," Vovis said. "We won't have overlap in what we are doing in the pharmacogenomic-based services. This gives us the ability to cross-sell services and technologies, since we will be dealing with the same customers. We have different products so it is not as if we are taking out a competitor, we are increasing the product line."

Genaissance has developed a combination of technologies, services and expertise called the HAP Technology, which allows genetic variation and population genomics to be integrated into the development, marketing and prescribing of a new generation of DNA-based diagnostic and therapeutic products.

In the first half of 2004, Genaissance intends to introduce a diagnostic test for familial long QT syndrome out of its New Haven facility. Potentially the test could be introduced in Europe out of Lark's Cambridge facility.

Legg Mason Wood Walker Inc. and EMA Partners LLC served as financial advisors to Genaissance in the transaction and Southwest Securities Inc., served as financial advisor to Lark.