By Chris Delporte

In a move designed to round out its genomics-based drug discovery efforts, Deltagen Inc. said it will purchase Arcaris Inc. in a deal valued at up to $12.5 million.

Salt Lake City-based Arcaris is a privately held company with a technology portfolio that consists of genetic, proteomic and cell-biological systems for direct identification and validation of novel drug targets and the creation of small-molecule screens.

Deltagen, of Menlo Park, Calif., will purchase Arcaris in a tax-free reorganization under which Deltagen will acquire all of Arcaris¿ outstanding shares and assume the company¿s options.

Deltagen will issue approximately 765,000 new shares of its common stock. Additionally, the company will pay $450,000 in cash plus transaction fees and expenses and reserve about 50,000 shares of Deltagen stock for Arcaris employee options assumed in connection with the transaction. That values the deal at roughly $7.65 million, including the 50,000 shares, based on Deltagen¿s opening stock price of $8.84 Thursday.

The shares (NASDAQ:DGEN) fell 22 cents Thursday to close at $8.62.

An additional 550,000 shares of Deltagen common stock, which would add about $4.8 million to the price, would be paid to Arcaris shareholders and option holders upon the achievement of certain key milestones.

After the deal is completed, which is expected in the next few weeks, Arcaris will become a wholly owned subsidiary and will be renamed Deltagen Proteomics Inc. Plans call for Arcaris to remain in its current facility.

According to Deltagen, the Arcaris acquisition adds a new technology platform to its existing high-throughput efforts to identify and validate the genomic targets relevant to small-molecule drug screening.

The information generated using Arcaris technology will be used to advance the discovery of new disease targets by defining the role of nontraditional targets within intracellular pathways with particular relevance to oncology, viral and infectious diseases.

¿Arcaris has a very powerful technology platform,¿ William Matthews, Deltagen president and CEO, told BioWorld Today. ¿It gives us a tremendous amount of flexibility in our target validation suite of products. We are delighted with this acquisition.¿

Matthews said incorporating Arcaris¿ technology into its existing product line gives Deltagen a ¿soup-to-nuts¿ approach to target validation.

Deltagen¿s technology platform consists of two main products, DeltaBase and DeltaBiotech. DeltaBase is a database available under nonexclusive licenses that contains functional information about genes and their in vivo mammalian roles. DeltaBase provides scientists with the ability to initiate, validate or modify drug discovery programs based on information and relationships between gene targets and disease indication. Current DeltaBase customers include GlaxoSmithKline plc, Pfizer Inc. and Vertex Pharmaceuticals Inc.

DeltaBiotech is a program designed to determine the function of secreted proteins. Under this program, Deltagen, either by itself or in partnership, undertakes the discovery and development of secreted protein biotechnology drug candidates.

Arcaris¿ research takes Deltagen¿s technology a step further. The next wave of targets, Matthews said, will come from research in intracellular pathways.

¿The way to really extend what the druggable universe is today is to understand those pathways,¿ he explained. ¿Arcaris fits so well with us because we¿re currently defining the universe that people are familiar with and we¿re giving them what they need there. Now we¿re turning our attention to intracellular pathways, and we¿re pulling out the key members of the intracellular pathways to show which members of those pathways are going to be amenable for small-molecule chemistry.

¿We currently provide the usual suspects¿ target validation that people need using DeltaBase and Delta Biotech,¿ Matthews said. ¿Then there¿s this whole area where there¿s an unknown, and bringing those targets forward is a tremendous opportunity, and that¿s what Arcaris does for us. It really gives us the whole target validation picture.¿

Matthews said that plans call for Arcaris to focus its attention in the area of oncology, and that there aren¿t any immediate plans to grow the operation. Arcaris currently has 28 employees, including 22 dedicated to research.

¿They¿ve spent a lot of time putting these technologies in place that are very effective,¿ Matthews said. ¿We¿re going to focus them on oncology, and as we bring forward more and more data in this area, we¿ll expand the efforts. It¿s success driven.¿