By Brady Huggett

Lexicon Genetics Inc. is paying $32 million in stock to acquire Coelacanth Corp. and said it is bringing in house a complete pathway for going from describing gene function to lead compounds.

The companies entered a definitive merger agreement allowing Lexicon to acquire all of Coelacanth¿s outstanding capital stock in a tax-free reorganization. Lexicon will issue shares of its stock with a value of $32 million, based on the average closing price of Lexicon¿s stock for the 30 days ending three days prior to the effective time of the merger, subject to a collar, and will assume Coelacanth¿s outstanding options and warrants. The acquisition is expected to close by the end of July.

Lexicon¿s stock (NASDAQ:LEXG) dipped 36 cents Thursday to close at $10.49. It has about 40.3 million shares outstanding, and had $192 million in cash as of March 31.

The acquisition, one in which every employee of Coelacanth is being retained, satisfies the wants of both companies.

¿[Coelacanth has] developed an effective methodology for developing chemical libraries,¿ said Arthur Sands, CEO and president of Lexicon Genetics. ¿They have a fantastic team of executives and junior management, [Coelacanth CEO] Alan Main being one of them.¿

¿It¿s really that strategically we want to use our chemistry to leverage the genomics revolution,¿ Main told BioWorld Today. ¿We needed access to world-class validated targets. They have unique in vivo validated targets and they needed someone to generate hits on leads.¿

Coelacanth ¿ named for the fish believed to have survived for more than 400 million years and formerly thought to be extinct ¿ is a privately held company about 5 years old headquartered in Princeton, N.J. It was founded in 1996 by Seth Harrison, David Boulton and Barry Sharpless, with Sharpless being the scientific founder. The company has raised $21 million. It uses its proprietary technology, ClickChem, to create sets of building blocks used for the production of drug-like compound sets designed to shorten lead discovery and lead optimization time for drug development.

In April, Lexicon set the goal of functionally describing 5,000 genes in five years using its gene knockout and functional analysis programs. In the two months since then, the endeavor has gone ¿extremely well,¿ said Sands. (See BioWorld Today, April 20, 2001.)

¿We have several hundred targets in the process now,¿ he told BioWorld Today. ¿We are at a current rate of 500 per year. By the end of the year, we hope to produce a rate of 1,000 a year in vivo validated targets.¿

Considering the human genome and disease, Main spoke of a battle against both time and competitors.

¿It¿s about mining the genome and getting to the best targets fastest; that¿s the race that is out there,¿ he said. ¿I¿m afraid a lot of companies are going to choose the wrong targets.

¿The danger is everyone will drown in data overdose,¿ he added. ¿What Lexicon has done is cut through all that and, in a mammal, defined what is the critical target. We believe their targets have really compelling biology behind them and we want to apply our chemistry behind that and come up with drugs.¿

With the addition of Coelacanth, which will remain where it is but will be named Lexicon Pharmaceuticals, Sands said Lexicon has set itself apart from the field.

¿We are forming a new standard in the industry for having this kind of infrastructure in place,¿ Sands said. ¿There are other companies that have different strategies for going from gene to hits or leads, but not in vivo validated targets.¿

Main will help guide Lexicon Pharmaceuticals as its senior vice president. The location of the new Lexicon division is another benefit for The Woodlands, Texas-based Lexicon, said Sands.

¿Geographically, there is an advantage of being in New Jersey,¿ he said. ¿It¿s excellent for recruiting senior-level drug discovery executives, scientists and staff. We anticipate growing that site in the direction of medicinal chemistry and then preclinical and clinical trial expertise, as well.¿

The next step, said Main, is drugs.

¿I think we are going to, probably within the next six to 12 months, generate validated hits and leads that have a lot of relevance to human genes,¿ he said. ¿I think we will be able to move very quickly to move drugs into the pipeline.¿

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