By Kim Coghill

Washington Editor

Rosetta Inpharmatics Inc.¿s stock increased 75 percent Friday following an announcement that pharmaceutical giant Merck & Co. Inc. will acquire it for about $620 million in stock.

Rosetta, a Kirkland, Wash.-based company founded in 1996, makes tools and software for use in genomics. And according to both companies, the union of the two gives Rosetta the wherewithal to advance beyond its current technologies and enter the world of direct involvement in drug discovery.

The purchase fits Merck¿s stated objective of enhancing its leadership position in the acquisition and application of gene-based technologies, said Gwen Fisher, manager of corporate communications for Whitehouse Station, N.J.-based Merck. Rosetta¿s technology will be an asset in helping Merck more efficiently analyze gene data and intelligently select drug targets, she said.

Under terms of the deal, each share of Rosetta stock will be converted into 0.2352 shares of Merck stock, which represents a value of $18 per share based on Merck¿s closing price Thursday.

Rosetta¿s stock (NASDAQ:RSTA) closed Friday at $17.34, up $7.43. Merck¿s stock (NYSE:MRK) closed at $75.94, down 58 cents.

Mary Drummond, Rosetta¿s senior director of marketing and sales, said Rosetta was not actively seeking a buyer when discussions opened with Merck. Rather, Merck was one of Rosetta¿s first customers, and ultimately the two began discussions on a collaboration. ¿But we decided the best way to work together was as one company,¿ she said. ¿From our perspective, we wanted to be a drug development company. We knew we had technology that was different from everyone else and what better way to do it than with one of the best pharmaceutical companies in the world.¿

Fisher said it is too early to comment on the drugs or indications Rosetta will research.

Rosetta raised $100.8 million through the sale of 7.2 million shares at $14 a share in its initial public offering in August 2000. (See BioWorld Today, Aug. 4, 2000.)

Since then, Rosetta¿s stock¿s has traded between a low of $6 and a high of $38 per share ¿ on Sept. 1, 2000. During the past three months, the company¿s stock has sold between about $7 and $13 per share.

The company reported about 31.6 million shares outstanding and $155.6 million in cash and equivalents on March 31. Its net loss for the first quarter was about $6 million on revenues of $4.7 million.

Rosetta is an informational genomics company with a focus on gene expression technology. Informational genomics is the acquisition and analysis of information gathered from throughout the cell to identify a majority of the medically important drug targets and gene functions. By combining informatics and genomics, Rosetta¿s technologies are designed to allow researchers to explore the causes and consequences of changes in gene expression and to focus on those cellular processes that are specifically affected by pharmaceuticals, chemicals or genetic engineering.

The company¿s technology platform consists of Rosetta Resolver Expression Data Analysis System, FlexJet DNA microarrays and its coherent expression profile data sets.

Rosetta will retain its name and operate as a wholly owned subsidiary of Merck. Both of Rosetta¿s facilities, located in Kirkland and Bothell, Wash., will remain operational.

Furthermore, Fisher said all Rosetta employees will keep their jobs. ¿Rosetta has a skilled staff in genomics research so we want to do everything we can to keep that talent pool in place.¿

It was reported Friday that Merck is discussing acquiring Madison, N.J.-based Schering-Plough Corp. Fisher would not comment on what she terms ¿speculation.¿

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