By Karen Pihl-Carey

A two-year-old drug discovery and information company has merged with a drug discovery and pharmacogenomic services company to form perhaps the only company of its kind with a focus on the quality and quantity of validated drug leads.

New Chemical Entities Inc. (NCE), of Framingham, Mass., will join its drug discovery capabilities with the services of Thetagen Inc., of Bothell, Wash., retaining the NCE name for the combined company. Corporate business offices will be located in both Framingham and Bothel, while the laboratory base will be at Thetagen's Bothel site near Seattle.

The merger consists of a stock and cash transaction. Each company's shareholders hold 50 percent of the stock in the new company. Further financial terms were not disclosed.

The combined company will integrate three technologies: chemical diversity and drug leads derived from natural products, pharmacogenomics and toxicogenomics, and drug discovery informatics.

"There is one area that I think is unique in what we're doing," said Barry Berkowitz, chairman and CEO of NCE. "The number of new chemical entities that larger pharmaceutical companies are able to commercialize each year, unfortunately has been falling. I feel that as a practitioner in the drug discovery pipeline area, one of the opportunities here is in the area of bringing quantity to quality.

"Sixty percent of our antibiotics, 60 percent of our anticancer drugs and more than a third of all of our existing drugs, many of our blockbusters, have come from natural products. However, there have been bottlenecks," Berkowitz told BioWorld Today. "The quality is there. It's that with the opportunity for high-throughput screening today, there needs to be a greater quantity of chemical diversity. And our new company will fill that need. The quantity will come from combinatorial chemistry as well as computational chemistry. And that's quite unique."

The combined company has an established revenue base through more than a dozen of Thetagen's worldwide research contracts and NCE's emerging pipeline of information products and validated leads. It has a dual and balanced business model that will provide revenues from the sale or licensing of high-value natural product libraries, biomolecular data mining technologies and drug discovery services.

Berkowitz said the company will earn revenue by continuing to grow its successful service business, as well as to leverage its technology beginning next year in larger corporate deals based not only on NCE's technologies, but also on its validated lead drugs.

"We're a growing business," he said. "The company is a good investment vehicle and quite a competitive one."

Thetagen was established in 1997 by Sam Deliganis, who is now chief operating officer and president of NCE, and Curtis Omiecinski. In January 1999 it acquired the assets of Toronto-based MDS Panlabs' integrated drug discovery division. The company boasts a substantial technology base and five laboratories, including pharmaco- and toxicogenomics and gene profiling, natural products sourcing and bioengineering, separations technologies and analytical chemistry, synthetic organic and combinatorial chemistry, and chemoinformatics and drug design.

NCE now has three sets of new products in development: proprietary informatics and databases, large and target-focused libraries and validated drug leads.

The merger came about when Berkowitz and his colleagues were ready to invest in additional people and equipment for NCE, at the same time Thetagen was planning to build upon its services business with drug discovery.

"These core technologies really present quite a significant barrier to entry to others because the Thetagen group has one of the largest libraries of natural products of commercial diversity in the world," Berkowitz said. "It was ready to have an opportunity for increased marketing and also to be leveraged for drug discovery and interfaced with informatics, which we had set up and ready to go. So it was a truly synergistic interaction."

NCE was founded in 1997 by a group of drug discovery professionals, headed by Berkowitz, to advance a novel approach to drug discovery by integrating informatics and molecular diversity from natural products. Berkowitz is also the co-founder and former CEO of ChemGenics Pharmaceuticals Inc., which merged in 1997 with Millennium Pharmaceuticals Inc., of Cambridge, Mass., in a $90 million stock deal. (See BioWorld Today, Jan. 22, 1997, p. 1.)

Berkowitz said he has no specific goal to take NCE public.

"Recently, I was privileged to merge my last company, ChemGenics Pharmaceuticals, with Millennium and that was an extremely successful merger," he said. "The opportunity to merge with Millennium came from the fact that we didn't have to merge with Millennium. We were quite capable of going public.

"I think the trick is having the flexibility to do either and to do what's most sensible for the business and to not have it predetermined to go one pathway. If you decide to go one pathway, you may be doomed to it."