By Lisa Seachrist

Washington Editor

WASHINGTON — Gene Logic Inc. entered into a drug discovery collaboration with Japan Tobacco Inc. that could net the privately held genomics company in excess of $100 million.

The agreement, which is the first announced since the Columbia, Md., company completed a private placement worth $20 million in July, is focused on the discovery of novel drug targets and drug leads for the treatment of renal disease.

"What is important to the company is that this collaboration hits on all three of our available technologies," said Mark Gessler, senior vice president and chief financial officer of Gene Logic. "The agreement includes a portfolio of drug targets, screening of drug candidates and non-exclusive access to our database of genes expressed in normal tissues."

Under the terms of the agreement, Japan Tobacco, of Osaka, will provide Gene Logic with $3 million per year for five years for the initial development of a database of gene expression characteristic of renal disease. In addition, Japan Tobacco agreed to pay up to $17.5 million should they decide to use Gene Logic's flow-through Gene Chip technology which enables high-throughput screening of drug candidates.

Japan Tobacco also retains options to expand the alliance to include two additional disease areas within the first two years of the collaboration under the same financial terms.

"They will determine whether or not to expand the collaboration based on our early success," Gessler said. "While Japan Tobacco has requested that we don't release which diseases, it should be noted that they don't include areas in which we have in-house development programs: osteoporosis, cancer, central nervous system disorders and infectious disease."

The agreement also provides that Japan Tobacco will make a $3 million equity investment in the company should it go public within the next two years.

Gene Logic stands to realize $100.5 million should Japan Tobacco choose to expand the collaboration to three diseases.

"Basically, we are supplying all of the bioinformatics technologies," Gessler said. "The only thing we aren't bringing to the table is the chemicals."

Gene Logic is a high-throughput, functional genomics company that analyzes gene expression and gene regulation to accelerate the discovery of drug targets and drug leads. The company's Molecular Topography tool produces snapshots of all the genes expressed in a human cell.

Using what it calls "molecular movies" — a series of molecular topographies that document the changes in gene expression as a disease progresses and develops — the company generates specific targets for drug development.

The company's Gene Chip provides high-throughput screening for drug leads and its normal gene expression database helps identify whether a gene is specific to a certain tissue or widely expressed.

Under this agreement, Gene Logic retains all rights to any diagnostics that can be used to monitor renal disease.

In addition to Japan Tobacco, Gene Logic has a $25 million collaboration with Proctor & Gamble Co., of Cincinnati, to develop drugs for heart failure. Gene Logic has $25 million in cash without the Japan Tobacco agreement and intends to expand its staff from 55 employees to 70 employees by the end of the year. *