The remains of San Diego-based Discovery Partners International, a company that provides chemistry services for drug discovery, are being bought by the Belgian company Galapagos NV for $5.4 million cash.
Galapagos is acquiring Discovery's four service sites, in San Diego, South San Francisco, Switzerland and Germany, as well as the company's sales office in Tokyo. Discovery's 127 worldwide employees will join Galapagos, at least temporarily.
The four sites are expected to remain fully operational and will be merged into BioFocus, the drug discovery services division of Galapagos, the companies said.
But the companies said they anticipate downsizing of general and administrative functions in the San Diego facility, where 49 people are employed.
Discovery, which lost a major contract last year and has struggled to generate investor enthusiasm, previously announced plans to merge into a Massachusetts company, which will receive Discovery's cash and its slot on the Nasdaq stock exchange.
Under the terms of the Galapagos agreement, DPI will sell Galapagos all of the outstanding capital stock or equity interests of its direct subsidiaries Discovery Partners International AG, ChemRx Advanced Technologies Inc., Xenometrix Inc. and Discovery Partners International L.L.C., along with certain contracts to be assigned by DPI to Galapagos in connection with the transaction.
The deal is expected to close in July.
BioFocus will assume the scientific management of the former Discovery sites, including execution of all current service contracts, while other operational functions will be managed directly by Galapagos.
"We are extremely pleased that we will be able to add the excellent drug discovery activities of DPI to our BioFocus division,” said Onno van de Stolpe, CEO of Galapagos.
The acquisition will position the combined and newly named BioFocus DPI as a top-five player worldwide in drug discovery services, and provides Galapagos with a strong presence in the United States, he said.
Discovery has been struggling in recent years with investor indifference to so-called biotech tool companies and with increased competition from rival overseas firms that provide cheaper services to drug developers.
In April, Discovery announced the merger with Massachusetts-based Infinity.
Discovery, which once employed 225, late last year lost a major contract with drug giant Pfizer. The contract was awarded to a rival overseas firm, according to Discovery executives.
Since the merger was announced, the company was looking for a buyer of its San Diego drug discovery services unit, as well as units in Switzerland and Germany. Specifically it wanted a company that would take on its existing contracts and, possibly, its remaining employees.
"We believe that, combined with the previously announced merger of Discovery Partners International with Infinity Pharmaceuticals Inc., the sale of the drug discovery service operations of DPI to Galapagos obtains an excellent result for our stockholders," said Michael Venuti, Discovery Partner's acting CEO.
“On closing of this asset sale . . . we will have added significantly to our cash position to help achieve a net cash balance at the time of the closing of the merger with Infinity that is well within our targeted $70 (million)-75 million range to set the exchange ratio to be used in the Infinity merger,” Venuti said.
Discovery went public in 2000 during the height of the biotech boom, when investors, dazzled by the mapping of the human genome, poured billions of dollars into genomics and research service companies that supply lab techniques and screening tools to traditional drug developers.
The biotech debuted with a share price of $18 and raised about $94 million with its initial public offering. But investors later cooled on tool companies, and Discovery's stock, for the year before the Infinity merger, had been trading in the $2 to $3 range.
Terri Somers: (619) 293-2028; terri.somers@uniontrib.com
