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Galapagos to Acquire Drug Discovery Service Operations of DPI
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Galapagos to Acquire Drug Discovery Service Operations of DPI

Galapagos to Acquire Drug Discovery Service Operations of DPI
News

Galapagos to Acquire Drug Discovery Service Operations of DPI

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Discovery Partners International, Inc. (DPI) and Galapagos NV have announced that they have entered into a definitive purchase agreement to transfer all of the drug discovery service operations of DPI to Galapagos for €4.25 million ($5.4 million) in cash. 

The acquisition includes the assets of all four of DPI's drug discovery services sites: San Diego and South San Francisco, USA, Allschwill (Basel), Switzerland and Heidelberg, Germany as well as DPI's Japanese sales office in Tokyo. 
 
Under the terms of the agreement, DPI will sell to 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 transaction is subject to customary closing conditions and is expected to close in July 2006. 
 
All four of the current DPI sites will remain fully operational and will be merged into BioFocus, the drug discovery services division of Galapagos. 

As a smooth transition of the service business is anticipated and planned for, current customers of DPI can expect service levels at all sites to be fully maintained during this ownership change. 

BioFocus will assume the scientific management of these sites, including execution of all current service contracts, while other operational functions will be managed directly by Galapagos. 

The companies anticipate some downsizing of general and administrative functions in the San Diego facility, related to the integration of the various service organizations.
 
As a result of the integration of the DPI activities within BioFocus and to recognize the value and reputation of the DPI brand name in the field of drug discovery services, BioFocus is changing its name to BioFocus DPI.
 
"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.

"We believe that DPI's capabilities will substantially strengthen our technology, product offering and customer base."

"This acquisition will position BioFocus DPI as a top five player worldwide in drug discovery services and provides Galapagos with a strong presence in the US."

"We will now have a global reach with operations in seven countries. The combined group will be able to provide services ranging from target identification to delivery of drug candidates."

"We believe this positions the Company well for additional turnkey deals like the alliance announced last week between Galapagos and GlaxoSmithKline."

"With this acquisition, we also obtain additional capacity to accelerate the program within this alliance. We look forward to servicing DPI customers and would like to welcome them to the BioFocus DPI family."
 
"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 C. Venuti, Ph.D., Acting Chief Executive Officer, DPI. 

"As we have previously discussed in our announcement of the pending merger with Infinity, the sale of these operational assets is an important component of that transaction."

"On closing of this asset sale, we will have transferred the operations to Galapagos, a group that already has a viable model for combining proprietary and contract research on a worldwide basis."

"Concomitantly, 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 $70-75 million range to set the exchange ratio to be used in the Infinity merger."

"We believe the combination of these two strategic transactions provides DPI's current shareholders with an excellent opportunity to achieve value through ownership in a marketable security based on Infinity's advanced drug discovery and development capabilities, and tangible product candidate portfolio," concluded Venuti.
 
Galapagos will acquire the operational activities of DPI as part of its strategy to become a worldwide leader in drug discovery services, ranging from target discovery all the way through to the delivery of compounds with clinical proof of concept. 

The Company combines this services activity (BioFocus DPI) with internal drug discovery programs in bone and joint disease, where it aims to bring its own candidate drugs into the clinic. 

This hybrid business model enables Galapagos to leverage the broad drug discovery expertise of BioFocus DPI to generate revenues, while building a pipeline of candidate drugs for future partnering at various stages during their development phase. 

This business strategy validates Galapagos' technology and reduces the capital needed to develop its own candidate drugs.
 
The four operating companies of DPI strengthen and broaden the BioFocus product offering in the following ways:
 
- the Swiss operation has world class hit finding activities (assay development and high-throughput screening), with access to over 600,000 synthetic chemical compounds, greatly expanding the capabilities and collections of BioFocus;

- the German operation has an extensive collection of natural compounds originating from Actinomycetes and fungi - with over 140,000 isolated sub-fractions, over 75,000 purified extracts and more than 1,000 isolated compounds, this platform complements the current BioFocus expertise in synthetic chemistry;

- the San Diego operation has a lead optimization platform and chemical library development capabilities which provide additional capacity for BioFocus contracts. This site will operate as Galapagos' North America headquarters;

- the San Francisco operation is a compound management facility established through a multi-year contract with the National Institutes of Health, one of the world's foremost medical research organizations. 

This operation maintains a repository of small molecules to manage and provide chemical compounds to multiple NIH screening centers. 

With this compound management facility, BioFocus further expands its service offering by marketing this infrastructure and capability to pharma and biotech customers;

- the Tokyo sales office provides a physical presence for BioFocus in the large Japanese market.
 
Galapagos will operate these companies through its service division BioFocus DPI. There are approximately 100 people employed at the acquired sites, bringing the total Galapagos headcount to over 320 staff, including 144 PhDs, in seven countries.
 
With the San Diego and San Francisco operations, Galapagos also obtains a firm US presence in addition to its existing BioFocus sales office in Boston opened in November 2005. 

Galapagos will use these operations to increase its visibility and market share in the US drug discovery market.
 
Galapagos anticipates that DPI operations will contribute €8 million ($10.2 million) in external revenues to BioFocus DPI for the six months remaining in 2006. 

Major 2006 customers for these operations include Actelion, Allergan, Biovitrum, GSK, Mitsubishi Pharma, NIHNovartis and Ono.   
 
The acquisition of DPI's operational activities fits well within the Galapagos and BioFocus strategy to partner with pharmaceutical and biotechnology companies in turnkey target to candidate drug collaborations, as it strengthens BioFocus' breadth of technologies and services and provides the capacity necessary to deliver results in such alliances. 

The additional capacity obtained through the acquisition will be used partly to accommodate the expansion of activities in the Galapagos osteoarthritis program under the alliance with GSK announced last week. 

In addition, DPI provides the capacity BioFocus was looking for to fulfill its expanding order book.

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