Entelos buys Iconix for $14.1M

STORY UPDATE

FOSTER CITY, Calif.—November 7, 2007—Having finalized the working capital adjustment for its acquisition of Iconix Biosciences, Entelos announced the consideration will be satisfied by 9,278,771 Entelos shares, down significantly from its original estimate of 12,776,658 shares. These shares will be subject to a lock-up agreement whereby the issued shares will not be disposed of for 12 months following the effective merger date of August 31, 2007.

FOSTER CITY Calif.—Less than a month after it entered into a collaboration with the FDA to study drug-induced liver injury [see story page 30], Entelos Inc. announced late last month that it had acquired toxicogenomics-focused product and service provider Iconix Biosciences Inc., in a stock deal worth approximately $14.1 million. With the acquisition, Entelos greatly broadens its reach from a company that primarily has been a provider of drug efficacy modeling to one that can now offer an array of toxicology products and services.

"Our sweet spot in the market has been in efficacy,' notes Jill Fujisaki, VP investor relations and a co-founder of Entelos. "But the whole area of drug safety has become critically important to pharmaceutical companies in light of some high-profile drug withdrawals and the FDA getting more careful in what they will and won't approve."

For Iconix, the road to the acquisition began roughly a year ago, according to former CEO Jim Neal, who has now joined Entelos as its chief business officer. "As a company, we began to investigate going public and what were our other alternatives in order for us to have the scale to address some areas where we saw opportunities in the market."

These areas included development of a broader range of in vitro assays for a number of applications, but primarily to be able to bring higher throughput assays to market that could provide companies with an earlier toxicity reading on compounds moving through the pipeline.

"We felt that Entelos linked in very nicely with our company, especially the work they are doing in drug-induced liver injury," says Neal. "Where they are looking at modeling human livers in a virtual environment, this work can be augmented with the Iconix technology to identify safety liabilities at the human level."

Officials at Entelos see the opportunity to bridge its predictive in silico disease models and Iconix's toxicology capabilities to address two of the industry's biggest challenges of compounds moving through the pipeline: efficacy and toxicity. These two strengths should also allow Entelos to become a player in both the translational medicine and drug repositioning markets, both of which are seeing increased activity in recent years.

"We believe the combination of our predictive efficacy models with Iconix's toxicology expertise can create a new paradigm for discovering and developing drugs," said James Karis, president and CEO of Entelos, in announcing the acquisition. "Drug failures are often due to efficacy or toxicity issues, and while Entelos' predictive disease models address efficacy, Iconix's toxicology databases help to address toxicities. In addition, Entelos' recently announced collaboration with the FDA to build a model of drug-induced human liver injury to identify patients at risk for developing hepatotoxicity and the addition of Iconix will expand our capability for drug safety assessment."

At the heart of Iconix's drug safety offerings is its flagship DrugMatrix, an informatics product that contains what the company says is the largest existing molecular toxicology reference database. Already in use by a number of large pharma companies and biotech firms, Iconix recently made DrugMatrix available as an online tool [Out in the open, page 14], with an eye toward making it available to a broader swath of researchers. The meat of DrugMatrix is its large-scale gene expression data which was painstakingly generated internally to provide the necessary controls and standards for its toxicology studies on 638 compounds and their effects on all relevant organs and tissues at multiple time points. Neal estimates that Iconix has run between 16,000 and 17,000 microarrays in the development and continued updates to DrugMatrix.

In order to maintain that level of expertise and consistency, virtually all of the Iconix technical and scientific staff have joined Entelos.

In addition to the initial shares issued for the acquisition, Iconix shareholders could earn an additional $25 million in Entelos stock based on performance milestones. In 2006, Iconix reported $4.9 million in revenue, compared with roughly $20 million for Entelos.