NetGenics Maps $21M Private Round

With a map of the human genome almost in hand, drug discovery companies are beginning to look for ways to efficiently analyze the functionality of the estimated 100,000 genes that comprise the 23 pairs of chromosomes in the human body.

Bioinformatics provider NetGenics Inc. is the latest company to capture the market’s interest in biotechnology and new drug development, landing $21.3 million earlier this month in what could be its last private round of financing.

“The information coming out of the genomics companies is great,” said Manuel Glynias, president and CEO of the Cleveland-based company. “But until you are able to really understand how it all fits together, applying data from internal databases or information from services such as Affymetrix or Celera to a drug candidate is a really inefficient process. We think that the Holy Grail is the integration of all that data.”

For example, NetGenics is working with Wyeth Ayerst Research, a subsidiary of American Home Products Inc. and an early financial backer, on a gene expression package that reduces work flow processes from a period of “two to three weeks” to “a matter of hours,” Glynias said.

Expression Proves Useful

Gene expression, or the sum total of genes fired or modulated during developmental processes such as brain development or in cancerous tissue, is an important tool used by researchers in drug development. By comparing the function of genes in normal versus diseased tissues, researchers are able to identify genes that may underlie specific disease states such as cancers.

“NetGenics provides a way to enable disparate information sources and tools to be fully interactive regardless of the format or platform for which they were originally written,” said Ken Sorensen, portfolio manager for Ariane Health Fund and placement agent at Muzinich & Co. for the Netgenics’ private round.

While an initial public offering is almost certainly Netgenics’ next round of financing, the company isn’t in a rush to begin the process. “Assuming we’re able to develop more collaborative relationships with pharmaceutical companies, we won’t need to raise more money,” Glynias said. “What I don’t want to happen is to be a failed public company.”

With the hope of landing major contracts similar to 1999 agreements with Pfizer Inc. and IBM’s recently formed life sciences division, Glynias has earmarked proceeds from the series D round to hire more marketing and software developers.

“We’re probably going to add 50 people this year,” Glynias said, noting that the additional personnel will be needed to support software development. “I think you’re going to see increased outsourcing by big pharmaceutical companies. No pharmaceutical company can afford to employ 50 or 60 software developers,” he added.

With additional contracts in hand, NetGenics will have the necessary critical mass to support an IPO. “If you can gain a significant level of mindshare, people begin to bet on you,” Glynias said.

“At a time when there is an information explosion in biology and as well as large consolidations such as the recently announced mergers in big pharma (e.g. Glaxo and SB), there is a compelling and unmet need for the business model which NetGenics offers,” Sorensen said. “The recent deals by NetGenics with IBM and Pfizer underscore this point.”

Joining lead investor Dresdner Kleinwort Benson in the latest round, announced on Jan. 12, were Lombard Odier & Cie, Ariane Health LDC and KECALP Inc., an affiliate of Merrill Lynch & Co. Previous investors who participated in the financing include Orbimed Advisors LLC, WPG-Farber Present Fund LP and Crystal Internet Venture Fund.