Genesoft to Be Acquired for $86 Million in Stock

Genome Therapeutics Corp., an unprofitable biotechnology company that focuses on infections, agreed Tuesday to buy South San Francisco-based Genesoft Pharmaceuticals Inc. for about $86 million in stock to acquire an antibiotic called Factive.

Genome plans to issue 28 million of its shares to Genesoft investors. The Waltham, Mass.-based company will also assume $24 million in debt from closely held Genesoft, Genome’s Chief Executive and Chairman Steven Rauscher said in an interview.

Rauscher plans to hire at least 75 sales representatives in the third quarter of next year to market Factive, which would be Genome’s first product.

Drug maker GlaxoSmithKline sold the rights to the medicine to Genesoft last year after initially failing to win Food and Drug Administration approval for it. Genesoft won U.S. market clearance in July for Factive, a drug to treat mild and moderate lung infections. Genome plans to raise $30 million to fund the introduction of the treatment, Rauscher said.

“This completely transforms our company,” he said. “Genesoft has other very exciting clinical products, but overwhelmingly the big event is the FDA-approved drug.”

Shares of Genome Therapeutics rose 23 cents, or 8%, to $3.08 in Nasdaq trading. They have almost doubled this year. The $86-million valuation of the Genesoft deal is based on Tuesday’s closing share price.

Ramoplanin, a drug developed by Genome to treat bloodstream infections that conventional antibiotics can’t kill, is in the final stage of human testing generally required for FDA approval. A sales force trained to sell Factive will be better prepared to introduce Ramoplanin, Rauscher said.

“There’s a significant overlap,” he said. “There are great opportunities in hospitals, nursing homes and extended-care facilities, where both drugs are likely to be used.”

Last year, Genome and Madison, N.J.-based Wyeth extended their agreement to develop gene-based treatments for osteoporosis, a bone-thinning disease. Genome probably won’t become profitable in the next two years, Rauscher said.