8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 22, 2004

Genaissance Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	000-30981	06-1338846
(State or Other Juris- diction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
Five Science Park New Haven, Connecticut		06511
(Address of Principal Executive Offices)		(Zip Code)
Registrant’s telephone number, including area code:  (203) 773-1450
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.  Entry into a Material Definitive Agreement.

On September 22, 2004, Genaissance Pharmaceuticals, Inc. (the “Company”) entered into a license, development and cooperation agreement (the “Agreement”) with Merck KGaA (“Merck”) pursuant to which the Company acquired an exclusive worldwide license from Merck to develop and commercialize vilazodone, a small molecule compound.

Vilazodone has demonstrated a dual mechanism of action, combining the properties of a selective serotonin reuptake inhibitor with those of a 5HT1A partial agonist.  The Company believes that previous preclinical and clinical studies of vilazodone provide a basis for further development of the product for use in the treatment of depressive illness.  In light of studies suggesting an association between antidepressant response and genetics, the Company intends to evaluate vilazodone in a Phase II clinical trial that includes a pharmcogenomic characterization of depression patients. The Company believes that genetic markers of response can be discovered, which could lead to novel therapies targeting a population of patients who will respond to the drug.

In consideration for the rights relating to vilazodone, the Company agreed to pay an initial license fee and milestone payments upon the achievement of specified development, regulatory and sales milestones.  Under the terms of the Agreement, the initial license fee and milestone payments will be paid by the Company through the issuance of shares of its common stock, $.001 par value per share (the “Common Stock”). The actual number of shares of Common Stock to be issued will be based on a trailing average of the closing price of the Common Stock as reported on The NASDAQ National Market prior to the relevant payment date.  The initial license fee consisted of 369,280 shares of Common Stock, of which 84,159 were issued in April 2004 upon execution of a letter of intent with Merck.  Under the terms of the Agreement, if Merck and its affiliates’ aggregate ownership of Common Stock would exceed 19.9% of the number of shares then outstanding, or if the average closing price of the Common Stock at the time of the respective payment date is below $2.25 per share, Merck will receive its milestone payments in cash.  Pursuant to the terms of the Agreement, Merck is entitled to royalties on all future product sales and a share of all sub-licensing income from any third party.

Merck also granted the Company an option under the Agreement to obtain a semi-exclusive license to produce vilazodone for so long as the Company retains its exclusive license granted under the Agreement.  The exercise fee for this option is payable in shares of Common Stock, subject to the limitations described above.  Each of the Company and Merck may terminate the Agreement for material breach by the other party, if the material breach is not cured within 60 days after written notice.  In addition, each party has rights with respect to termination of the Agreement following a challenge by one party to the validity of the other party’s intellectual property rights, or an event of insolvency or change of control affecting the other party. The Company may also terminate the Agreement if, in its judgment, continued development or commercialization of vilazodone is infeasible, upon 90 days written notice.

On September 23, 2004, the Company issued a press release in connection with the Agreement described above, the full text of which is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Item 7.01.  Regulation FD Disclosure.

On September 23, 2004, the Company posted certain informational materials on its website in connection with the Agreement described above, the full text of which is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.

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Item 9.01.  Financial Statements and Exhibits.

(c)	Exhibits.
	See Exhibit Index attached hereto.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	GENAISSANCE PHARMACEUTICALS, INC.
Date:  September 23, 2004	By:	/s/ Ben D. Kaplan
		Ben D. Kaplan
		Senior Vice President and Chief Financial Officer

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Exhibit Index

Exhibit No.	Description
99.1	Press release dated September 23, 2004.
99.2	Materials posted on the Company’s website in connection with the License, Development and Cooperation Agreement with Merck KGaA.

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EX-99.1

Exhibit 99.1

Contacts:
Kevin Rakin	Rhonda Chiger (investors)
President & Chief Executive Officer	Rx Communications
Genaissance Pharmaceuticals, Inc.	917.322.2569
203.773.1450	rchiger@RxIR.com
k.rakin@genaissance.com
Phyllis Carter	Jeremiah A. Hall (media)
Manager Corporate Media Relations	Feinstein Kean Healthcare
Merck KGaA	415.677.2700
+49 6151 72 7144	jeremiah.hall@ogilvypr.com
phyllis.carter@merck.de

For Immediate Release

Genaissance Pharmaceuticals Licenses Compound from Merck KGaA

- Expects to Start Enrollment for Pharmacogenomic Depression Trial in First Half of 2005 -

New Haven, CT, September 23, 2004 - Genaissance Pharmaceuticals, Inc. (NASDAQ: GNSC) today announced that it has acquired an exclusive worldwide license from Merck KGaA to develop and commercialize a small molecule compound.  The compound, vilazodone, is a selective serotonin reuptake inhibitor (SSRI) and a 5HT1A partial agonist.  In Phase II clinical trials for depression, the compound has shown signals of efficacy and a favorable side effects profile in the more than 1,000 patients exposed to the compound.

During the first half of 2005, Genaissance intends to commence enrollment for a Phase II clinical trial that will include pharmacogenomic characterization of patients.  Genaissance will apply its HAP™ Technology and clinical genetics experience and leverage the existing knowledge of the genetics of depression and response to antidepressants, especially to SSRIs.  The primary goal of the clinical trial will be to find genetic markers that can be used to identify a population of patients who will respond to the drug.

“As compared to the traditional drug development process, we see this agreement as representing a compelling value-creation template for Genaissance,” said Kevin Rakin, President and Chief Executive Officer of Genaissance.  “In this instance, as opposed to traditional drug development, a relatively modest investment should determine within two years whether a Phase II compound can proceed to late stage pivotal clinical testing.  Moreover, the compound has a novel mechanism of action with potentially superior claims for what is currently a $13 billion market in the U.S.  We are also pleased to have a partner of the caliber of Merck KGaA and that they have elected to become a stockholder in Genaissance.”

“This is an innovative approach for the further development of one of our compounds that allows Merck to be in the forefront of pharmacogenomic developments with a leading company in this dynamic new field,” said Merck Chairman Bernhard Scheuble.  “At the same time, Merck can continue to focus its R&D resources on its main therapeutic areas of Oncology and CardioMetabolic Care.”

Under the terms of the agreement, Merck KGaA is entitled to receive up to EUR 36 million worth of common shares of Genaissance for the initial license fee and milestone payments up to the first commercial sale, based on a trailing average of the closing price of the stock prior to the relevant payment dates.  The license fee consisted of 369,280 shares, 84,000 of which were issued upon the execution of the letter of intent in April 2004.  Merck KGaA will also receive royalties on all product sales and a share of all sub-licensing income from any third party.

“There is great potential to differentiate vilazodone from other drugs targeted for depression and anxiety,” said Carol R. Reed, M.D., Vice President, Medical Affairs of Genaissance.  “Not only is its mechanism of action unique, but a pharmacogenomic-based drug should specifically target the problem of poor overall efficacy of current first-line treatments for depression.  Since approximately 50% of patients do not achieve initial relief of their depression, switching and discontinuation rates are very high and patient and physician satisfaction are low.  By using genetics to target vilazodone, we believe that patients will achieve a satisfactory response and stay with the drug.”

In any given year, 9.5% of the U.S. population, or about 18.8 million American adults, suffer from a depressive illness(1).  Depressive illnesses interfere with normal functioning and cause pain and suffering not only for those affected, but also for those who care about them(2).  Sales of products for the treatment of depression represent one of the largest therapeutic categories in the world.  In 2003, sales of depression treatments were $13.2 billion in the U.S. alone, with forecasts estimating that the U.S. market will grow to $22.9 billion by 2013 with a compounded annual growth rate of 5.7%(3).

Genaissance will host a conference call and audio webcast to discuss matters mentioned in this release today, September 23^rd, at 2:00 p.m., Eastern Time.  To participate in this call, dial 719-457-2679, confirmation code 880744, shortly before 2:00 p.m.  The audio webcast can be accessed at: www.genaissance.com.  A replay of the call will be available starting at 5:00 p.m., Eastern Time, through midnight on Monday, September 27^th.  The replay number is 719-457-0820, confirmation code 880744.

About Merck KGaA

Merck is a global pharmaceutical and chemical company with sales of EUR 7.2 billion in 2003, a history that began in 1668, and a future shaped by 28,300 employees in 56 countries. Its success is characterized by innovations from entrepreneurial employees. Merck’s operating activities come under the umbrella of Merck KGaA, in which the Merck family holds a 74% interest and free shareholders own the remaining 26%. The former U.S. subsidiary, Merck & Co., has been completely independent of the Merck Group since 1917.

About Genaissance

Genaissance Pharmaceuticals, Inc. is developing innovative products based on its proprietary pharmacogenomic technology and has a revenue-generating business in DNA and pharmacogenomic products and services.  The Company’s product development strategy is focused on in-licensing drug candidates with promising clinical profiles and finding genetic markers to identify a responsive patient population.  This strategy enables Genaissance to leverage existing clinical data and, thus, reduce the costs and risks associated with traditional drug development and increase the probability of clinical success and commercialization.  Genaissance intends to use this strategy to build a late-stage, proprietary candidate drug pipeline.  The Company’s lead product, vilazodone for depression, is in Phase II of development.  Genaissance also markets its proprietary FAMILION™ Test, designed to detect mutations responsible for causing Familial Long QT and Brugada Syndromes, two causes of sudden cardiac death.  For more information on Genaissance, visit our website at: www.genaissance.com.

This press release contains forward-looking statements that involve a number of risks and uncertainties. For this purpose, any forward-looking statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements, including, without limitation, statements about the expected timing of clinical trials studying vilazodone, the potential clinical benefits of vilazodone and the growth and development of Genaissance’s business and market opportunities.  Important factors that could cause actual results, events and performance to differ materially from those referred to in such statements, include, but are not limited to, whether vilazodone will advance in the clinical trials process, including the timing of such clinical trials; whether clinical trials will warrant continued product development; whether and when, if at all, vilazodone will receive approval from the U.S. Food and Drug Administration or equivalent regulatory agencies, and for which indications; the extent to which genetic markers (haplotypes) are predictive of clinical outcomes and drug efficacy and safety; whether vilazodone will be successfully marketed; whether Genaissance will be able to develop or acquire additional products; the attraction of new business and strategic partners; the adoption of our technologies by the pharmaceutical industry; competition from pharmaceutical, biotechnology and diagnostics companies; the strength of our intellectual property rights and those risks identified in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 16, 2004, and in other filings we make with the Securities and Exchange Commission from time to time. The forward-looking statements contained herein represent the judgment of Genaissance as of the date of this release. Genaissance disclaims any obligation to update any forward-looking statement.

(1) Robins LN, Regier DA (Eds). Psychiatric Disorders in America, The Epidemiologic Catchment Area Study, 1990; New York: The Free Press.

(2) National Institute of Mental Health website (www.nimh.nih.gov)

(3) IMS Healthcare website (www.ims-global.com)

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EX-99.2

Exhibit 99.2

Vilazodone:

Questions and Answers

Q.	Why did you select vilazodone for in-licensing, and what advantages does it provide to Genaissance?
A.	Vilazodone has extensive preclinical and clinical testing data associated with it (including signals of efficacy and no major side effects in over 1,000 patients), permitting Genaissance to proceed directly into more advanced clinical development.  These data also provide a starting point for the identification of genetic markers in individuals who respond to vilazodone.
	Also, depression is particularly well suited to pharmacogenomic drug development because:
	•      There is a large body of evidence pointing to a significant genetic component to depression and treatment response
	•      Since about 50% of patients do not achieve satisfactory results with current first-line treatment options and discontinuation rates are very high there is a large unmet need for drugs that can clearly demonstrate efficacy
	•      The U.S. depression market was $13.2 billion in 2003, so that a drug that is effective, even for a portion of this market, would provide substantial returns
Q.	What is the history of vilazodone?
A.	Vilazodone was discovered by Merck KGaA (a €7.2B global pharmaceutical and chemical company) as a candidate for the treatment of depression.  It was found to have a dual mechanism of action, with potent selective serotonin-reuptake inhibition (SSRI) and as a 5-HT1A partial agonist, suggesting it may be more effective than currently available SSRIs.
	The compound was transferred into early clinical development by Merck KGaA and subsequently licensed to GlaxoSmithKline (GSK) for further development.  The results of Phase II clinical trials, however, did not support progression to Phase III and GSK returned all rights to vilazodone to Merck KGaA.
Q:	How will Genaissance develop vilazodone?
A:	Genaissance will apply its expertise in discovering genetic markers of response to seek to identify patients, who will demonstrate efficacy to vilazodone when compared to treatment with placebo.  We anticipate the development of a combination product that combines a genetic test with vilazodone to target the drug to patients who will benefit the most.  We anticipate beginning Phase II clinical studies in the first half of 2005.

Q.	What happened in the phase II clinical trials before vilazodone was returned to Merck KGaA?
A.	Between Merck KGaA and GSK, there have been five studies conducted on human subjects affected with depression.
	Two of these studies compared vilazodone to placebo and in those studies vilazodone did not show statistical superiority to placebo for the primary endpoint.
	The three other studies compared vilazodone to placebo and an active comparator – a marketed drug proven to be effective in the treatment of depression.  In these studies, neither vilazodone nor the active comparator demonstrated statistical superiority to placebo, which points to failed clinical studies.
	It is well accepted that depression treatments must demonstrate efficacy over high placebo response rates in clinical trials, which causes great difficulty for many development programs.
Q.	How do you believe physicians will react to a genetically targeted antidepressant?
A.	Our recent market research indicates both Primary Care Physicians and Psychiatrists, who each prescribe about half of all SSRIs for the treatment of depression, are enthusiastic about the possibility of a depression treatment guided by genetic testing.
	The opportunity to prescribe a product, with significantly higher overall efficacy in a target population based on genetics, is seen by physicians as a tremendous advance over the current process of selecting treatment options which today are commonly perceived as no better than the flip of a coin.
Q.	How do you foresee the market potential of a drug that only works in a sub-set of depression patients?
A.	In 2003, about 18.8 million American adults suffered from depressive illness and the US market for antidepressants was $13.2 billion.  We believe there will be a number of patients who will be identified as responders to vilazodone by a genetic marker.
	We are focused on building a pipeline of products, like vilazodone, that, if successfully developed, will have a higher probability of success in a differentiated patient population, relying on the use of genetics to identify those with superior results.  In doing so, we will begin the process of creating a drug with built-in product differentiation.

Q.	Will this strategy of pharmacogenomic drug development increase your probability of success?
A.	We have brought together some of the best genetics, clinical development and marketing minds to conduct due diligence and create a development plan that we believe will work.  But drug development is an inherently high-risk business, so we cannot put a precise number on our probability of success.
	Our risk-reduction strategy minimizes the upfront costs and investment dollars necessary to determine the viability of this genetics-based product.  In fact, we expect to reach a go / no-go decision on moving forward with late stage pivotal development in 2 years.  In addition, this compound has already gone through extensive pre-clinical and clinical testing, providing Genaissance with some confidence of the drug’s safety profile.
Q.	What results are you looking for when making the determination to proceed or not to proceed into Phase III trials?
A.	We are planning clinical studies that will evaluate the safety and efficacy of vilazodone in treating depression.  In these studies, we seek to determine the genetic markers of drug response.  The results of these studies will determine the value of the compound and how we will proceed.  We expect to have these results the second half of 2006.
Q.	When are you expecting the product to be on the market?
A.	Our current development plans envision that the product could be marketed by 2010.
Q.	Assuming vilazodone makes it to regulatory approval, how will it compete against other SSRIs and the large promotional budgets of those products?
A.	As one of the first compounds to enter into pharmacogenomic development for the treatment of depression, vilazodone, if successfully developed, will enter the market as a highly differentiated product offering, with unique characteristics and clinical benefits.  We recently conducted a survey among physicians in the United States and found a very favorable response to the concept of targeting more effective drugs to genetically identified patients suffering from depression.
	We firmly believe this approach of patient and product differentiation through genetics is the future of pharmaceutical development and marketing.

Q.	Have you identified other compounds you plan to pursue similarly and are you in discussions with other companies at this time?
A.	This is not an isolated project; it is a new approach to drug development and a new business model for Genaissance.  To that end, we are actively evaluating other options to populate our pipeline.
Q.	How does this announcement impact Genaissance’s business strategy going forward?  If this compound fails, what are the implications for Genaissance’s business strategy, goals and growth prospects?
A.	This announcement represents an important milestone in Genaissance’s goal of becoming a pharmacogenomic-based drug development company.  We plan to leverage our pharmacogenomic expertise across a variety of therapeutic areas to identify the best compounds to in-license, in order to efficiently and cost-effectively build a late-stage, proprietary, drug pipeline.  Although every compound we decide to in-license may not successfully advance to the marketplace, we believe that the stage of development and the safety profiles of the compounds we are reviewing, when coupled with pharmacogenomics, support a sound and lower-risk strategy that will result in the commercialization of innovative products that meet the medical needs of patients and physicians.
Q.	What are the advantages of the dual mechanism of action?
A.	The advantages of the novel dual mechanism of action are not fully understood. However, our experts believe that we may see improved clinical benefits because of this.  We are optimistic that we will see an improved onset of action and an improved efficacy in our target population.  At a minimum, we expect the product will provide relief for a group of patients, who do not experience optimal response to traditional SSRIs and SNRIs and give physicians another option for treatment.
Q:	Is there a concern about suicide risk in teenagers treated with vilazodone?
	A: Since vilazodone is an SSRI, suicidal ideation will need to be monitored carefully in studies in the adolescent population.  However, we will not be including this population in our upcoming studies.
Q.	How will your clinical plan integrate with the FDA’s pharmacogenomic guidance?

A.	Since our inception, we have worked very closely with the FDA on advancing the science of pharmacogenomics.  We believe our approach will provide a model for pharmacogenomic development.  We are in the process of requesting appropriate meetings with FDA officials to ensure that our development plans are in harmony with FDA’s developing policies in this field.
Q:	What is pharmacogenomics?
A:	Pharmacogenomics is the global science of using genetic information from an individual or population for the purpose of:
	•      Explaining inter-individual differences in pharmacokinetics and pharmacodynamics
	•      Identifying responders and non-responders to a drug
	•      Predicting the efficacy and/or toxicity of a drug
	•      Examining genetics related to disease
Q:	What is the FDA’s position on pharmacogenomics?
A:	On November 3, 2003, the FDA issued its draft guidance on pharmacogenomic data.  Multiple comments from the then FDA Commissioner, Dr. Mark McClellan, demonstrates the agency’s desire to institute rapidly pharmacogenomics in drug development.
	In November 2003, Dr. McClellan said:
	“We need to speed up the use of pharmacogenomics to help make our medicines safer and more effective, and to give people health benefits for the money they’re spending on health care.  We need to give product developers more return for their investments in R&D, a pathway that is too uncertain and too difficult today.”
Q:	Has the FDA provided guidance on developing companion DNA-based diagnostic products?
A:	The draft guidance states that the test would be developed in concert with the drug product and would require FDA approval.

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Genaissance

Pharmaceuticals Licenses
Vilazodone

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•Summary Information

Vilazodone

•Primary Indication:  Treatment of depression

•Profile:  New generation dual serotonergic antidepressant

•Mechanism of Action:  A unique molecule that is both an Selective Serotonin Reuptake Inhibitor (SSRI) and a 5HT1A partial agonist

•Development Stage:  Phase II

Vilazodone and Genaissance:

A Unique Development Opportunity

•There are signals of efficacy in a sufficient number of patients to justify commercial development

•Vilazodone has a favorable safety profile based on treatment of > 1,000 patients

•The unique mechanism of action suggests benefits in treatment of anxiety and other mood disorders

•Significant risk reduction for Genaissance achieved by direct entry into Phase II clinical trials

Product Development Goal:

New generation dual serotonergic antidepressant with efficacy demonstrated in a genetically targeted population

Vilazodone and Genaissance:

An Exciting Pharmacogenomics Opportunity

•About 50% of patients with depression do not achieve satisfactory results with current first-line treatment options

•Response to antidepressants, and to SSRIs in particular, is known to have a genetic component(1)

•Genaissance has repeatedly demonstrated its ability to find genetic markers of drug response

Vilazodone’s potential could be realized through pharmacogenomics

(1) Serretti et al., Psychopharmacology 2004

Genaissance and Pharmacogenomics:

A New Model for Drug Development

Products Stalled For Various Reasons

Genaissance’s Pharmacogenomic Expertise

Risk Reduced by Lower Entry Cost

Scientific Rationale Supported by Genetic Research

Opportunity for Genaissance to build a pipeline of highly differentiated products in a variety of therapeutic areas