Staff Writer

MDRNA Inc. is expanding its RNAi discovery efforts and oncology pipeline with the purchase of Cequent Pharmaceuticals Corp., a privately held company established four years ago, for about $46 million in an all-stock transaction.

Under the merger, Bothell, Wash.-based MDRNA will gain a product for familial adenomatous polyposis (FAP), a genetic disorder that is a precursor to colon cancer, which will soon begin Phase I testing of CEQ508. That trial is expected to begin dosing patients this quarter.

MDRNA also picks up Cequent's TransKingdom RNAi technology to develop RNAi-based therapeutics. As a result, the combined company would have two validated RNAi drug discovery platforms: MDRNA's UsiRNA/DiLA2 platform as well as Cequent's tkRNAi platform.

The two distinct platforms would give the combined company the ability to deliver RNAi therapies in systemic, local and oral delivery. "I don't know any other RNAi company that can make that claim," Michael French, president and CEO of MDRNA, said in a conference call.

Cequent's technology uses bacteria that are normally present in the body as a delivery vehicle for RNA interference, Peter Parker, president and CEO of Cequent, explained during the call. "Unlike virtually every other RNAi company, Cequent does not chemically synthesize mediators of RNAi but instead relies on the bacteria to produce them," he said, adding that its approach provides a cost advantage over any other RNAi therapeutics that might target the gastrointestinal tract.

Behind Cequent's FAP compound are several preclinical programs. Parker said that the company expects a second investigational new drug application could be ready early next year and could be useful in ulcerative colitis patients. That program is under an option with Novartis AG, and a second inflammatory bowel syndrome (IBD) program also is under development, he said.

Cequent had raised significant funds and will have cash at the time of the acquisition to fund the combined operations into December 2010, the companies said.

When Cambridge, Mass.-based Cequent closed on its $14 million Series A round in 2007, the financing included an equity investment from the Novartis Option Fund. In a separate agreement, Novartis gained an option for a therapeutic inflammatory bowel disease program based on Cequent's tkRNAi technology. (See BioWorld Today, June 19, 2007.)

Cequent was established in 2006 based on work at Beth Israel Deaconess Medical Center/Harvard Medical School, where scientists engineered nonpathogenic bacteria to make RNAi that are released after the bacteria are given orally or intravenously, then degraded by host cells without adverse effects. The process is called Transkingdom RNA interference, or tkRNAi - since bacteria and humans represent differing kingdoms - and was the subject of a paper published in Nature Biotechnology in May 2006. (See BioWorld Today, June 27, 2007.)

The anticipated closing of the merger is expected in early July. The combined company will be headquartered in Bothell, Wash., with offices in Cambridge, Mass. MDRNA's French will lead the combined entity and serve as a board member, while Cequent's Parker will become chairman of the board of the combined company.

The boards of directors of both companies and the preferred shareholders of Cequent have authorized the merger transaction. The new board will include an additional five members, two each from the existing boards of MDRNA and Cequent, and one additional independent director to be chosen by the new combined board.

Shares of the combined company would continue to trade on Nasdaq under the stock symbol MRNA.

Under the deal terms, each outstanding share of Cequent common stock will be exchanged for MDRNA common stock at an exchange ratio that implies a purchase price for Cequent shareholders of about $44 million, plus an additional value of $2 million to warrant and option holders, based on the 10-day volume-weighted average price of MDRNA shares on March 31.

That represents a roughly 56 percent equity ownership for MDRNA shareholders and a 44 percent equity ownership for Cequent shareholders.

Canaccord Adams Inc. served as financial advisor to MDRNA on the transaction.

The Cequent deal adds to a busy quarter for MDRNA, which recently announced an early collaborative effort with AstraZeneca in hepatocellular carcinoma. Financial details of the collaboration were not disclosed. The company also said it expects two additional early collaborative efforts in the second quarter.

Shares in MDRNA (NASDAQ:MRNA) were up 9 cents, or 8.2 percent, closing at $1.19.