Expecting to triple the revenues from its research antibody division, MorphoSys AG is buying privately held Serotec Ltd. in a cash and stock deal valued at €29.3 million (US$35.3 million).

Based in Oxford, UK - with offices in France, Germany, and Scandinavia - Serotec is estimated to be "one of the top three antibody suppliers in Europe," MorphoSys CEO Simon Moroney said during a conference call. "Serotec brings an antibody catalog comprising 4,600 research antibodies, and a large existing customer base in the academic and industrial communities."

MorphoSys will integrate Serotec as a wholly owned subsidiary into its newly designated Antibodies Direct brand, which also includes the operations of Biogenesis Ltd., a Poole, UK-based firm acquired a year ago, plus MorphoSys' own Antibodies by Design unit that incorporates the HuCAL recombinant monoclonal antibody technology.

"In the research antibody business, size is an important matter," Moroney said, in terms of "product portfolio and access to distribution channels."

The transaction would establish MorphoSys as the "leading dedicated supplier of research antibodies and antibody research technology in Europe," while expanding the company's foothold in the U.S. and other markets, he said.

Martinsried, Germany-based MorphoSys agreed to pay €20.5 million in cash and issue 208,560 new shares. The company's stock (Frankfurt Stock Exchange:MOR) closed at €44.55 Thursday, up €2.04, the day the news was made public.

Following the acquisition, the company expects to have a cash position of about €30 million, said Dave Lemus, chief financial officer of MorphoSys.

The company expects to provide further details of the financial impact when it releases earnings in late February, but Lemus said the acquisition of Serotec "has the potential to more than triple the size of our research antibody sales."

For the first nine months of 2005, MorphoSys reported revenues of €23.8 million, with about €3.1 million of that coming from its research antibody segment. The company had net income of €3.9 million, or €0.67 per share.

Serotec's sales in 2005 totaled about €11 million.

Maximizing the penetration of MorphoSys' HuCAL (Human Combinatorial Antibody Library) antibodies in the research market "was our main motivation in acquiring Biogenesis, and it is also the basis for today's deal" with Serotec, Moroney said.

That strategy also prompted a worldwide licensing agreement earlier this week with Temecula, Calif.-based Chemicon International Inc., a subsidiary of Serologicals Corp.

The companies signed a three-year agreement for the distribution of HuCAL-based recombinant research antibodies through Chemicon's sales network.

"Our long-term goal in this area remains unchanged," Moroney added. "We believe that in vitro methods, such as our HuCAL technology, will replace animal-based approaches as the means for making antibodies."

HuCAL is aimed at in vitro generation of fully human antibodies for diagnostic and therapeutic applications, with the capability of moving from an antibody fragment into an antibody drug candidate. MorphoSys has licensed out use of the technology to several companies and has partnered with others to develop therapeutics.

The company entered a joint development agreement with Basel, Switzerland-based Novartis AG for antibody-based therapies against a range of illnesses, and is collaborating with GPC Biotech AG, of Martinsried, Germany, on the cancer drug ID09C3, in Phase I development.

Even though MorphoSys' research antibody business has doubled in size, Moroney said "therapeutics will continue to represent the largest part of business from a revenue perspective."

In addition to collaborations, the company has been developing its own drug pipeline, focusing on compounds to treat inflammation, cancer and infectious diseases. Preclinical programs include MOR102, an IgG antibody aimed initially at psoriasis, and MOR103, which is being developed for inflammatory disease.

The company also has a program, MOR202, targeting CD38 for the treatment of multiple myeloma and certain leukemias.

MorphoSys plans to partner those compounds before beginning clinical development.

With the close of the acquisition, MorphoSys will bring in Serotec's 80 employees for a total headcount of 240 people, and Serotec management is expected to remain with the organization. There will be no change in MorphoSys' management board. The research antibodies unit will be led by MorphoSys' senior vice president, Dieter Lingelbach.