Staff Writer

V.I. Technologies reported last week that it is "temporarily" suspending enrollment in its Phase III surgical study of the Inactine pathogen-inactivation system for red blood cells.

The company said the decision to halt the trial was made "following identification of an immune response to Inactine-treated red cells in one patient in the study during ongoing immunologic testing of all subjects enrolled in the trial."

It also said that, based on its review of data, no "clinical consequences" of the immune response had been seen, but that it is pursuing a full evaluation of those data before enrolling additional patients in the study.

V.I. Technologies, also called Vitex, has notified the FDA of the suspension and will continue discussions with the agency regarding conditions under which the trial might be continued while the company is completing its data review.

The company's stock (NASDAQ:VITX) fell 11 cents, or 14.9 percent, to close at 63 cents Tuesday, the day the news was made public. Wednesday, it closed at 67 cents.

It is the second time the company has halted its Phase III trial. Last year, the company stopped enrollment in the trial based on the recommendation from an independent Data Safety Monitoring Committee, which cited concerns about antibody responses in patients receiving Inactine-treated red blood cells and associated clinical assessments in the trial participants.

While the company said in a conference call that the action will not affect its pending merger with Panacos Pharmaceuticals Inc., of Gaithersburg, Md., the companies reported that "certain modifications" will be made to the financial terms of the agreement - the implication being that the valuation on Vitex stock in the merger could be negatively impacted.

A Vitex shareholder asked on the call about the likelihood of the deal still going through. To that, John Barr, president and CEO of Vitex, said, "We've had extensive discussions over the last few days with key investors and board members of Panacos, and we believe as we sit here today that they remain very committed to the merger and want to see it go forward."

On a more positive note, Vitex also reported preclinical progress on modifications to the current Inactine process designed to reduce the likelihood of an immunologic response to treated red cells. With the help of an outside collaborator, Vitex said it has identified "potential modifications" to the Inactine treatment process, which might result in red cells with reduced immunogenicity.

The modified process, Vitex said, "would use the same equipment and disposables, including cell washing, as the current process, thus helping to preserve the significant investment . . . made to date in the formulation of the current process."

Cell washing is used to remove Inactine at the completion of the red cell treatment process and has been demonstrated in preclinical studies to also remove deleterious plasma proteins and prions.

"We are investigating the immune response observed in one patient in the Phase III trial for Inactine red cells in an acute indication," Barr said. "Following review of the information, we will confer with FDA to determine the best course of action. Meanwhile, although more tests need to be done, we are encouraged by the progress of preclinical studies designed to reduce the likelihood of an immunologic response in patients receiving pathogen-inactivated red blood cells."

He predicted that the revised process could be ready for clinical trials in the second half of 2005.

Additionally, last week Nasdaq notified Vitex that it does not comply with the $10 million minimum stockholders' equity requirement for continued listing on the market. Nasdaq asked that the company provide its plan to achieve and sustain compliance with all listing requirements. As of Sept. 25, the company's stockholders' equity was about $9.4 million.

On Nov. 22, Vitex executed a term sheet with a group of investors for a $20 million financing, which is anticipated to close simultaneously with the Panacos merger - expected early in the first quarter. Terms of the financing were not disclosed and the terms are subject to adjustment based on the final Vitex-Panacos merger share exchange.