Apex Bioventures Acquisition Corp. has signed a definitive merger agreement with privately held Dynogen Pharmaceuticals Inc., in a stock deal valued at more than $140 million, based on Apex's share price of $7.27, sources involved in the negotiations said.

Under the terms, Dynogen, of Waltham, Mass., would receive an up-front payment of $98 million and two milestone payments of up to $23 million, each to be paid when the first patient is dosed in a Phase III study. In addition, Apex raised $65 million in cash to finance Phase III clinical trials. Apex Bioventures will reserve an aggregate of about 6.3 million shares of stock at the time of closing to make those success payments, according to the companies.

The deal could carry the privately held Dynogen operations through 2009 and into 2010 without the need for additional financing, said Lee R. Brettman, president and CEO of Dynogen. As part of the deal, Dynogen will merge with a subsidiary of Apex, and following the transaction will be a wholly owned subsidiary of Apex Bioventures. Apex then will change its name to Dynogen Pharmaceuticals Inc.

Apex, of Hillsborough, Calif., initially will issue about 13.5 million shares of common stock to Dynogen's shareholders, resulting in Dynogen's current shareholders owning approximately 56 percent of the outstanding shares upon completion of the merger, assuming that no Apex Bioventures shareholders exercise their right to convert their Apex Bioventures shares into cash, a company news release said.

Dynogen, one of nearly 200 merger partners considered by Apex Bioventures, was selected partly because of its focus on products that target potential billion-dollar markets in the gastrointestinal space, said Darrell Elliott, chairman and CEO of Apex Bioventures. But what "impressed the heck out of us," Elliott said during a conference call, is that in 2007 all three of Dynogen's trials in patients with irritable bowel syndrome (IBS) and nighttime heartburn yielded statistically significant results. Dynogen also is studying a treatment for overactive bladder.

Dynogen is developing products that could be "potential market leaders" for treating IBS, nighttime heartburn and overactive bladder, Brettman said. Currently, few drugs are available for those conditions, which represent very large potential markets, he added.

DDP733, Dynogen's product candidate for IBS with constipation, could be a first-in-class treatment targeting the estimated 27 million Americans with the condition, Brettman said. In studies, DDP733 showed a 54 percent response rate compared to placebo, an effect that no other drug has seen, he added.

Zelnorm, which saw suspended marketing last year, has shown minimal efficacy vs. placebo, he said. Lotronex, the only marketed drug for IBS, is under a restricted access program and has been associated with severe constipation and ischemic colitis, which can be fatal or life-threatening.

Dynogen's DDP733 works by a different mechanism of action than currently approved drugs, has been shown to be well tolerated, and no cases of constipation have turned up, Brettman said during the conference call.

Propulsid, a drug for nighttime heartburn with peak sales of close to $1 billion, was pulled from the market for safety reasons in 2000. Dynogen estimates that 10 percent of adults suffer from frequent episodes of nighttime heartburn, but 30 percent of them have no drug available since the withdrawal of Propulsid.

Although six drugs already are available for overactive bladder, a $2 billion market, those treatments all work by the same mode of action and have side effects, Brettman said. As a result, he said, 80 percent of physicians who prescribe those medicines have to stop them within a year.

With better efficacy, Dynogen said, it potentially could double or triple that market, which currently targets 37 million Americans.

The clinical trials for those products are in various stages, with the IBS product candidates furthest along. A Phase IIb study on IBS with constipation is expected to be completed with 12 months.