Washington Editor

Privately held Infinity Pharmaceuticals Inc. is getting a stock listing through a reverse merger with publicly traded Discovery Partners International Inc., to further the former's anticancer portfolio.

Infinity would own about 69 percent of the combined business, which would keep the Infinity name and primarily continue its existing operations. It would have a post-money valuation of about $235 million.

"This was a more time-efficient, cost-effective and less risky manner in which to raise a significant amount of capital," Infinity Chairman and CEO Steven Holtzman told BioWorld Today, noting that the company "could have done a significant mezzanine financing" or filed for an initial public offering, "which certainly was an option."

Instead, through this transaction, the Cambridge, Mass., company gains beneficial elements of both of those other alternatives - capital and access to the public markets. Holtzman added that the deal allows Infinity to continue along a natural business "evolution," because as a company develops, it must access "larger and larger amounts" of capital. So moving forward as a public entity gives it flexibility to draw from new and bigger sources of that capital.

"It's particularly timely for us right now," added Adelene Perkins, Infinity's executive vice president and chief business officer, explaining that the company's research and development expenses are on the rise. Its lead product candidate is in multiple Phase I trials and about to advance further, a second candidate is slated to enter the clinic late this year, and it has a pipeline of small molecules in preclinical development.

Infinity's portfolio has IPI-504 atop the list, an anticancer product that selectively inhibits heat-shock protein 90 (Hsp90) in cancerous cells. It is in two Phase I trials in patients with relapsed, refractory multiple myeloma and relapsed, refractory gastrointestinal stromal tumors, and Infinity plans to begin Phase II at the end of the year pending initial clinical results. Perkins said it has been "well tolerated" to date and has exhibited "evidence of biological activity." The company owns all rights to the compound.

Behind that is IPI-609, a product in late-stage preclinical research that selectively inhibits the Hedgehog pathway. An investigational new drug application is scheduled to be filed late this year for the first of several planned clinical studies in pancreatic, small-cell lung and metastatic prostate cancers.

Earlier-stage research is focused on inhibitors directed to the Bcl-2 family of proteins - regulators of apoptosis - that are in preclinical development for use alone or in combination to sensitize a range of solid tumors to currently available chemotherapeutics.

That latter program is partnered with Novartis AG, of Basel, Switzerland, and other collaborative partners include Johnson & Johnson, of New Brunswick, N.J., and Amgen Inc., of Thousand Oaks, Calif. To date, those relationships have brought in more than $90 million to Infinity, which was founded in 2001. Since then, it also has raised more than $80 million in venture capital funding.

All of those features, Discovery Partners CEO Michael Venuti said in a conference call, would provide that company's shareholders "an opportunity to participate in a public company that closely matches the requirements of public biotech investors."

Discovery Partners, a business that offers drug discovery services, essentially is unable to sustain its existing operations and therefore needed a new direction. Venuti noted that the merger "represents an appropriate, value-creating opportunity."

In the definitive agreement, Discovery Partners is issuing common shares so that Infinity stockholders would own about 69 percent of the combined company on a pro forma basis, and Discovery Partners' stockholders would own the remainder. That scenario assumes Discovery Partners' net cash at closing to range between $70 million and $75 million, so the percentages are subject to adjustment based on cash at closing.

The merger, which Holtzman said should close in the middle of the summer, has been approved by both companies' boards, but remains subject to approval from their shareholders.

Discovery Partners, of San Diego, plans before the merger to sell its drug discovery services units in San Diego, Basel and Heidelberg, Germany. Its compound management facility in South San Francisco, currently under contract to the National Institute of Mental Health as part of the NIH Chemo-Genomic Roadmap initiative, will continue to be fully staffed.

Infinity's management team, including Holtzman, Perkins and President and Chief Scientific Officer Julian Adams, would run the new public entity after the merger closes. All have public company experience, and have built Infinity to be ready for compliance issues associated with being public. For the rest of this year, some members of Discovery Partners' management are expected to continue under the combined company's employ to implement various transition assignments.

The combined entity's new Nasdaq ticker symbol would be "INFI." On a pro forma basis, its cash and cash equivalents through March 31 would exceed $100 million, sufficient funding to generate efficacy data on its lead program and continue to advance the rest of the pipeline.

Molecular Securities Inc. served as Discovery Partners' financial adviser, with Cooley Godward LLP its legal adviser. WilmerHale LLP served as Infinity's legal adviser.

Wednesday, shares in Discovery Partners (NASDAQ: DPII) gained 13 cents to close at $2.54.