Washington Editor

At long last, V.I. Technologies Inc. and Panacos Pharmaceuticals Inc. are coming together.

Both companies' shareholders finally approved the merger, which initially was announced nine months ago, following a reassessment of each firms' worth and providing terms for a $20 million financing. Since the deal first was reported, Panacos' lead HIV product generated positive results in three clinical studies while V.I. Technologies (Vitex) halted a late-stage trial of its lead pathogen inactivation product for red blood cells. (See BioWorld Today, June 4, 2004.)

"Our program was put on hold, and their program was steaming ahead," Vitex President and CEO John Barr told BioWorld Today. "So that really drove the change in the relative value [of the companies], and led to a renegotiation of the terms."

The combined company will move forward under Vitex's name. Terms of the merger call for publicly traded Vitex, of Watertown, Mass., to issue about 227.5 million new shares to acquire all outstanding shares of privately held Panacos, of Gaithersburg, Md. Vitex already had 54.5 million shares outstanding on its own.

On Thursday, Vitex's stock (NASDAQ:VITX) fell 4 cents to close at 70 cents.

Concurrent with the merger, the combined infectious disease firm also will receive $20 million per terms of a private stock-and-warrant placement led by Great Point Partners. Authorized by Vitex's shareholders, its completion allowed the merger to move through the stockholder approval process. The deal included the issuance of 100 million shares, coupled with warrant coverage of 45 percent. The five-year warrants carry an exercise price of 24 cents.

The merger and financing are expected to close shortly, after which the combined company will have about 381 million shares outstanding. Its cash reserves will stand at about $20 million, though that could climb should Vitex's shareholders opt into a rights offering of its common stock worth a maximum of about $5.5 million. If that happened, Barr said, the reserves would be sufficient to support operations into next year.

Moving forward, its portfolio priorities are focused on PA-457, the HIV therapeutic brought by Panacos. Results of a single-dose trial in HIV patients showed that the two highest, but undisclosed, doses produced a statistically significant reduction of HIV viral load. The small-molecule, once-daily oral product has moved into a Phase IIa trial, with results expected later this half of the year.

"Importantly, this drug operates by a brand new mechanism - maturation inhibition," Barr said, noting that the product interrupts a gag protein process inside the CD-4 cell, meaning the virus that exits the cell is not infectious. "That's exciting because the No. 1 problem with HIV therapy today is developing resistance to existing classes of drugs."

Looking toward later-stage development, PA-457 likely is to be partnered through a deal that would assign rights outside the U.S., Barr said, while retaining co-marketing rights at home.

Panacos also brings earlier-stage programs, including research related to small-molecule fusion inhibitors of HIV, as well as fusion inhibition for respiratory syncytial virus.

As for Vitex's Inactine pathogen-inactivation product, researchers will continue to evaluate its merits relative to problems that surfaced last fall, which caused Vitex to stop a Phase III trial after a patient developed an antibody to Inactine-treated red blood cells. (See BioWorld Today, Nov. 29, 2004.)

"We're analyzing that and trying to develop ways to modify the process such that we reduce the likelihood of an antibody reaction," he said.

Following the transaction's completion, Skip Ackerman will be the combined entity's chairman and CEO. He currently serves as chairman of both companies, as well as the acting CEO of Panacos.