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Canadian firm Nexia Biotechnologies Inc. entered an agreement to sell all of its assets and operations to a subsidiary of privately held PharmAthene Inc. for $18 million in cash and preferred shares and warrants.

The move, yet to be approved by Nexia shareholders, sent the firm's market value tumbling 33.9 percent. Nexia's stock (TSE:NXB) closed Friday at C72 cents (US58 cents), down C37 cents.

Shareholders are slated to vote on the plan Feb. 28, and two-thirds must approve for it to go through. "It's a continuation of the company under new ownership," said William Garriock, chairman of Nexia's board.

Specifically, PharmAthene, of Annapolis, Md., would pay $18 million in cash and Series C convertible preferred shares of the company at about 91 cents per share; warrants to acquire Series C shares (in an amount equal to 30 percent of the number of Series C shares to be issued to Nexia), exercisable at about 91 cents per share and expiring in February 2008; and warrants to acquire common shares of PharmAthene (in an amount equal to 18 percent of the number of Series C shares issued), exercisable at 1 cent per share and expiring in October 2014.

Nexia has not disclosed how much of the $18 million would be cash and how much securities, but details will be made public later in filed documents, Garriock told BioWorld Today.

Nexia's lead product is Protexia (butyrylcholinesterase), an early stage treatment designed to treat civilian casualties resulting from a terrorist chemical weapon attack. In December, Nexia said the program, begun in 2003, has focused on medical prophylaxis for military personnel and first responders working in contaminated areas.

"We've done testing in two species of animals, for both prophylactic and treatment use, but there's so much more to be done," Garriock said, but the company has neither the scientific expertise nor the money for full development of Protexia.

Nexia also plans to divest BioSteel, its program focused on making a recombinant spider-silk fiber product. A Science paper in 2002 explained Nexia's making of dragline spider silk proteins via cell culture techniques using silk genes derived from two different species of orb-weaving spiders.

Spider silk long has been admired for its toughness, strength, lightness and biodegradability for such applications as medical sutures and fishing lines - dragline silk is five times stronger than silk by weight - and Nexia seemed to have found a way to make it synthetically.

But in May 2003, the company ran into trouble, laying off about a third of its employees to save money because of delays in developing a commercial spinning process for the BioSteel program.

"Mother Nature is a bit of a tease," Garriock said. "You can get proof of principle relatively simply, and she even lets you get to the next step. So you can get one [thing] very easily, two you have to struggle for and the third she's going to hold back on you. We could spin [BioSteel] but we couldn't get the strength we needed."

Did Nexia's trouble start there?

"One could look at that both ways," Garriock said. "Trouble, and then an opportunity. At the same time, Protexia came along as a concept, and then we got proof of principle and now we're in animals."

Having turned its attention to Protexia, Nexia now has a prospective buyer - a potential happy, or at least not unhappy, ending.

PharmAthene specializes in anti-bioterrorism treatments, with two products in preclinical development against Bacillus anthracis (anthrax): ToxBlox, a therapeutic anti-toxin for treatment of symptomatic patients, and MDX-1303, a fully human monoclonal antibody in partnership with Medarex Inc., of Princeton, N.J., for pre-exposure and post-exposure prophylaxis and as a therapy for symptomatic patients.

"They seem to be very well connected with who will be the eventual buyers of Protexia," Garriock said.

If Nexia shareholders give their collective nod to the deal, only two employees of the company's 65-member force will be leaving.

"This was very important to the board," he said. Jeffrey Turner and Dana Rath would resign as president and CEO and vice president of finance and administration, respectively.

A report filed by Nexia with the Canadian Securities Administrators shows that, for the fiscal year ending Aug. 31, 2004, the company had a deficit of $48.7 million, with total assets of $12.6 million.

In the PharmAthene deal, Garriock added, "We get to keep our cash residuals that we have on BioSteel, plus money forthcoming from government agencies."

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