Aphton Corp. entered a definitive agreement to acquire the privately held Vienna, Austria-based company Igeneon AG for more than $81 million in equity.

By doing so, Aphton is bulking up its clinical pipeline with two more oncology products, in addition to its lead Phase III drug, Insegia.

Since Patrick Mooney became Aphton's president and CEO last February, he set out to achieve three strategic goals for the company. One was to commercialize Insegia, which should be the subject of a new drug application filing in the middle of 2005 if Phase III results, expected within a few months, are positive.

Another goal was to partner Insegia in Japan and Asia, a task which the company is still working on.

"The third leg of the stool, and perhaps the most critical for Aphton," Mooney told BioWorld Today, "was to diversify our product pipeline."

That's where Igeneon comes in. The company is focused on the development of immunotherapy-based drugs to treat cancer and has two products, IGN101 and IGN311, in clinical trials.

Under terms of the deal, Igeneon's stockholders will receive 21.5 million shares of Aphton common stock in exchange for all of Igeneon's equity. That will leave Aphton with 59.3 million shares of common stock outstanding.

Based on Aphton's closing stock price Tuesday of $3.79, the acquisition is valued at $81.5 million. The stock (NASDAQ:APHT) dropped 22 cents on Wednesday to close at $3.57.

An analyst on Wednesday's conference call asked why Aphton chose to do the acquisition now, at such a high number of shares, when positive Insegia Phase III data could be released any day and drive the stock skyward.

But Mooney said it was a matter of timing and opportunity.

"Why now?" he said in the call. "Igeneon was actively being sought by others as an acquisition target. They are a very attractive opportunity. We saw the opportunity and we took it."

The boards of both companies have approved the acquisition, which will close following the consent of a majority of Aphton's stockholders.

Manfred Ruediger, Igeneon's CEO, said, "This acquisition provides the greatest potential for our products."

Together, the companies will have a pipeline focused on direct immunotherapy approaches to treat cancer and other diseases. Immunotherapy might have certain advantages over other targeted therapies by including specificity that could lead to better efficacy and decreased toxicities for patients.

Along with the two clinical-stage products and a number of preclinical research projects, Aphton will gain Igeneon's 60 employees, essentially doubling the combined organization's work force. About two-thirds of the 120 employees will work in research and development. Aphton intends to keep the Vienna facilities and the Igeneon name. The company will be considered a wholly owned subsidiary of Aphton.

"Some of the global functions will be based in Vienna, some in Philadelphia," Ruediger told BioWorld Today. "We plan to have a fully trans-Atlantic company."

Upon closing, Ruediger will become executive vice president and chief operating officer of Aphton, and he will sit on the company's board.

Igeneon's IGN101 is in a Phase II/III trial for non-small-cell lung cancer. The company has enrolled more than 600 of the 760 patients needed for the trial, and Ruediger expects the study to be completed by the end of 2007. A launch could occur in 2008 or early 2009 in Europe, but another trial would need to be completed to gain U.S. approval. Ruediger believes the product could address a very large market worldwide.

"For indications like non-small-cell lung cancer, there are basically no therapies available," he said. "For chemotherapy being used in the U.S., the benefit to the patient is not huge, so it's a very high, unmet medical need to bring new products to that indication."

Igeneon recently completed a double-blind, placebo-controlled trial of IGN101 in colorectal cancer, and, based on the data, Ruediger said it likely will move into another Phase II/III trial "maybe a year from now, early 2006."

Igeneon's second clinical product, IGN311, is a monoclonal antibody targeting Lewis Y-positive cancer cells. Phase I data of that product should be available in 2005.

Aphton's lead product, Insegia (G17DT immunogen), is in a fully enrolled Phase III randomized, double-blind trial in combination with gemcitabine to treat advanced pancreatic cancer.

"We expect to be able to release data from this study within the next 60 days," Mooney said. "Today's transaction [of acquiring Igeneon] in no way reflects a change in our enthusiasm for this program."

Aphton recently filed for marketing approval of Insegia in Canada, Australia and Switzerland, based on positive data from a completed Phase III monotherapy pancreatic cancer trial. And at the American Society of Clinical Oncology meeting earlier this year, Aphton reported positive Phase II data of Insegia used with cisplatin and 5-FU in advanced gastric cancer.

Insegia is partnered with Aventis Pasteur, a unit of Paris-based Sanofi-Aventis Group, in North America and Europe for gastrointestinal and other cancers. The product is partnered with London-based GlaxoSmithKline plc for the treatment of cancers of the reproductive system and non-cancer diseases worldwide.

Aphton recently moved its headquarters from Miami to a more strategic location in the Philadelphia area. It still has research and development operations in Woodland, Calif.; the UK; and now Vienna.

"Why we came to Philadelphia is because it's central to the capital markets. It is central to the FDA," Mooney said. "It is a major metropolitan city with major institutions that do significant research in cancer. It's the biggest pharmaceutical corridor in the world."

Aphton expects to incur charges associated with the acquisition, which will be detailed following the closing. The combined company will have a monthly burn rate of about $4 million, and a pro-forma cash balance of $61 million, $12 million of which comes from Igeneon. Founded in 1999, Igeneon has raised €75 million since inception.

Financial advisers and counsel in the transaction included New York-based UBS Securities LLC and Akerman Senterfitt for Aphton, and UBS Limited and Jones, Day & Dorda Brugger Jordis Rechtsanwaelte for Igeneon.

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