BioWorld International Correspondent

LONDON - Privately held Etiologics Ltd. and Argenta Discovery Ltd. are merging to create a £12 million (US$21.4 million) turnover drug discovery services company, with existing investors committing a further £5.9 million to fund internal drug development programs in respiratory diseases.

These days most mergers of private biotechs are forced by hard-up investors looking to rationalize their portfolios. But Christopher Ashton, CEO of the merged entity, said, "This is not driven by the investors, it is driven by the companies themselves.

"Argenta has a strong contract research business with great strength in chemistry. Etiologics has world-class biology and pharmacology, and a respiratory program. We have talked to all our major customers in the past two months, from top pharma down, and they can see absolutely the logic and strength in this."

The 120-person merged company will adopt the Argenta name and will retain facilities in Harlow and Slough, UK. Ashton, former CEO of Etiologics, said, "We are not doing this [merger] to cut costs; part of the rationale when Etiologics was set up was to build through M&A, and in fact we are already in discussions on a further merger."

The £5.9 million will fund internal development programs in chronic obstructive pulmonary disease and cystic fibrosis. Ashton said it was not difficult to raise the money.

"It was an easy sell to our investors because the story is so compelling, and they put in more than we asked for," he said.

Argenta's in-house programs in cancer and diabetes will be licensed out, and Ashton said term sheets are "already on the table" for its histone deacetylase inhibitors in cancer. The preclinical stage inhibitors are orally bioavailable and have shown efficacy in xenograft models.

Etiologics has moved a long way from its roots in the two years since it was founded as a mouse genetics specialist in October 2002. It raised £3.5 million in a first round to commercialize research from the UK Medical Research Council's (MRC) Mammalian Genetic Unit that uses chemical mutagenesis, rather than knockouts, to produce models of human disease.

The company moved into respiratory diseases, with a particular focus on chronic pulmonary obstructive disease (COPD) a year later when it acquired the 20-employee preclinical respiratory group of Bayer AG. Etiologics subsequently gave the mouse genetics rights back to the MRC.

"In COPD you have chronic inflammation leading to a decline in lung function, and we have proprietary disease models that mimic this," Ashton said. "We have done deals with half a dozen pharma companies in the past six months to screen their compounds in these models and we have discovered active molecules of our own." Adding in Argenta's chemistry skills will accelerate development of the compounds.

Argenta was formed in 2000 by a management buyout team of 26 scientists who were threatened with relocation from Dagenham, UK, following the formation of Aventis Pharma AG from Hoechst AG and Rhone-Poulenc SA in December 1999. It raised £7.2 million in its first round and, simultaneously, agreed to a deal with Imperial College London to access targets discovered in the school of medicine and the department of chemistry.

MVM Ltd., the venture capital arm of the MRC, invested in the formation of both Etiologics and Argenta, and has followed on in the post-merger round, along with Genevent, the venture capital arm of Aventis; 3i plc; ABN AMRO; and TTP Ventures.

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