The creation of Santhera Pharmaceuticals AG was completed this week following the merger of a pair of privately held European firms.

Graffinity Pharmaceuticals AG and MyoContract AG came together relatively quickly in a deal that was announced Wednesday. Going forward, their combined operations will focus on the discovery, development and commercialization of small molecules for neuromuscular and metabolic diseases.

"I met the CEO of MyoContract for the first time a couple of days before Christmas last year," Santhera CEO Klaus Schollmeier told BioWorld Today. "I think, from the beginning, we saw a charm and harmony between both companies."

Less than two months later, he said, they began exploring a merger. Official negotiations got under way in May, and five months later, the deal was consummated. The companies did not disclose financial details of the all-share transaction, but Schollmeier pointed out how the pieces fit together.

"Graffinity was established as a company that was very strong from targets to leads," he said. "We have a unique, proprietary technology that allows us to very quickly identify starter molecules for drug discovery, as well as a very strong medicinal chemistry and biochemistry team to quickly develop leads."

But he said Graffinity was missing biological knowledge in order to focus on specific disease indications. MyoContract, which had research centered on neuromuscular diseases, fit the bill, and also brought with it a late-stage clinical program expected to soon enter Phase III for an undisclosed orphan indication. Its portfolio also includes three preclinical programs in diabetes, cachexia/anorexia and Duchenne muscular dystrophy.

"Both companies, from the beginning, always worked only on validated targets," Schollmeier added. "That is another philosophy shared by all researchers in the combined company."

Graffinity was founded in 1998, and MyoContract was conceived in 2000. Schollmeier had been Graffinity's CEO. MyoContract's founder and CEO, Thomas Meier, will serve as the new company's chief scientific officer. Santhera will be headquartered in Liestal, Switzerland, MyoContract's base, with research and development operations in both Liestal and Heidelberg, Germany, the latter being Graffinity's home.

"When you look into the organization, it is really complementary," Schollmeier said. "The drug discovery engine and research up to mid-preclinical stage mostly will be done in Heidelberg. There will be a smaller medicinal chemistry and drug development group in Basel focused on two preclinical programs. And the research on neuromuscular diseases, as well as clinical development, will be based and built in Basel."

Concurrent with the merger, Santhera raised an additional €7 million (US$8.5 million), which will provide it with more than €20 million that it projects to last until late 2006. To date, both had raised a total of about €47 million each. Graffinity last raised funds earlier this year, picking up €15 million. (See BioWorld Today, Feb. 23, 2004.)

Schollmeier said Santhera would apply its latest funds toward the upcoming Phase III trials, with long-term plans to complete the studies, analyze the data and apply for approval by 2007. Other funding will be used for preclinical programs. Santhera plans to advance one of the three preclinical programs on its own and partner the other two.

Its financial backers include Merlin Biosciences Ltd., Oxford Bioscience Partners, 3i Group plc, Carnegie Asset Management, The Novartis Venture Fund, Heidelberg Innovation, Varuma AG, GIMV, Clariden Bank, The Dow Chemical Co., TechnoStart, tbg and the Swiss Foundation for Research on Muscle Diseases.

"I think Santhera is built to be a very attractive IPO story in Europe, and we will go forward full steam to be an IPO candidate next year," Schollmeier said. "And we have efforts in place to in-license another Phase I or II program. We have funds available to do that, and we are looking at another orphan indication in the neuromuscular field. And this would, of course, affect our IPO story next year."

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