BioWorld International Correspondent

SYDNEY, Australia - A friendly A$500 million (US$345 million) merger that promised to create Australia's largest pure biotech company has been called off after hitting a major obstacle over one partner's dispute with a U.S. company.

Peptech Ltd., of Sydney, and Agenix Ltd., of Brisbane, called off the merger, which had been announced in May, because of problems revealed during due diligence.

The companies also declared that they will be looking at other strategic opportunities and cannot say whether they will ever get together, once there is a resolution to Peptech's patent dispute with Centocor Inc., of Malvern, Pa., a subsidiary of Johnson & Johnson.

Peptech Executive Chairman Mel Bridges and Agenix Managing Director Donald Home agreed that the merger foundered because Agenix could not make a proper valuation of Peptech's patent rights to the rheumatoid arthritis treatment Remicade, due to an inability to access the documentation. Remicade is Centocor's drug, but Peptech holds patents related to it.

Under the license agreement signed with Centocor that now is subject to arbitration, Peptech cannot disclose documentation or details concerning its license, and that requirement extends to the arbitration proceedings. Centocor declined to waive the requirement so that Agenix could assess the value of the patent rights and any royalty streams.

Bridges said Peptech is in the middle of the arbitration process that requires exchange of documents, some of a sensitive nature. The due diligence process had been extended two weeks, by "pushing the envelope" in legal issues involved, but finally they had to walk away.

Peptech said it does not expect a result from the arbitration until late December.

Also uncovered by due diligence was a major revaluation of Agenix's blood imaging product, ThromboView.

Home said the company knew its valuation of ThromboView was conservative, but was surprised at the value put on it by a U.S. expert called in as part of the process.

He said the revised value was "north of A$550 million," with predicted revenues of A$200 million a year. The product is expected to reach the market in three years.

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