Continuing with a growth-by-acquisition theme, Genzyme Corp. late Thursday unveiled plans for a $1 billion stock purchase of cancer drug developer ILEX Oncology Inc.

Genzyme, which last year paid about $600 million to acquire SangStat Medical Corp., is paying $26 for each share of ILEX, a premium of about 22 percent over the stock's $21.37 closing price on Thursday. The deal expands Cambridge, Mass.-based Genzyme's oncology offerings to include a marketed product and another drug already in the regulatory process, as well as other pipeline projects.

"It is transformational for us in the oncology sense," Genzyme Chairman and CEO Henri Termeer said during a conference call. "And it's clearly the beginning for us to continue to build and strengthen this franchise as we move forward."

He noted that Genzyme had long sought to expand its oncology presence, adding that ILEX's offerings target orphan drug-like markets that feature small patient populations with unmet medical needs, synergistic with Genzyme's product development structure.

"Cancer is very much a collection of more orphan-like diseases, though sometimes people think of it as a single homogenous disease," Mark Enyedy, senior vice president and general manager of Genzyme Oncology, told BioWorld Today, adding that cancer is actually "characterized by well-defined patient populations and significant unmet medical need."

Genzyme plans to maintain operations in San Antonio, the base of ILEX, which also has facilities in Boston, the UK and Switzerland. ILEX's top revenue producer, Campath (alemtuzumab for injection), was approved nearly three years ago for B-cell chronic lymphocytic leukemia (B-CLL). The company receives royalties on sales from its marketing partner, Schering AG, which holds exclusive worldwide rights plus additional exclusive rights in Japan and elsewhere in the Asian Pacific region.

Last year, Campath generated global net sales of $71.7 million, a 63 percent increase over the prior year, said Berlin-based Schering. ILEX - with 2003 revenues of $34.8 million, primarily driven by Campath - closed last year with $198 million in cash and marketable securities.

Additional clinical trials are designed to expand the drug. Two Phase III studies are under way, one comparing Campath to chlorambucil to evaluate its use for earlier-line B-CLL treatment, and another combining Campath with fludarabine for CLL. Also, a pair of Phase I/II trials of Campath for non-Hodgkin's lymphoma have begun. Beyond cancer, Campath is being studied for uses in multiple sclerosis and solid-organ transplant surgery.

ILEX's pipeline also includes clofarabine, for which the company has begun a rolling new drug application with the FDA for relapsed or refractory acute leukemias in children. A fast-track product, the next-generation purine nucleoside analogue also is being investigated for use in adult acute leukemias and advanced solid tumors. With NDA completion planned during the first half of this year, Genzyme said it expects approval next year for clofarabine, to which ILEX holds U.S. and Canadian rights. New York-based Bioenvision Inc. is responsible for developing clofarabine in the rest of the world.

Another late-stage candidate in ILEX's pipeline, ILX-651, is in Phase II for melanoma and non-small-cell lung cancer.

"The news of this transaction truly validates the accomplishments of ILEX," Jeffrey Buchalter, its president and CEO, said during the conference call. ILEX reported 39 million shares outstanding as of Thursday.

Founded in 1994 as an oncology drug development company, the business morphed into a contract research organization before beginning to devote all its activities to product-driven cancer drug development in 2001.

"The next generation of ILEX will require for us greater resources and scale," Buchalter said. "Genzyme provides both critical mass and financial strength to fully optimize the pipeline and fully commercialize these products."

For its part, Genzyme's oncology pipeline includes a patient-specific vaccine for kidney cancer, for which the company expects to report Phase I/II data at June's American Society of Clinical Oncology meeting. Genzyme also is in a collaboration with the pharmaceutical division of Tokyo-based Kirin Brewery Co. Ltd. focused on tumor endothelial markers.

Genzyme also is evaluating a small molecule in a Phase I/II trial in liver cancer. A preclinical program with tumor-targeted compounds is under way, and preclinical work with inhibitors of PRL-3, a gene believed to be implicated in metastatic colon cancer, is also expected to begin later this year.

"We are very much believers in these programs starting to become very productive in the future," Termeer said, "but we have always felt the need to get closer to the marketplace, and with the ILEX portfolio, we have a tremendous opportunity."

Genzyme reported $1.2 billion in cash and equivalents at the end of last year, along with full-year net income of $314.7 million. Its biggest revenue producers include Cerezyme (imiglucerase for injection), Renagel (sevelamer hydrochloride) and Fabrazyme (agalsidase beta).

Enyedy noted little personnel overlap between the companies, save for their general and administrative staffs, and said that ILEX's late-stage cancer development know-how would complement Genzyme's existing operations. On the whole, ILEX employs about 220 people, while Genzyme has about 5,300.

The stock-for-stock merger is expected to be completed by the middle of the year. ILEX shareholders would receive shares of Genzyme common stock for each ILEX share owned based on an exchange ratio equal to $26 divided by the average of the per-share closing prices of Genzyme stock during the 20 trading days ending on the fifth trading day prior to the closing. If the average is greater than $59.88, then the exchange ratio would be 0.4342, and if that average is less than $46.58, then the exchange ratio would be 0.5582. Cash would be paid for fractional shares.

Morgan Stanley & Co. Inc., of New York, is acting as Genzyme's financial advisor, while Ropes & Gray LLP is its legal counsel. UBS Securities LLC, of New York, and Fulbright & Jaworski LLP are acting as financial and legal advisers, respectively, for ILEX.

Friday, ILEX's stock (NASDAQ:ILXO) jumped $3.63, or 17 percent, to close at $25.

The tax-free transaction has been approved by both companies' boards, though it remains subject to regulatory clearance and ILEX stockholder approval. Genzyme said it might incur charges associated with purchase accounting, adding that it expects the deal to be accretive in 2006.

Genzyme's stock on Friday (NASDAQ:GENZ) fell $2.83 to close at $50.45.