Epimmune Inc.'s merger with Anosys Inc. appears to be coming to fruition by way of a stock transaction initially valued at $13.5 million.

Though officials at both companies declined to discuss the deal after entering a quiet period related to a pending financing, the merger talks go back several months. Three months ago Epimmune publicly disclosed the idea of combining its epitope technology with Anosys' exosome delivery technology to create therapeutics that activate antigen-specific immune responses - in particular, cancer vaccines. (See BioWorld Today, Feb. 14, 2003.)

But the companies' relationship runs much longer, as Epimmune granted to Anosys a nonexclusive license to certain cancer antigens for use in its cancer therapy program. The September 2001 deal covered patented and nonpatented rights to Epimmune's universal breast, colon, lung and prostate epitope packages for use in ex vivo cancer therapy.

On Monday the companies said they entered a definitive agreement to combine their immunotherapeutic pipelines to further develop their cancer and infectious disease products. Based on the initial $13.5 million value ascribed to the transaction and Friday's $1.60 closing price of Epimmune's shares, it would issue about 8.44 million common shares in exchange for all of Anosys' common and preferred stock. The final value of the shares to be issued will cap at $16 million based on their 10-day average closing price prior to closing.

Among other conditions, the transaction remains subject to a plan for financing the combined entity. When first discussing the merger possibility in February, San Diego-based Epimmune said it would seek outside financing to add funding to the combined operation. The nature of the financing vehicle was not disclosed.

After the merger closes but before the related financing concludes, Epimmune's existing shareholders would control 65 percent of the combined company and Anosys' shareholders would own no more than 35 percent. Epimmune, which reported about 11.7 million shares outstanding as of March 31, would remain the company's name. Following the merger it would have between 80 and 85 employees. At the time of the initial talks, Anosys reported about 40 employees, though there was no definitive figure provided for Epimmune's employees.

The research and development team will feature three clinical-stage programs, including Anosys' therapeutic cancer vaccine program that arose from its original license with Epimmune. It has received FDA clearance to begin Phase II trials of the acellular anticancer dexosomes cancer vaccine in lung cancer and melanoma patients.

The center of Epimmune's cancer vaccine program is EP-2101, a multi-epitope vaccine that in January received the agency's nod for Phase I/II trials in lung and colorectal cancer patients. The company continues Phase I/II trials of therapeutic vaccines for HIV as well.

Established in 1997, Epimmune also is expanding its pipeline through a collaboration with Palo Alto, Calif.-based Genencor International Inc., focused on hepatitis B, hepatitis C and human papillomavirus. As of Sept. 30, Genencor owned 11.1 percent of Epimmune's common stock.

Just more than a week ago, Epimmune found a new partner in Merck & Co. Inc., which will work to determine activity within Epimmune's modified epitopes as part of its vaccine development program. Whitehouse Station, N.J.-based Merck provided an undisclosed license fee and also gained an option to enter licensing discussions to develop Epimmune's epitopes for certain unspecified diseases. (See BioWorld Today, May 2, 2003.)

In July, Epimmune entered a relationship with Aventis Pasteur. An affiliate of Aventis SA, one of Anosys' three major shareholders, Aventis Pasteur licensed certain epitopes from two cancer-associated antigens for possible use in its pox virus therapeutic program.

At the end of the first quarter, Epimmune reported revenues of about $1.4 million paired with a net loss of about $1.8 million. The company said it had cash and cash equivalents of about $7.5 million through March 31.

Following the transaction, Epimmune CEO Emile Loria would retain his position while Jean-Bernard Le Pecq, the CEO and chief scientific officer at Anosys, would assume the CSO role at the combined entity. The firm's headquarters would remain in San Diego, with Anosys' Menlo Park, Calif.-based headquarters to be held as a manufacturing facility along with an existing site in Evry, France - home to that country's national biotechnology science and business park.

Founded by two French researchers previously with Aventis, Anosys has raised $35 million in total funds since its 1997 inception. Outside of Lyon, France-based Aventis, Anosys' principal shareholders include Tokyo-based Kirin Brewery Co. Ltd. and Copenhagen, Denmark-based BankInvest Biomedical Venture.

Both Epimmune's and Anosys' boards have approved the deal, though shareholder approval remains necessary. Epimmune's stock (NASDAQ:EPMN) fell 21 cents Monday, or 13.1 percent, to close at $1.39.