National Editor

AEterna Laboratories Inc., coming through on the vow it made eight months ago to find and acquire a firm that would expand its oncology portfolio, has signed a definitive purchase agreement with specialty chemicals company Degussa AG to acquire all the outstanding shares of spin-out Zentaris AG for €50 million.

"Zentaris was the last company to be divested from Degussa," said Gilles Gagnon, president and chief operating officer of AEterna, of Quebec City, Quebec. "It was the gem they kept for the end."

A particularly sweet aspect of the deal is that AEterna plans to use some of Zentaris' own cash to make almost half of the payment due in the merger.

Through a newly created German subsidiary named AEterna GmbH, AEterna said it was paying €27 million Tuesday, and will pay the remainder no later than April 30. The €23 million balance of the purchase price will be paid to Degussa with excess working capital from Zentaris, so AEterna won't have to use its own funds.

"Technically, we are acquiring Zentaris for €50 million, knowing there is a cash guarantee of €23 million ahead," Gagnon said.

The agreement, approved by the boards of both companies, gives AEterna four more anti-angiogenesis products in development - two in Phase II studies and one in Phase I - for nine indications, plus six products that are in the preclinical stages.

Zentaris, of Frankfurt, Germany, also brings to the table a compound library, drug discovery unit and endocrinology franchise, not to mention a marketed product: the injectable gonadotropin-releasing hormone antagonist Cetrotide (cetrorelix acetate) for in vitro fertilization. The drug is being studied in several Phase II trials for other indications.

"We've been looking for acquisitions all year long, and we had some very specific criteria," Gagnon said. "We realized Zentaris' was almost a split portfolio, and there is some kind of a link between the two sectors [of oncology and endocrinology], given the kind of products they're offering."

He pointed to the endocrine aspect of prostate cancer, which is the target of one of Zentaris' Phase II trials and another in Phase I.

With 67 employees and about €20 million in revenue in 2002, debt-free Zentaris said it expected to be cash-flow positive for the year and to have working capital in excess of €23 million at the end of 2002. Zentaris was spun out from Degussa in early 2001.

Zentaris has marketing alliances and strategic partnerships with the likes of Serono International SA, of Geneva, Switzerland; Solvay Pharmaceuticals BV, of Brussels, Belgium; Baxter Healthcare SA, the Swiss subsidiary of Baxter Healthcare Corp., of Deerfield, Ill.; and others.

Gagnon noted that having partners is a bonus, and having those is particularly valuable since "on top of [paying] milestones, the pharmaceutical companies are covering 100 percent of development costs" for Zentaris.

"This is exactly the kind of scheme they have for all the partnerships," he said. "It's quite incredible."

Zentaris also has the distinction of developing miltefosine, the only oral drug for visceral leishmaniasis, a parasitical infection most common in Bangladesh, India, Nepal, Sudan and Brazil. It's already marketed in Africa, and an application for marketing has been filed in India.

AEterna, for its part, has Phase III trials in lung cancer and kidney cancer with Neovastat, made up of anti-angiogenic components extracted from marine cartilage. Neovastat is also in a Phase II trial for multiple myeloma. Data from the kidney cancer trial are expected in the first quarter.

In the spring, AEterna raised C$57 million (US$36.2 million) through private placements and said it was examining technologies, compounds and other firms as acquisition candidates. (See BioWorld Today, April 10, 2002.)

"Most of the money was tagged for acquisitions," Gagnon said. AEterna reported C$87.7 million in cash at the end of the third quarter.

The company owns 61.8 percent of Atrium Biotechnologies Inc., also of Quebec City, which develops and markets nutritional supplements, as well as active ingredients and chemicals for the cosmetics, nutritional and pharmaceutical industries.

Gagnon said Degussa, which also had businesses in polymers and nutrition, sought to become a pure-play chemistry company and therefore divested itself of several pieces, including those in health care, which made up about 7 percent of Degussa's €$12 billion annual revenues.

"When we saw this one, we knew it was the one" and negotiations "went very quickly" after starting Nov. 12, Gagnon told BioWorld Today.

AEterna's stock (NASDAQ:AELA) closed Tuesday at $3.73, up 33 cents.