Corixa Corp. said it restructured its South San Francisco operations by reducing its work force there by about 60 percent, and completed a $21 million deal with Medarex Inc. to sell certain technology and preclinical therapeutic programs.

The moves, following additional delays for Corixa's lead product, Bexxar, will result in a narrowing of the company's focus to immunotherapeutics.

Seattle-based Corixa reduced its South San Francisco staff of about 200 by about 130 people, including the elimination of positions that had been planned but left unfilled after the delay with Bexxar, said Michelle Burris, Corixa's senior vice president and chief financial officer. The deal with Medarex, of Princeton, N.J., includes the transfer of 30 Corixa scientists to Medarex. They are part of the 60 percent reduction, as are certain individuals who were extended offers to relocate to Corixa's Seattle or Montana locations, she said.

Medarex also bought equipment from Corixa, for which it paid an additional $2.5 million.

Medarex acquired Corixa's Ultra-Potent Toxin (UPT) technology in which certain toxins can be linked to monoclonal antibodies to create what Medarex President and CEO Donald Drakeman called "smart bombs" designed to fight diseases in oncology and other areas by being able to "turbocharge antibodies."

Corixa said it made the moves to devote its resources to its core competencies in immunotherapeutics.

"Although certain decisions were difficult, we strongly believe that restructuring will allow the company to more efficiently focus on its core capabilities and technologies," Corixa Chairman and CEO Steven Gillis said in a conference call. "The agreement with Medarex benefits both companies."

The UPT technology includes patented small molecules called duocarmycins. Corixa will continue to have access to that technology to use with certain monoclonal antibodies, Gillis said, for which Medarex may receive milestone and royalty payments.

"We are very interested in seeing that program bear fruit," Gillis said.

In addition to the UPT technology, Medarex is buying the IFNAR1 program, which is a monoclonal antibody-based program for the development of products that inhibit biological activity of Type I interferons; three monoclonal antibody targets that were gained in the acquisition of Coulter Pharmaceuticals Inc., of San Francisco, in 2000; and the tumor-activated prodrug program, including CPI-0004, a preclinical chemotherapeutic drug candidate for the treatment of solid tumors.

"The delay in Bexxar contributed to some of the actions that we had to take," said Jim DeNike, Corixa's director of corporate communications.

Corixa said on May 15 that it was requesting an appeal of the FDA's complete review letter questioning the net clinical benefit and safety of Bexxar, its lead cancer product. In a letter dated March 12, the FDA informed Corixa that more clinical studies would be necessary to win marketing clearance for Bexxar, a radioimmunotherapy being developed for the treatment of low-grade or transformed low-grade non-Hodgkin's lymphoma. (See BioWorld Today, May 16, 2002, and March 14, 2002.)

Corixa is laying off its remaining sales staff based in South San Francisco unless and/or until it is needed, according to a research report by Thomas Dietz, of Pacific Growth Equities Inc. in San Francisco, who reiterated his "buy" recommendation on the stock. At its peak, the sales and marketing staff had numbered 24 or 25 people, but that number had dwindled due to individuals choosing to go elsewhere due to the uncertainty over Bexxar, Burris said.

Gillis said in the conference call that clinical and regulatory staff "will remain intact," and the company will retain "key individuals" responsible for Bexxar manufacturing and logistics.

Following the reductions, Corixa will have a total of about 375 employees at its three locations.

The actions mean that Seattle will become the research and development hub for Corixa, while its Montana location will continue as a manufacturing site for its adjuvants, synthetic lipid A-like immunomodulatory agents (AGPs) and selected fermentation-derived vaccines, Gillis said.

The action also will have financial implications for Corixa.

Burris issued revised guidance for 2002, during which she projected cash inflow of $70 million to $80 million and a cash burn of between $55 million and $65 million. That projection represents a $30 million reduction in the anticipated burn rate, wrote Dietz, who also indicated that the company should have enough cash on hand for two years of operations.

"We expect further transactions this year that highlight the ability of Corixa to capitalize on its broad pipeline while continuing to keep the long-term value development proposition the company represents intact," Dietz wrote.

Medarex has the option of paying Corixa in cash or stock in six equal monthly payments, Drakeman said during a separate conference call.

"This will allow us to build the most promising portfolio of monoclonal antibody programs," Drakeman said.

"This will be used not only to take advantage of our own product development but for other partners who may want to take advantage of our antibody payload technology," Drakeman said, adding that it would allow the company to build a revenue base from both partners and internal efforts.

Drakeman said the purchase price associated with Corixa will be written off in the second quarter.

Drakeman said the UPT and IFNAR programs are in the late stages of preclinical development, and the company will be "moving forward as rapidly as possible in those areas."

Corixa's stock (NASDAQ:CRXA) fell 60 cents Friday to close at $6.45. Medarex's stock (NASDAQ:MEDX) fell 79 cents to close at $9.62.