Schering AG entered into an agreement to acquire Collateral Therapeutics Inc. in a $140 million stock-for-stock acquisition.

The two companies have been partners for the past six years, and before yesterday’s news, Schering already owned 12 percent of Collateral Therapeutics.

“The acquisition is important not only for the successful development of the two lead products [at Collateral],” said Dale Stringfellow, an executive officer at Berlex Laboratories Inc., Schering’s U.S. affiliate, during a conference call. “But also it really strengthens our expertise to build a technology base in gene therapy for additional products.”

Schering acquired the remaining outstanding shares of San Diego-based Collateral in exchange for Schering’s American Depositary Receipts (ADRs). At the closing of the transaction, each Collateral Therapeutics share will be converted into the right to receive 0.1847 of Schering ADRs. Certain Collateral stockholders who own an aggregate of approximately 26.7 percent of the outstanding shares of Collateral common stock have agreed to vote in favor of the merger.

Schering for several months has said it plans to acquire biotech companies and products. Its stock (NYSE:SHR) fell $2.25 Wednesday, closing at $58.65. Collateral saw its stock (NASDAQ:CLTX) soar $5.28, or 103.7 percent, ending the day at $10.37.

Collateral develops gene therapy products to treat cardiovascular diseases by promoting angiogenesis. Schering is the exclusive worldwide licensee for Collateral’s two lead products, Generx (Ad5FGF-4), which is in Phase IIb/III trials, and Genvascor (Ad5.1FGF-4), which is in a Phase I study in the U.S. and Phase II development in Europe.

“We expect [to take] about two years to conduct these Phase III trials [for Generx], and then we would put together a marketing application and submit it to the FDA and other health authorities,” Jack Reich, chairman and CEO of Collateral Therapeutics, told BioWorld Today. “The product could reach the market anytime from 2005 to 2006.”

Genvascor’s development timeline trails Generx by a couple of years, Reich said. Both products are potential treatments for stable exertional angina due to coronary artery disease and peripheral vascular disease, and therefore both fit into Schering’s plans to build a gene therapy cardiovascular program.

“While the cardiovascular market is large, Schering’s focus on specialized treatment market has already included specialized cardiology,” Stringfellow said. “Collateral Therapeutics focuses on cardiovascular gene therapy products.”

Berlin-based Schering began a large worldwide development program for Generx, including two studies a U.S.-based Phase IIb/III study and a European-based Phase IIb/III study. The U.S. trial, which will be conducted in up to 100 medical centers, is evaluating the safety and efficacy of Generx in patients with stable exertional angina due to coronary artery disease who do not require immediate revascularization. The European trial is designed to evaluate stable angina patients with advanced coronary artery disease who are not considered candidates for interventions such as angioplasty and bypass surgery and/or patients who are unlikely to have positive outcomes from such interventions.

Both are multicenter, randomized, double blinded and placebo controlled.

“We have other angiogenic genes a number of VEGF genes and other FGF genes,” Reich said. “And we recently got another gene EPAS-1 from the University of Texas. These are all angiogenic growth factors you can deliver to the heart to treat heart disease.”

The company also has, in preclinical development, a gene specific to heart failure. Collateral is developing a program aimed at heart muscle regeneration for patients who have just suffered a heart attack, designed to reduce scar tissue.

Separately, the companies amended their 1996 agreement under which Collateral will receive a $12 million cash payment in exchange for a 2 percent reduction in the level of royalties payable by Schering. Collateral originally partnered with Schering in May of that year to develop the angiogenesis gene therapy technology.

Collateral originally went public in 1998, raising $15.95 million after selling 2.2 million shares at $7.25 each. The company had expected an offering of 3.33 million shares at $12 per share, to generate $40 million. (See BioWorld Today, July 6, 1998.)

As for bringing the companies together, Reich said he doesn’t expect any moving vans at Collateral.

“[Our employees] are going to stay here, as far as I know, at our facilities,” Reich said. “I think [Schering] plans to make this its corporate center of excellence for gene therapy.”