By Karen Young

Vasogen Inc. formed a strategic alliance with Quest Diagnostics Inc. to jointly commercialize Vasogen¿s immune modulation therapy in the U.S.

Vasogen¿s immune modulation therapy is designed to target the root cause of a broad range of diseases, including cardiovascular, autoimmune and related inflammatory diseases. Quest, which provides diagnostic testing, information and services, and Vasogen will work together to develop the infrastructure for a successful launch of the product, once the therapy receives FDA approval.

¿This is a tremendous deal for Vasogen, because what the Quest alliance means is access to the largest potential infrastructure for distribution,¿ said Chris Waddick, chief financial officer for Vasogen, of Mississauga, Ontario.

The alliance calls for Quest, of Teterboro, N.J., to make a US$7.5 million equity investment in Toronto-based Vasogen. The price of the shares was based on a five-day average prior to signing, which was about C$8.50 (US$5.31) per share, Waddick said.

Vasogen¿s stock (TSE:VAS) fell C60 cents Wednesday to close at C$8.36 in Canada, while in the U.S., the stock (AMEX:MEW) fell 41 cents to close at $5.26.

The alliance covers all indications for the unnamed therapy, which is delivered during a 20-minute outpatient procedure involving the stressing of a small sample of a patient¿s blood using a medical device technology, followed by the administration of the stressed cells back to the patient.

Quest would offer the therapy through its network of 1,300 patient service centers. Quest also has a national network of about 30 full-service laboratories and 150 rapid response laboratories.

¿Quest would like to maximize the people coming to their centers for these treatments,¿ Waddick said.

The deal also calls for Quest to pay milestone payments to Vasogen in return for continued exclusivity, payments tied to FDA approval. The lead indication is for peripheral arterial disease, which is in a pivotal trial, expected to be completed in early 2003, Waddick said. The treatment also is in Phase II trials for psoriasis, congestive heart failure, ischemia/reperfusion injury and chronic lymphocytic leukemia, he said.

¿The milestone payments will be based on the size of the market opportunities, but the exact amounts have not been finalized,¿ Waddick said. ¿Those will be finalized as we approach that time, although each of these indications has significant market opportunity, and we expect the milestone payments to be significant accordingly.¿

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