By Randall Osborne

West Coast Editor

Cell Genesys Inc. said it plans to pay $17.4 million in stock for Calydon Inc., and take on about $2.6 million in debt to acquire the privately held firm.

Boards of directors of both firms have agreed to the stock-swap deal, under the terms of which Foster City, Calif.-based Cell Genesys will take over Calydon, of Sunnyvale, Calif., in about 30 days. A definitive agreement has been signed.

For Cell Genesys, the idea is to beef up the cancer pipeline by adding Calydon¿s treatments based on oncolytic viruses, including a drug for early stage prostate cancer, CV706, which is expected to enter Phase III trials next year. This means that, with Cell Genesys¿ GVAX vaccines for prostate and lung cancer, the combined firm could have three products entering Phase III study ¿within 18 months or so,¿ said Jennifer Cook Williams, manager of corporate communications for Cell Genesys.

¿This has been a stated goal of Cell Genesys for over a year ¿ to acquire a late-stage product or a new technology platform,¿ Williams said. With Calydon, it gets both.

In the deal, Calydon shareholders, noteholders and management will get about 935,000 shares of Cell Genesys stock worth about $17.4 million, based on a 30-trading day closing price average ending July 31. Cell Genesys said it will close Calydon in early 2002, but keep most of the 20 employees, moving them mainly to the Foster City facility, Williams said.

CV706, injected into the prostate, is designed for newly diagnosed, high-risk, early stage prostate cancer, and is administered like radiation seed therapy. GVAX, on the other hand, targets advanced-stage prostate cancer patients who have relapsed after surgery and/or radiation therapy and failed hormone treatment.

Phase I/II results with CV706, tested in 21 patients with recurrent, organ-confined prostate cancer, found it safe and well tolerated, with what Cell Genesys said was ¿compelling¿ antitumor activity.

Calydon, founded in 1994, uses what it calls Attenuated Replication Competent Adenovirus technology, which involves viruses engineered to replicate in and kill cancer cells, leaving healthy normal cells for the most part unharmed. Engineered viruses are either injected directly into tumors or intravenously.

¿More often, it¿s intratumor,¿ Williams told BioWorld Today. ¿The lead product is the one we¿re really concentrating on, and it¿s a big reason we¿re doing the deal.¿

ARCA is being tested against various cancers including those of the prostate, colon, bladder and liver.

¿We certainly will look at the data for the other preclinical products,¿ Williams said, although the first focus will be on prostate cancer.

Cell Genesys has about $232 million in cash now, she said, and owns about 9 million shares of Abgenix Inc., of Fremont, Calif., worth about $270 million.

¿That gives us a half-billion dollars in resources at our disposal,¿ she said, noting that the company was expecting a $20 million burn rate this year, which will increase 10 percent to 15 percent as a result of the Calydon buyout.

Cell Genesys¿ stock (NASDAQ:CEGE) closed Thursday at $17.19, down 4 cents.

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