By Matthew Willett

Inhale Therapeutic Systems Inc. will acquire Shearwater Corp., a privately held company focused on pegylation technology to increase drug circulation time in the bloodstream.

Inhale will issue 4 million shares, or 8 percent of Inhale¿s current outstanding shares, to Shearwater stock and option holders and pay a cash consideration of $72.5 million. Inhale¿s shares (NASDAQ:INHL) opened Tuesday at $29.57. They closed at $31.23, up $1.66, or 5.6 percent.

Officials at Inhale said Shearwater¿s pipeline of two approved products and more than a dozen in clinical or preclinical development motivated the buy and could increase Inhale¿s pace toward profitability. Inhale Chairman Rob Chess told BioWorld Today Shearwater¿s technology also interested Inhale.

¿It was really a combination of things,¿ Chess said. ¿They really have a robust early and late-stage pipeline of 13 programs, 11 of which are in clinical testing and two of which are approved, and what we believe is a leadership role in pegylation.¿

One of Huntsville, Ala.-based Shearwater¿s marketed products has not been disclosed. The second product is PEG-Intron, or PEG-interferon alpha-2b, which is marketed by Schering-Plough Corp., of Madison, N.J., which partners with Enzon Corp., of Piscataway, N.J., on that product. Shearwater has a manufacturing role.

Shearwater also provides the technology for the products Pegasys (PEG-interferon alpha-2a), a hepatitis C therapeutic developed by F. Hoffmann-La Roche Ltd., of Basel, Switzerland, and PEG-hGHra, a therapeutic for acromegaly, a growth hormone disorder, for Pharmacia Corp., of Peapack, N.J., which has completed Phase III testing.

Roche filed an NDA for Pegasys in May 2000. (See BioWorld Today, May 23, 2000.)

Enzon has filed a patent infringment lawsuit against Shearwater related to certain PEG chemistries. Enzon also sued Roche for the Pegasys molecule.

PEG technology, which entails the attachment of polyethylene glycol polymer chains to a range of therapeutics. Pegylated drugs are designed to increase circulation time, improve drug solubility and stability and reduce immunogenicity.

Shearwater, founded in 1992, has about 90 employees.

The Shearwater pipeline will be combined with Inhale¿s, which is focused on development of drugs for inhalation.

¿In our inhalable insulin program, Pfizer [Inc., of New York] said about a month ago that they¿ve completed Phase III trials, and we have, in addition to that, inhalable Avonex with Biogen [Inc., of Cambridge, Mass.], inhalable Forteo with [Eli] Lilly [and Co., of Indianapolis], and an inhalable alpha-1 proteinase inhibitor with Aventis Behring [LLC, of San Carlos, Calif.],¿ Chess said. ¿With this acquisition we have 20 products ¿ two approved and 18 in clinical testing throughout three businesses.¿

Chess said the company will have about $350 million in cash after the transaction closes, which is expected in several weeks. He added that the expansion in the pipeline shouldn¿t stretch the company¿s clinical research budget.

¿Typically, the clinical programs are managed by our partners,¿ Chess said. ¿One of the beauties of our business model is that we can grow significantly with a number of collaborations and clinical pipeline additions without having the typical problem of stretching our clinical resources.¿

Inhale¿s president and CEO, Ajit Gill, added to Chess¿ fiscal optimism in a conference call Tuesday morning.

¿We do not expect the acquisition of Shearwater to affect our time to profitability,¿ Gill said. ¿If anything, it might accelerate it. I believe we¿ve found a diamond in the rough.¿