BioWorld International Correspondent

LONDON - Xenova Group plc and Cantab Pharmaceuticals plc are merging in an all-share deal that values the combined group at £124 million (US$179 million).

The combination creates a 185-strong company with seven compounds in the clinic, including one about to enter Phase III, and over £30 million in cash.

Cantab investors will receive 11 new Xenova shares for every seven Cantab shares, valuing Cantab at £62 million. That represents a 16 percent premium to Friday's closing price of £1.20, and a premium of 52 percent to the closing price on the day when Cantab announced it was putting itself up for sale last year. The deal is subject to shareholder approval.

David Oxlade, CEO of Xenova, based in Slough, UK, will be CEO of the merged company while Nick Hart, acting CEO of Cantab, will be commercial director.

Andy Burrows, communications manager of Cantab, told BioWorld International, "There is no cash involved but that is always likely when two biotechnology companies get together. The merger is based on the need to grow bigger in terms of the overall product portfolio, and to reduce the risk to shareholders.

"What this deal does is create a company with a strong, though not exclusive, focus on cancer," he said.

Cantab specializes in genetically engineered vaccines, based on its DISC technology in which viruses are disabled so they can undergo one cycle of replication, generating an immune response, but are unable to replicate further. Xenova is a specialist in small molecules, originally derived from natural sources.

Xenova's lead product, XR9576, for the prevention of multidrug resistance in cancer, has just completed Phase II, and the company hopes to partner it soon, before commencing Phase III.

"The merged company will have a multifaceted approach to cancer," said Burrows. "This gives us a strong opportunity for success, with different strategies and a number of different approaches. We will have seven products in the clinic, with the potential to add two more by the end of 2001. If you look across the European biopharmaceutical sector, there is only one other company [Celltech Group plc] with that broad a pipeline."

Both facilities will be retained, with Cantab, in Cambridge, England, concentrating on biologicals, while Xenova will keep its focus on small molecules. The product portfolio will be merged and managed by a unified development team. Burrows said there will be some cost cutting in corporate functions, and possibly some job cuts, but it was not clear yet how many.

Cantab put itself up for sale after its vaccine for genital warts, partnered to SmithKline Beecham plc, failed in Phase II. It then tried unsuccessfully to merge with another Cambridge company, Peptide Therapeutics plc (now Acambis plc), forcing the resignation of Cantab CEO Jurek Sikorski.

Burrows said there had been approaches from more than 20 companies, but the list was "soon whittled down."

"In the end we see the combination with Xenova as very complementary. There is not a lot of overlap, but we have one commonality: Everything we have is based on very strong science."