By Brady Huggett

Demegen Inc. plans to acquire Periodontix Inc. in a move that Demegen said should shorten its time frame for product approval and increase investor interest, among other things.

As of the first of January, Demegen, of Pittsburgh, licensed Watertown, Mass.-based Periodontix's technologies with an option to buy the rest of Periodontix through mid-year. But besides the act of making the payments, said Demegen's President Richard Ekstrom, the deal is done.

"For a practical matter, we have already [bought the company]," he told BioWorld Today. "The employees of Periodontix have been terminated and are now employees of Demegen."

The odd construction of the deal, with an initial payment and then the option to buy it in whole over time, was just a necessary part of negotiations, Ekstrom said.

"It is structured this way because it was a negotiating strategy to get from point A to point B," he said. "We had to go around the box a couple of times to get everyone comfortable.

"We are starting with a license for almost all of their technologies except for a little piece," he added. "We made a payment now, and will make a second one in April, and then by mid-year, if everyone is happy, we will complete the acquisition."

Demegen develops drugs to treat cancer, as well as bacterial and fungal infections. It is preparing investigational new drug applications for products to treat infected wounds; prevent chlamydia, HIV and other sexually transmitted infections; and for cancers. Periodontix has an antimicrobial peptide, P-113, based on naturally occurring proteins found in human saliva.

A number of products using P-113 are in or are entering the clinic. Periodontix has HistaWash Mouthwash for gingivitis that has completed Phase II, Histat Toothpaste about to begin Phase I, an oral rinse using P-113 to treat oral candidiasis that is expected to start Phase I/II this year, and it is developing P-113 for oral mucositis that also should begin Phase I/II in 2001. Also, a variant of P-113 is being developed to treat chronic lung infections in cystic fibrosis patients. P-113 has promise, and that is one of the things that attracted Demegen, Ekstrom said.

"The key for a biotech company is to have molecules to work through clinical trials," Ekstrom said. "They have a compound already in trials. There are a lot of great reasons for buying this company. We bring together our scientists and their scientists and have a stronger core of peptides. We should attract a bigger investment pool because our market cap should be higher and there is less risk for investors. There is a good blend of skills between what we had and what they had and we can operate more efficiently together."

Working more efficiently together, unfortunately, means streamlining the two companies.

"There were about eight people [at Periodontix] just prior to the conclusion of this deal," Ekstrom said. "Five of them will continue with Demegen. Two people took up jobs elsewhere and their CEO is not coming with the new company. We didn't need two CEOs and that is always one of the hard things. The bottleneck is always at the top. But we feel we have the core."

Taking on Periodontix also fortifies Demegen's intellectual properties and gives it a compound to wave at potential partners.

"The number of patents we have has now almost doubled," Ekstrom said. "We had 13 and I think they have 11 now issued.

"Their product may reach approval sooner than one of our products," he added. "There are opportunities for partners for their product and we are actively seeking one. We've already had discussions with two companies.

Demegen's stock (OTCBB:DBOT) twitched upward 1.75 cents Friday to close at 93.75 cents. n