By Kim Coghill

Washington Editor

In a strategic move to further develop its cell, tissue and organ transplantation business beyond its current level, BioTransplant Inc. said Monday it will acquire Eligix Inc., a privately held biomedical device company, in a deal initially valued at about $55.3 million.

Subject to stockholder approval and customary closing conditions expected late in the first quarter, BioTransplant will issue 6.6 million shares of its common stock to holders of the shares of capital stock to Eligix.

BioTransplant's stock (NASDAQ:BTRN) closed unchanged Monday at $8.375.

"There are a lot of strategic points in this acquisition," said Elliot Lebowitz, president and CEO of Charlestown, Mass.-based BioTransplant.

The first, and highly significant fit between the companies involves BioTransplant's AlloMune System, which is designed to allow transplantation more safely and with fewer side effects, and involves treatment of both the donor and bone marrow recipient.

BioTransplant will acquire Eligix's HDM (high-density microparticle) cell separation devices, which will help in the drive to commercialize AlloMune. The Eligix device selectively removes either desirable or undesirable cells from transplantation material.

"In terms of AlloMune, we've been doing studies with the MEDI-507 antibody as part of the AlloMune system, and we are coming to the conclusion of those studies so that now we are ready to put a device in," Lebowitz said. "With the device, we expect to achieve both engraftment of the bone marrow stem cells and minimize graft-vs.-host disease."

The device, he said, will condition the donor stem cells to be accepted and not attack the recipient. "At the end of the day, we would develop a standardized stem cell transplant to enable consistent clinical outcomes as well as predictable and controlled health care costs."

Eligix's core technologies originated as a result of research at Coulter Corp., in collaboration with physicians at Harvard University's Dana-Farber Cancer Institute, and Johns Hopkins University.

The AlloMune System is under clinical evaluation for therapy-refractory lymphoma and kidney transplantation with potential applications in other types of cancer and autoimmune disease. Studies have shown that by allowing allogeneic (non-self) transplantation of donor bone marrow, the AlloMune System for cancer applications permits introduction of healthy donor cells that can attack tumor cells more aggressively than the patient's own immune cells.

As part of the merger, Lebowitz also said BioTransplant will acquire Eligix's pipeline, including two late-stage products expected to enter Phase III clinical trials next year, and other products in early stage development. One product is BCell-HDM, which is designed for purging malignant B cells from autologous stem cell transplants for lymphoma, myeloma and certain leukemias. The other is TCell-HDM, which is designed for graft-vs.-host disease-causing cells from therapeutic donor leukocyte infusions.

Lebowitz said he expects BCell and TCell to receive the CE mark in 2001 and to begin generating revenues in Europe. The products should be in clinical trials in the U.S. next year.

"Other than the products, there is also the commercial infrastructure of Eligix, and its U.S. and European presence, where BioTransplant has been predominately a U.S. company," Lebowitz said. "The companies have complementary management and complementary technologies, and collaborative relationships which will strengthen the R&D capabilities."

BioTransplant in September entered a joint venture with Novartis Pharma AG, of Basel, Switzerland, to advance xenotransplant research. Under terms of the deal, Novartis keeps rights to commercialize products, and will pay royalties to BioTransplant, which will keep its allotransplantation program going separately.

BioTransplant uses its proprietary technologies under development to re-educate the body's immune responses to allow tolerance of foreign cells, tissues and organs. The company's products under development are intended to induce long-term functional transplantation tolerance in humans, increase the therapeutic benefit of bone marrow transplants, and reduce or eliminate the need for lifelong immunosuppressive therapy.