LONDON - Peptide Therapeutics Group plc has secured its future in an alliance with Baxter Healthcare Corp. under which Baxter will invest #27.8 million (US$40.5 million) in Peptide, and help to unmothball Peptide's vaccines manufacturing plant in Canton, Mass., paving the way for a contract manufacturing deal between the two parties.

This deal has put an end to the merger talks between Peptide and Cantab Pharmaceuticals plc, announced in March.

At the same time, Peptide announced a 20-year contract with an estimated value of US$343 million with the U.S. Centers for Disease Control and Prevention, to develop and manufacture a new smallpox vaccine. Although the disease was eradicated more than 20 years ago, the U.S. government believes stores of the virus held in the former Soviet Union may have fallen into the wrong hands, posing the threat of bioterrorism.

Peptide, based in Cambridge, UK, said it intends to change its name to Acambis plc. The new name also will be adopted by the company's U.S. subsidiary OraVax Inc., based in Cambridge, Mass.

Commenting on the deal with Deerfield, Ill.-based Baxter, Gordon Cameron, finance director of Peptide, told BioWorld International: "This will be a close relationship, but we remain independent. We have granted Baxter an option to be marketing partner for ArilVax [yellow fever vaccine], but the rest of our product portfolio is either unpartnered or has another partner."

The investment means Peptide can afford to take projects further before they are partnered, and as a result it has reached an agreement with Aventis Pasteur to take back rights to ChimeriVax JE, a single-dose vaccine against Japanese encephalitis, currently in Phase I. Aventis will continue to fund Phase I under the existing deal, but has then agreed to hand 100 percent of the rights back to Peptide.

Baxter will subscribe for new ordinary shares in Peptide in four tranches over three years, at an average price of #1.30 per share. The first subscription, for #10.4 million (US$15.2 million), is expected to be completed on Dec. 4, and will give Baxter around 10 percent of Peptide. If there are no other changes in Peptide's share capital by June 2003, Baxter will own 20 percent of Peptide. Shares in Peptide rose 10 pence to 99.5 pence on Sept. 21, when the deal was announced.

About $10 million of the money will go to capital expenditure to update the Canton manufacturing plant, which is currently unused. Peptide was trying to sell the facility, acquired when it took over OraVax in 1999. "We're very glad now we were not able to sell it," Cameron said. "It is turning into a potentially very valuable asset."

It will take two years to get the plant running again, with Baxter sharing commissioning costs. While it initially will be modified to enable Peptide to meet the requirements of the contract with Baxter, it also will be capable of manufacturing antiviral vaccines, including Peptide's Japanese encephalitis and West Nile virus vaccines.

Manufacturing revenues from the plant are expected to start flowing in 2004, and Peptide is forecasting revenues of more than $200 million from the Baxter contract up to 2010.

The R&D phase of the U.S. government smallpox contract is worth $50 million, and is expected to last four to five years. The new vaccine will be based on the same vaccinia virus strain that was used before smallpox was eradicated in the 1970s. OraVax will be responsible for preclinical and clinical testing, and Cameron said the first trials are expected to begin later this year.

Initial vaccine production is expected in mid-2004. A stockpile of 40 million doses will be established and OraVax will then be responsible for replacing outdated doses and be expected to be able to respond to increased demand on need.

Cameron said Peptide is changing its name because it no longer reflects the company's activities, and because it is confusing for U.S. investors that the U.S. and UK arms have different names. To further assist U.S. investors, Peptide is seeking a Nasdaq listing in the form of American Depository Receipts.

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