By Matthew Willett

The courtship was quick when Antigenics Inc. decided to purchase Aquila Biopharmaceuticals Inc. in a stock transaction valued at about $40 million.

Then again, when the glove fits, buy it.

"Our emphasis is trying to market products in the U.S. for oncology, and their products are licensed everywhere," Antigenics CEO Garo Armen said. "We're delighted with this transaction. It adds a lot of strength to our leadership position in the area of immunotherapies. Both of our companies have been characterized by well-publicized science, validated by many parties, so to bring in two such highly valued companies together is very, very exciting. I think it fits like a glove."

The acquisition will entail the issuance of 2.5 million shares of Antigenics, giving Aquila nearly 9 percent of the combined company on a fully diluted basis.

Based on Antigenics' opening price Monday, of $15.875, the stock deal was valued at $39.7 million. Antigenics' stock (NASDAQ:AGEN) gained 31.25 cents Monday to $16.187, upping the value of Aquila's stake to about $40.5 million. Aquila's stock (NASDAQ:AQLA) rose 6 cents, closing at $4.437.

Aquila President and CEO Alison Taunton-Rigby said the arrangement was one made in economic heaven. As a small company, she said, Aquila missed the attention Wall Street heaps on larger companies. The sale, she said, should change that.

"We had it in the back of our mind for a long time that we were an orphaned biotech company, orphaned by Wall Street," Taunton-Rigby said. "Aquila is the successor to Cambridge Biotech, and since we came out of bankruptcy, we've had the same market cap. We track with the industry, but we've always been among the smallest biotech companies, and when you're under $100 million, no matter what technology you've got in the company, it's hard to get the attention of analysts and bankers.

"Antigenics has a market cap close to $400 million, and adding us should bring them to about $450 million. They have analyst coverage and attention from Wall Street, and they're big enough for bigger funds to be interested in them," she said.

New York-based Antigenics said it found Aquila attractive after seeing a mention of the company in an industry publication.

"The first time we were alerted to this was from an article in BioWorld Today I read about the board of Aquila contemplating their options to continue operations by themselves," Armen said. "When I read that I instructed our corporate development department to inquire about them, and shortly after that we had a meeting. Because of our cultural compatibility and the perfect fit between the organizations to create a premier company in the immunology field, in the cancer field and in degenerative diseases, the combined company would be a premier player in the field of immunology. It was determined that for the benefit of their shareholders and the benefit of ours, this would be the transaction to pursue, and we're delighted they chose us."

Taunton-Rigby said Aquila chose Antigenics from a pool of more than 10 potential buyers, largely for the company's valuation.

"If we look at the immediate short term, this was at a small premium to where we were trading and a very significant premium to the long term," she said. "In the long term the benefit to our shareholders is dependent on the share price of Antigenics' stock. That's why it was so important to be a part of a company that was undervalued on Wall Street. As news comes out on our projects, it will push the price up."

Acquiring Framingham, Mass.-based Aquila will significantly expand Antigenics' pipeline as well.

"We both have the philosophy that it adds value by taking things through the clinic yourself, manufacturing products yourself, if you can, and marketing them directly," Taunton-Rigby said. "When we put together the pipelines, we have a huge number of clinical programs between us, and the pipelines fit."

Aquila currently is testing adjuvants for immune modulation and its CD1 system for identifying and presenting specific lipid-based antigens. Aquila's Stimulon family of adjuvants, QS-21, have shown enhancement to the quality and quantity of immune response to a variety of antigens, both in preclinical and human clinical trials.

Its feline leukemia recombinant subunit vaccine is marketed in Europe currently, and Aquila is conducting Phase I trials on a malaria vaccine. The company also is altering formulations for a Pneumococcal vaccine that uses QS-21 adjuvants for additional Phase II study.

Aquila has partnerships with 10 companies on projects that include therapeutics for human papillomavirus, HIV-1, malaria, herpes and hepatitis B.

Antigenics is developing immunotherapeutic vaccines based on a class of proteins called heat shock proteins. Its lead product, Oncophage, is in Phase III trials in renal cell carcinoma and seven Phase II or I/II studies in five different cancers.

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