By Lisa Seachrist

Washington Editor

Looking to fuel its bid to become a global leader in developing and commercializing anti-infective therapies, Cubist Pharmaceuticals Inc. will acquire TerraGen Discovery Inc. for $29 million in stock.

Under the terms of the agreement, Cambridge, Mass.-based Cubist will issue TerraGen stockholders approximately 608,000 shares of common stock worth $29 million, which is 2.1 percent of the post-transaction outstanding primary share count for Cubist.

Cubist's stock (NASDAQ:CBST) closed Tuesday at $52.172, up $1.422. At that price the shares are worth about $31.7 million.

Both companies' boards have agreed to the merger. In addition, 75 percent of TerraGen's stockholders already have approved the merger, which is expected to close sometime in the third quarter of this year. The merger is subject to federal review under the Hart-Scott-Rodino Antitrust Improvement Act.

"This is a very exciting day for our companies," said Scott Rocklage, chairman, president and CEO for Cubist. "This acquisition will accelerate our efforts to become the global leader in discovery and commercialization of anti-infectives. Through TerraGen, we immediately establish a global presence and a source of novel biologically active compounds."

TerraGen is a privately held company based in Vancouver, British Columbia, with operations in Slough, England. The company's technology includes methods to collect environmental samples and clone large DNA samples to create its NatGen collection of organisms that produce novel compounds. In addition, the company's chemical extract library, called NatChem, also can be screened as drug candidates.

TerraGen's technology is particularly useful because more than 99 percent of the microbes present in the environment can't be grown in the laboratory. As a result, less than 1 percent of existing natural microbial metabolites have been screened as potential drug candidates. Because most antibiotics are derived from natural sources, the remaining 99 percent of microbial metabolites offer a source for new antibiotics as well as other pharmaceuticals.

"TerraGen's technology really exploits the biological diversity in nature," Rocklage said. "Our lead product, Cidecin, is a natural product, so there is some real synergy between our companies."

Cidecin, or daptomycin, is a novel cyclic lipopeptide antibiotic derived from a fermentation product of Streptomyces roseosporus. The drug has shown activity against all Gram-positive bacteria, and Cubist has ongoing Phase III trials of the intravenously administered drug as a treatment for community-acquired pneumonia, complicated urinary tract infections and skin and soft tissue infections.

Cubist also is developing synthetic, or second-generation, lipopeptides for other indications. Rocklage said the acquisition of TerraGen will allow the Cubist to further its lipopeptide work.

When it comes to indications outside the anti-infective arena, Cubist intends to form traditional partnerships for the TerraGen compounds. However, Rocklage said the company will insist on having a commercialization role for any anti-infective indications.

"We definitely intend to retain a commercialization component in any deals we make for anti-infectives," Rocklage said. "We won't do anything for strictly a license fee and royalties."

Thomas Dietz, director of Pacific Growth Equities Inc. in San Francisco, called the merger "a great deal for Cubist."

"They got a huge value add here for very little money," Dietz said. "From Cubist's standpoint, I think they got a steal here. This acquisition will pay for itself very quickly."

Dietz noted the deal will provide considerable strength to Cubist's discovery efforts. He said, "TerraGen is bringing in a pretty substantial amount of intellectual property as well as chemical and biological diversity."

TerraGen has two collaborations with one partner, Schering-Plough Corp., of Madison, N.J. Those agreements allow Schering-Plough to screen TerraGen's NatChem library for anti-infective compounds. Rocklage said those deals represent only about 20 percent of the novel compounds TerraGen holds.