By Karen Pihl-Carey

Almost six months after an FDA panel refused to endorse The Liposome Co. Inc.¿s Evacet, the company entered into a definitive merger agreement with Elan Corp. plc.

¿They were looking to grow in the oncology area, and we were looking to join a company that could provide additional growth and development of our existing technology,¿ said Lawrence Hoffman, vice president of finance and chief financial officer at Liposome. ¿Really, I think it was a marriage that both were seeking.¿

As part of the agreement, which has an aggregate value of about $575 million in a tax-free, stock-for-stock transaction, Elan will pay Liposome shareholders up to $98 million more in cash upon approval of Evacet in Europe and upon reaching certain sales milestones outside the U.S.

Liposome said in February it needs additional clinical data for Evacet in order to obtain U.S. marketing approval. Evacet is being developed to treat metastatic breast cancer and other cancers.

Elan¿s interest in Liposome stems from the Princeton, N.J.-based company¿s focus in oncology, an area in which Elan is trying to build a presence. Elan, of Dublin, Ireland, focuses in the areas of neurology and pain management, as well as advanced drug delivery systems.

¿We had identified oncology earlier as the next therapeutic area we had wanted to enter,¿ said Max Gershenoff, spokesman for Elan. ¿Liposome is a building block toward entering that area.¿

Elan plans to acquire all of Liposome¿s outstanding stock. The company has about 39.5 million outstanding shares. Liposome shareholders will receive .3850 of an Elan American depositary share for each share of stock they own. Based on Elan¿s closing stock price on Friday of $39.687, the transaction has a value of $15.28 per Liposome share, including options and warrants and adjusting for net cash on Liposome¿s balance sheet.

Elan¿s stock (NYSE:ELN) closed Monday at $40.937, up $1.25. Liposome¿s stock (NASDAQ:LIPO) closed at $15, up 62.5 cents.

Liposome has cash of about $76 million, Hoffman said. The transaction value does not include the $98 million cash payment for Evacet milestones. The transaction, subject to regulatory and shareholder approvals, is expected to close in the second quarter.

Elan intends for Liposome to operate as a separate business unit, retaining its headquarters and staff, Gershenoff said.

¿If you look at Elan¿s track record as far as its acquisitions in the past, that has been the case,¿ he said.

To Elan, Liposome brings an approved product, a sales force, manufacturing capabilities and a research organization that already is profitable. The company will benefit Elan in its marketing of ziconotide to treat severe chronic cancer pain. Ziconotide, a novel N-type neuronal calcium channel blocker, is under a six-month FDA review. Elan also expects to look for projects that bring together Liposome products with Elan¿s drug delivery activities.

Liposome¿s approved product, Abelcet, is a lipid-based formulation of amphotericin B that had 1999 sales of $86.2 million. It is marketed in the U.S. and 25 other countries for the treatment of severe, systemic fungal infections in patients who are refractory to or intolerant of conventional therapy. The product was approved in 1995. (See BioWorld Today, Nov. 22, 1995, p. 1.)

Evacet, a liposomal doxorubicin, will continue to be developed for markets outside the U.S. Elan¿s sales force in Europe intends to market the product.

¿We sought approval in the European Union, and we would expect to hear sometime late in the third quarter as to whether we will get approval,¿ Hoffman told BioWorld Today.

In September, an FDA panel refused to endorse Evacet, citing survival data. Liposome planned on resubmitting the new drug application late last year, then discovered it needed additional clinical data to do so. (See BioWorld Today, Sept. 17, 1999, p. 1; and Oct. 18, 1999, p. 1.)

Hoffman said Elan will ¿be determining with us what¿s the best way to get the product on the market in the U.S.¿

Liposome also brings to Elan two other pipeline products: TLC ELL-12, liposomal ether lipid, which is in Phase I to treat several types of cancer; and bromotaxane, a hydrophobic derivative of paclitaxel, which is in development for cancer.

Elan said it entered into an agreement with Ross Financial Corp., Liposome¿s major shareholder, to vote in favor of the transaction. The company plans on accounting for the transaction using the purchase method. It will incur a one-time charge for the write-off of acquired research and development activities.

The acquisition of Liposome is similar to two others involving companies developing liposomal amphotericin B products. Gilead Sciences Inc., of Foster City, Calif., acquired NeXstar Pharmaceuticals Inc., of Boulder, Colo., in a $550 million stock deal that closed last year. And Alza Corp., of Palo Alto, Calif., bought Sequus Pharmaceuticals Inc., of Menlo Park, Calif., in October 1998. (See BioWorld Today, March 2, 1999, p. 1; and Oct. 5, 1998, p. 1.)

NeXstar¿s AmBisome and Sequus¿ Amphotec were approved in August 1997 and November 1996, respectively.