By Mary Welch

Inhale Therapeutic Systems Inc. is paying Alliance Pharmaceutical Corp. $20 million for PulmoSpheres, a particle and particle processing technology for use in respiratory drug delivery.

The deal calls for Inhale, of San Carlos, Calif., to pay Alliance $15 million in cash and $5 million in Inhale stock, or about 172,414 shares. Inhale currently has just over 17.1 million shares outstanding. In addition, Alliance will receive potential milestone payments and royalties on sales of a defined number of products commercialized using the technology.

"It's the best of both worlds," said Gwen Rosenberg, vice president of communications for San Diego-based Alliance. "Inhale is a company that has technology that is similar to what we were doing. They are in the perfect position to exploit and commercialize the technology. Not only does it give us the immediate benefit of the cash, but it plugs us into their success with milestones that will equal several million dollars. In addition, we can use the technology for two products in the respiratory field as well as other fields."

For its part, Inhale receives the rights to PulmoSpheres technology for respiratory delivery, other related assets, and $5 million of Alliance stock, or about 1 million shares. Alliance has about 41 million shares outstanding. When the deal closes, Alliance will receive $10 million in cash and Inhale will get Alliance's stock.

Inhale's stock (NASDAQ:INHL) closed Tuesday at $29.375, up 31.25 cents. Alliance's stock (NASDAQ:ALLP) closed at $4.937, down 12.5 cents.

"Alliance's technology interested us for several reasons," said Robert Chess, chairman and co-chief executive officer for Inhale. "First, it enhances our leadership position in the pulmonary delivery of macromolecules, like proteins and peptides. This technology has a wide range of dispersability - macromolecules as well as small molecules. In fact, that's the second attraction. It allows us to deliver small-molecule therapeutics for respiratory and systemic diseases."

The final selling point is that PulmoSpheres potentially could solve a formulation challenge that limits the application of metered-dose inhalers, Chess said. "It's an important addition for our technology. It allows us to significantly expand into new areas. "

The PulmoSpheres technology can be used by Inhale with only slight modifications to Inhale's existing powder processing filling and packaging system.

The stock prices for both companies will be calculated as an average of the closing prices on the 15 trading days prior to the issuance date. The deal is expected to close within 30 days.

Alliance also keeps the right to develop up to two yet-to-be-identified respiratory products that will be formulated by Inhale using the PulmoSpheres technology.

Last week Inhale said it would sell $100 million worth of convertible subordinated debentures. (See BioWorld Today, Sept. 30, 1999, p. 1.)

Inhale expects to complete that financing deal before Alliance and Inhale consummate their collaborative one. If that timetable is correct, Alliance will receive the remaining $5 million in cash and $5 million worth of Inhale stock at the closing. If Inhale has not finished its financing before it closes its deal with Alliance, then the $5 million will be paid at the time of the second closing, or one year later.

PulmoSpheres are microscopic dry spheres that can encapsulate antibiotics, peptides and proteins as well as other drugs for use with inhalation devices. The spheres are suspended in a fluorochemical liquid for administration into the lungs. PulmoSpheres are designed to be incorporated into metered-dose inhalers, dry-powder inhalers, nebulizers and other drug delivery devices for the treatment of pulmonary and systemic diseases.

Alliance will use the money to continue the clinical development and commercialization of its three lead products. Alliance's Imagent, which is being developed with Schering AG, of Berlin, is an ultrasound contrast agent. Alliance is preparing to submit a new drug application this month.

Its other two products, LiquiVent, a liquid ventilation agent for the treatment of acute lung injury and acute respiratory distress syndrome, and Oxygent, an intravascular oxygen carrier designed to reduce the need for donor blood transfusions in surgical patients, are both in Phase III trials.

"We have several other products in our pipeline but we'll be very busy with our Phase III products," Rosenberg said.

Earlier this year Alliance raised $23.3 million in order to fund the Phase III trials. (See BioWorld Today, June 14, 1999, p. 1.)