By Lisa Seachrist

Washington Editor

GelTex Pharmaceuticals Inc. will acquire the virtual biotechnology company SunPharm Corp. in a stock swap worth $16.5 million.

SunPharm, of Ponte Vedra Beach, Fla., will become a wholly owned subsidiary of Waltham, Mass.-based GelTex once the merger is completed. The deal marries the polymer-binding expertise of GelTex with the polyamine and iron chelation technologies of SunPharm.

"The issue for everybody right now is pipeline," said Mark Skaletsky, president and CEO of GelTex. "We think their technology is really complementary to what we do. They have two agents in the clinic now and will be filing two INDs [investigational new drug applications] this year."

Under the terms of the merger, each share of SunPharm preferred stock outstanding immediately prior to the effective time of the merger will be automatically converted into between 0.183 and 0.217 shares of GelTex stock. Each share of SunPharm common stock will be automatically converted into between 0.122 and 0.145 shares of GelTex common stock. The acquisition will total $16.5 million and be accounted in the last quarter of fiscal 1999 using the "purchase accounting" method.

"The effective price we are paying is $2 a share," Skaletsky said. "We expect this deal to be completed in November. We also don't expect this to be too dilutive to our shareholders."

GelTex's stock (NASDAQ:GELX) closed Monday at $13.937 a share, down 31.25 cents. SunPharm's stock (NASDAQ:SUNP) closed at $1.625, down 12.5 cents.

Skaletsky noted GelTex currently has 16.8 million shares of common stock outstanding. The million shares going to SunPharm shareholders under the terms of the deal will bring GelTex up to 17.8 million shares outstanding.

SunPharm was founded in 1999 and essentially is a virtual company. The research is being carried out at the laboratory of Raymond Bergeron at the University of Florida. Early work at his lab demonstrated the potential value of iron chelators in sickle cell anemia, thalassemia and myelodisplasia. GelTex will continue to fund the work in Bergeron's lab as part of the agreement.

"Keeping the research at the University of Florida is absolutely vital," Skaletsky said. "They will be responsible for the early development and we will take over the clinical, regulatory and manufacturing aspects."

SunPharm's lead compound is a polyamine analogue, DENSPM, which is in Phase II clinical trials in collaboration with Warner-Lambert Co., of Morris Plains, N.J. It is being tested as a treatment for solid tumors. The company also has another polyamine analogue, DEHOP, in Phase II clinical trials as a treatment for chronic refractory AIDS-related diarrhea.

The company is in preclinical development with the iron chelator HBED as a therapy for iron overload associated with transfusion-dependent Cooley's anemia and sickle cell anemia. Another iron chelator, PCA, is in preclinical development as a treatment for ulcerative colitis.

GelTex currently markets RenaGel, a non-absorbed polymer-based phosphate binder for patients with end-stage renal disease. It recently submitted a new drug application for the cholesterol-lowering polymer, Cholestagel. (See BioWorld Today, Aug. 2, 1999, p. 1.)