By Lisa Seachrist

Washington Editor

Xenova plc sold its U.S.-based subsidiary, MetaXen, to Exelixis Pharmaceuticals Inc. as part of a plan to significantly reduce its cash burn and focus resources on drug development.

Xenova has two products about to enter Phase II clinical studies as novel therapeutics for cancer. The company intends to develop through Phase II and partner further development.

"What you are seeing is the completion of the financial housekeeping that we began with the sale of our Xenova Discovery division in March," said Daniel Abrams, finance director for Slough, England-based Xenova. "We have essentially become a U.K.-located company. However, we do intend to keep our Nasdaq listing."

For its part, South San Francisco-based functional genomics specialist Exelixis will acquire MetaXen's personnel, equipment and facilities in an attempt to bolster its move from a company with chemistry expertise into one that develops its own propriety products.

"MetaXen's technology and expertise are perfectly complementary to ours," said George Scangos, president and CEO of privately held Exelixis. "This gives us a year and a half to two year head start in creating a group that can develop assays to screen drug candidates."

Under the terms of the agreement, Exelixis will acquire MetaXen for $380,000 in cash. Xenova will retain ownership of certain intellectual property relating to drug optimization, drug profiling and predictive modeling that have been developed by MetaXen. In the future, Exelixis may choose to license some of that technology.

Xenova also will retain rights to cardiovascular research on plasminogen activator inhibitor (PAI-I), which was being conducted at MetaXen in concert with Eli Lilly and Co., of Indianapolis. As anticipated in the February agreement between the two companies, development of PAI-I is being taken in house by Lilly.

Xenova will continue to develop PAI-I technology for oncology applications at its facilities in Slough.

"The fact that Lilly is taking the research in house is really a positive sign," Abrams said. "It is equally positive that we are having a significant reduction in cash burn."

Abrams said that without funding Xenova Discovery and MetaXen, Xenova could reduce its annual burn rate of $21.18 million by half. This year, however, Abrams is expecting to see a reduction of 20 percent to 25 percent.

Xenova is in clinical development with XR5000, a cytotoxic inhibitor of both topoisomerase I and topoisomerase II, and XR9576, a p-glycoprotein inhibitor.

For Exelixis, MetaXen's personnel and equipment offers the company an opportunity to maximize the utility of its proprietary assays. Plus, MetaXen shares the same building with Exelixis.

"This is a very good start for us," Scangos said. "The expertise, corporate culture and geographic proximity all work to make this an obvious fit for us."

Scangos said Exelixis' strategy includes not only developing drug targets for corporate partners, but also to develop some of its own drug candidates from its proprietary targets. MetaXen will provide the first step in moving from targets to candidates, he said.

Xenova's stock (NASDAQ:XNVA) closed unchanged Monday at $1.375 a share.