By Jim Shrine

LeukoSite Inc. is doing its part in the industry's trend toward consolidation as it agreed to its second acquisition this year, a stock-and-cash deal valued initially at $2.7 million to buy ProScript Inc.

And, like its purchase of CytoMed Inc. in January, LeukoSite capitalized in part on the difficult financing environment facing early-stage biotechnology companies. All three companies are located in Cambridge, Mass.

Separately, LeukoSite raised $14.4 million in a private placement of about 1.5 million shares to two institutional investors, Perseus Capital LLC, of Washington, and HealthCare Ventures LLC, of Princeton, N.J. That stock was purchased at about $9.60 per share, a discount of about 11 percent to the average price when the deal was being negotiated.

Dan Burns, president and CEO of ProScript, told BioWorld Today the current environment in biotechnology dictates that companies with early science and little capital merge with "counterparts that have strength." Also, he said, "we were in a position where we needed to raise capital within a few months. We had finalized a corporate deal on one of our compounds, so that was another route we could have taken to generate revenue. But we felt the scientific programs of both companies and the long-term strategies had significant synergies," making LeukoSite the most attractive option, he said.

Stockholders in privately held ProScript will receive about 187,000 shares of LeukoSite stock and $430,000 in cash. An average price of $12.29 for LeukoSite stock was assigned to the deal, leading to the announced value of $2.73 million. The stock (NASDAQ:LKST) gained 50 cents per share on the news Tuesday, to close at $11.50, valuing the deal that day at $2.58 million.

But Burns said strength of the acquisition financially for ProScript is in future milestones and royalties related to its collaboration with Hoechst Marion Roussel Inc., of Frankfurt, Germany, and its two classes of proteasome inhibitors, one of which is in Phase I trials. Milestones to ProScript will start as early as Phase IIb trials, he said.

LeukoSite will have about 14.6 million shares outstanding when the deal closes, and more than $58 million in cash.

HealthCare Ventures owns about 50 percent of ProScript, and also has been a significant investor in LeukoSite. After the deal the venture capital company would own about 20 percent of the combined company, said Gus Lawlor, LeukoSite's vice president of corporate communications and chief financial officer.

"In ProScript," Lawlor said, "we were attracted to a number of things. First and most importantly we got a very attractive clinical compound in cancer [PS-341], with a novel mechanism of action that is recognized as having extraordinary potential. The late-stage compound strengthens our pipeline, and that is important to us."

LeukoSite also brings the anti-inflammatory compound PS-519, from a different class of proteasome inhibitors, that Lawlor said helps build the company's pipeline in the autoimmune area. That candidate is expected to be taken into the clinic later this year, with initial targeted indications likely being stroke and myocardial infarction, Burns said.

ProScript's deal with Hoechst is focused on the ubiquitin-proteasome pathway, a technology platform - licensed mostly from Harvard University - upon which ProScript was founded in 1992. That pathway plays a role through the activation of NF-kappaB, which is responsible for transcriptionally activating pro-inflammatory cytokines, cell adhesion molecules and enzymes. Their deal, signed in November 1995, was amended in 1997 and its research portion extended one year last November.

LeukoSite, meanwhile, is looking toward filing a biologics license application this year for its lead compound, Campath, a humanized monoclonal antibody with an initial indication of refractory chronic lymphocytic leukemia. It is being developed with Ilex Oncology Inc., of San Antonio.

LeukoSite also is developing LDP-02, which is in Phase II in inflammatory bowel disease and partnered with Genentech Inc., of South San Francisco; LDP-01, an unpartnered compound in Phase II in kidney transplant and stroke patients; and the small molecule compound LDP-977, which came over with CytoMed and is expected to move into Phase IIa trials in asthma this year.

LeukoSite earlier this year entered a collaboration worth up to $100 million with Warner-Lambert Co., of Morris Plains, N.J., in the area of small molecule inhibitors of certain cell adhesion molecules. (See BioWorld Today, Jan 13, 1999, p. 1.)

A week before that deal LeukoSite acquired CytoMed for stock valued at $16.4 million at the time, but including another $23.5 million in potential payments to CytoMed shareholders. (See BioWorld Today, Jan. 6, 1999, p. 1.)

Burns said one of the attractive aspects to the new deal was that nearly all of ProScript's 25 employees will stay on at LeukoSite, including all the scientists, which will help the programs' continuity. That employees won't have to relocate helped, too, he said.

"[ProScript] compounds and this technology have tremendous potential," Lawlor said. "If they had been able to fund themselves they would have remained independent.

"Our objective is not to consolidate the industry, but rather build a solid clinical pipeline and research and development capability," Lawlor said. "We see value in biotech companies today that can be had for a relatively modest sum."