By Debbie Strickland

Special To BioWorld Today

Valentis Inc. will pay $19.8 million in stock to acquire a four-year-old London firm with a biologics-delivery platform that could potentially improve safety and efficacy of a range of products - among them, genes, proteins, peptides, peptidomimetics, antibodies, and replicating and non-replicating viruses.

The company, PolyMASC Pharmaceuticals plc, will be run as a wholly owned subsidiary. PolyMASC's CEO, Gillian Francis, will serve as managing director of the subsidiary and will join Valentis' board of directors.

Valentis itself is the Burlingame, Calif.-based product of the March merger of Megabios Corp., of Burlingame, and GeneMedicine Inc., of The Woodlands, Texas. That merger brought under one umbrella Megabios' in vivo plasmid-based gene-delivery systems and GeneMedicine's lipid-, polymer- and peptide-based gene-delivery systems. (See BioWorld Today, Oct. 27, 1998, p.1.)

As for PolyMASC, its core technology is a method for attaching polyethylene glycol chains to other molecules, particularly biologics. The PEGylation process masks the alien substance from the immune system, increases solubility and prolongs bioavailability. While there are competing PEGylation technologies, PolyMASC touts its method as offering key advantages, including better conservation of biological activity.

Valentis was especially drawn to the company's Vira-MASC program, which PEGylates viruses used to deliver genes. In addition to shielding the virus, the method conserves viral infectivity and offers improved tumor targeting for cancer gene therapeutics.

Delivery systems that can address the many difficulties of using genes and/or their associated proteins directly as therapeutics offer a wide market opportunity, noted Benjamin McGraw, chairman, president and CEO of Valentis.

"The biggest issue facing the pharmaceutical industry," he said, "is that they have all these genomics discoveries piling up, and they have a hard time converting them to small-molecule leads."

The PEGylation technology, Francis noted, could also be used to develop "supergenerics" of marketed protein drugs after they come off patent.

"During the decade after the millennium," she said, "there is going to be a wave of key protein patent expirations. PEGylation can be used to create supergenerics, which will last longer in the body and provide other advantages."

She cited the blood growth factors that produce billions in revenues annually as potential targets for the process.

McGraw noted that Schering-Plough Corp., of Madison, N.J., and Roche Holding Ltd., of Basel, Switzerland, are working separately on PEGylated versions of alpha-interferon, which would reduce the dosing frequency from three times a week to once a week.

"Most commonly," he added, "we would end up partnering with the innovator company to create line extensions with improved characteristics, [which would result in a] whole new patent life. We could do that from either the gene or protein side. In some cases the gene might work better, in other cases the protein."

Valentis Will Issue About 4.4 Million Shares

Each outstanding share of PolyMASC common stock will be exchanged for 0.209 newly issued shares of Valentis, for a total of 4.4 million shares. At Valentis' (NASDAQ:VLTS) opening price of $4.50 Tuesday, the deal was valued at $19.8 million. Valentis' stock gained 12.5 cents Tuesday to close at $4.625. Valentis will have 26.5 million shares outstanding after the acquisition.

Each company's board already has approved the deal, but it still must go before PolyMASC shareholders. The companies expect a third-quarter closing.

The price of 58.7 pence per share represents a 26.3 percent premium to PolyMASC's Monday close of 46.5 pence per share (LSE:PCP). The firm's shares closed Tuesday up 5 pence to 51.5.

The company has preclinical-stage products and collaborations with Transkaryotic Therapies Inc., of Cambridge, Mass., and Onyx Pharmaceuticals Inc., of Richmond, Calif. PolyMASC has 32 employees.

PolyMASC was founded in the summer of 1995 to commercialize discoveries made by a group of scientists in the Molecular Cell Pathology Laboratory of the Royal Free Hospital School of Medicine at the University of London. The firm conducted an initial public offering that December on the Alternative Investment Market - an unusual move.

"We were the first university spinout to go straight to the market for initial financing," said Francis, one of the founding scientists. The initial offering garnered #5 million (US$8 million); a second financing, a private placement with a single investor, brought #600,000.

According to Francis, "dwindling cash resources," plus the company's lack of pharmaceutical development and regulatory expertise, played into the merger decision.

"It would have been expensive and rather foolhardy," she said, to develop the capabilities required to see drugs through clinical trials and marketing approvals. "This merger will allow us to realize the full potential of our technology by supplying the skills we lack." n