By Jennifer Van Brunt

Editor

A tiny company that was founded under the name Immunoscience Corp. some 13 years ago is now poised to undergo yet another metamorphosis. In a few months, the firm will take on the official name of Nexell Therapeutics Inc. In the years that stretched between 1986 and 1999, however, the company went through a number of transformations, through acquisitions of smaller companies and their technologies as well as by forming several joint ventures. All these moves represented management's underlying urge to create a business plan that matched the current sentiment of the financial community and was focused on creating shareholder value.

The company, currently known as Vimrx Pharmaceuticals Inc., was once known best for its synthetic version of a compound derived from St. John's wort, which had been tested in AIDS patients and is now in clinical trials for glioblastoma. It then gained notice by setting up a joint venture in genomics with Columbia University, of New York City. From there, it jumped into cell therapy through a far-reaching deal with Baxter Healthcare Corp. And now, it's announced plans to acquire complete ownership of that business, Nexell Therapeutics, move its corporate headquarters to Nexell's home base in Irvine, Calif., and devote most of its energies into growing the cell separation and cell therapy business. When that metamorphosis is complete, the company will have taken what should be its last step on a long journey. It will have created a core business that generates sales revenues and a simplified corporate structure that investors should find easier to comprehend.

As such, Vimrx Pharmaceuticals is a prime example of the ways in which a biotech company has to respond and react to external pressures from the investment community. Business plans that fall out of favor do not get funded. A look back at the biotech industry over the last 15 or 20 years shows the shifts very clearly from the fully integrated pharmaceutical company (FIPCO) model of yore to the tightly focused, revenue-generating model that works today.

If anything has become apparent in the last year, it's the glaring fact that Wall Street is just not interested in pouring money into biotech companies that don't have near-term profit-making potential. And while everyone who follows this industry sector agrees that the technological and scientific breakthroughs should and must continue, investors are no longer willing to support that effort.

That attitude is one of the driving forces behind the stepped-up pace of mergers and acquisitions in the biotech sector. Not surprisingly, the last two years have seen a sharp increase in the number of mergers and acquisitions between one biotech company and another. Many of them have represented the joining of two struggling firms, which hope to streamline operations, cut redundancies, and hone a more efficient business out of the mix. Recently, however, it's also been a case of two strong companies joining forces to create an entity with even more presence such as the deal between Gilead Sciences Inc., of Foster City, Calif., and NeXstar Pharmaceuticals Inc., of Boulder, Colo. But big pharma has also started to take a more active role in this consolidation. Analysts predict that there will be more announcements this year to complement January's stunning news that Warner-Lambert Co., of Morris Plains, N.J. intends to buy La Jolla, Calif.-based Agouron Pharmaceuticals Inc. for $2.1 billion. (See the graphs below for details of the mergers and acquisitions activity from 1994 through 1998.) The Agouron/Warner-Lambert combination is the only big pharma move so far in 1999, but there have also been 14 new biotech-biotech mergers that have made the news since the beginning of the year. One of those, of course, is Vimrx Pharmaceuticals' announcement that it is buying out Baxter Healthcare's interest in Nexell.

The Early Years

Although the company currently known as Vimrx Pharmaceuticals was formed in 1986, it really didn't gain any visibility until about 1988 or 1989. The original technology around which Immunoscience Corp. was built was abandoned early on, according to Vimrx president and CEO Richard Dunning. It wasn't until the company in-licensed from New York University the rights to a chemically synthesized version of hypericin, a natural compound derived from St. John's wort, to treat retroviral and viral diseases, that it got noticed. "The initial disease target was HIV, and that gave the company a little bit of visibility [with investors]," explained Dunning, who joined Vimrx in the spring of 1996. But it wasn't enough. Hypericin was not wildly successful in the clinic and "the company was constantly on a treadmill wondering where its next cash would come from," he said.

By 1994, according to Dunning, "Vimrx was about to hit the wall." But then D.H. Blair Investment Banking Corp. stepped in and helped the company raise some cash through a unit offering. Whereas Vimrx ended 1995 with about $2.2 million in cash, it garnered about $50 million by mid-1996 by calling for the exercise of outstanding warrants that were issued in previous offerings.

This accomplished, the company went on a buying spree to build a diverse portfolio. "The idea was to leverage the company's strengths [and cash] across many technologies. We were comfortable that these choices were intelligent and would pay off," Dunning said. In November 1996, it bought a controlling interest in New York-based Innovir Laboratories Inc., with the goal of combining the companies' technologies in the field of catalytic oligonucleotides. It brought together Vimrx's Rilon technology which it acquired in May 1996 when it bought Ribonetics GmbH, of Gottingen, Germany and Innovir's External Guide Sequence technology which involves the use of short pieces of chemically modified RNA that can direct the intracellular enzyme Ribonuclease P to cut messenger RNA molecules in a highly selective manner.

In 1997, Vimrx joined forces with Columbia University and its Genome Center to form the joint venture company Vimrx Genomics Inc. The business was being positioned as the commercial focal point for genomics research at Columbia. Vimrx Genomics had the rights to license genes discovered by the Columbia Genome center, and similar rights to the gene discovery efforts of affiliated laboratories. The Columbia agreement also provided an opportunity for synergy with Vimrx's oligozyme technology acquired through Innovir and Ribonetics which seeks to control disease-triggering flaws in genes.

Then, in June 1997, Vimrx agreed to acquire Baxter Healthcare's immunotherapy division and form a new cell therapy company. That deal, finalized in October, created Nexell Therapeutics, and combined Baxter's ex vivo cell separation and storage technology with Vimrx's gene therapy and genomics expertise. Valued at about $130 million at the time, it gave Vimrx an 80.5 percent stake in Nexell. On top of its 19.5 percent interest in Nexell, Baxter also got 11 million shares of Vimrx stock and Series A convertible preferred shares worth $66 million. Now, with Vimrx's buyout, Baxter will receive 3 million additional shares of Vimrx as well as a seven-year warrant to purchase another 5.2 million shares. By the time all is said and done, Baxter's stake in Vimrx could rise from 16 percent to 40 percent (on a fully diluted basis).

As this new business opportunity was taking hold, Vimrx's other ventures were folding. In April 1998, Vimrx and Columbia ended their genomics deal by agreeing to transform Vimrx Genomics into a new drug discovery and development venture called the Ventiv BioGroup. Apparently, that venture, too, has been dissolved. "We tried to restructure the arrangement, but couldn't find a model that worked," Dunning said. In October 1998, Innovir closed its New York operations and moved into Vimrx's headquarters. That, too, has become a defunct operation, although the technology is still available for licensing, Dunning said.

The only projects remaining from Vimrx's former incarnations seem to be hypericin, which is currently in North American clinical trials as an oral therapy for glioblastoma (Phase I/II trials were completed in October 1998) and VM 310, a semisynthetic derivative of a wound-healing compound isolated from the sea whip. It, too, wrapped up Phase I trials in October 1998. Both drugs will continue to be developed under the Nexell aegis.

The Baxter deal was the "culmination of Vimrx's strategy to build a diversified portfolio," Dunning explained. "It looked attractive in its own right and it was not inconsistent with our business model."

By late 1997 or early 1998, however, it became clear that "the [business] model we were operating under was distinctly out of favor [with investors] and probably would not come back," he continued. Investor sentiment had shifted. Now, a diverse portfolio was associated with high risk; the various projects would take too long to pay off and that meant an impairment of the company's ability to raise capital. So, Vimrx started to refocus its operations and the result is Nexell, the crown jewel of the company. "Cell therapy is very attractive; it has both short-term and long-term potential," Dunning said. Indeed, the Isolex cell selection system is already marketed in a number of countries and FDA approval is imminent.

Nexell Is Next

If all goes according to plan, Vimrx Pharmaceuticals should have completed its acquisition of Baxter Healthcare's minority interest in Nexell by May or June of this year. This timing could coincide with final FDA approval of the company's lead product, Isolex, for selecting and purifying stem cells to replenish the bone marrow of cancer patients. In early January 1999, the agency deemed the product approvable, pending additional data on labeling and manufacturing.

According to L. William McIntosh, the president and CEO of Nexell, "Nexell intends to focus almost exclusively on cellular therapies. The acquisition of the intangible assets of CellPro Inc. [which was completed in February 1999] has also added substantially to our portfolio."

But going forward, there are a number of directions the company can take with the cell separation technology. Internally, Nexell is working on cell expansion technology, including a platform for automated cell expansion. This could come handy in transplantation, for instance, where it's been found that a minimum number of cells are necessary for the transplant to "take."

As well, Nexell is working on improving its basic technology platform, to make available a wide variety of antibodies and release peptides so it's possible to apply either positive or negative selection for a variety of cell types. And, of course, there's a great opportunity to use the platform technology to create expanded cell populations that can be manipulated genetically. "We will make the technology available to the research and clinical community to evolve the field. When we understand what their needs will be, we can develop the technology to fit," McIntosh said. *

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