By Mary Welch

Viragen Inc. made good on its plan to acquire a minority position in Inflammatics Inc., and said it may take as much as 80 percent of the company, depending on results from an ongoing trial of Inflammatics' lead product for rheumatoid arthritis (RA).

In January, Viragen agreed to pay $1 million in exchange for 10 percent equity in privately held Inflammatics. The deal includes an option to acquire 70 percent more of the company, but Gerald Smith, president and chairman of Plantation, Fla.-based Viragen, said the transaction is hardly simple.

"It's quite a confusing formula," he said, adding that "superlative to good" Phase II results would cause Viragen to consider taking the entire 80 percent of Philadelphia-based Inflammatics. The trial is expected to wrap up in six to nine months.

"Hopefully, we'll go quickly into Phase III after that," Smith said.

Founded in 1995, Inflammatics is a virtual research company devoted to developing vaccines for RA and other autoimmune conditions. Its lead product is LeukoVAX, an immunomodulating mononuclear cell (white blood cell) preparation. Researchers at Thomas Jefferson University Medical College, in Philadelphia, maintain a safety database of more than 2,000 patients who have been treated with the mononuclear cell therapy. Results from the pilot study indicate a majority of the patients treated showed significant improvement in the efficacy markers measured.

Inflammatics Came To Viragen For White Blood Cells

Inflammatics came to Viragen because Viragen could provide the quantity of white blood cells needed to produce LeukoVAX, Smith said. Viragen's white blood cell alliances with major blood agencies and Red Cross organizations globally should provide Inflammatics plenty of cells. At its Aug. 6 board of directors meeting, Viragen reported it had secured preferential access to about half of the available U.S. supply of white blood cells through an alliance with America's Blood Centers, a network of nonprofit community blood centers.

"We believe we are the leaders in white blood cell process technology, and this gives us an opportunity to expand our own product line," Smith said. "We will have to make a few modifications to our [manufacturing] plant but we can double the shift and produce a new product line"

If LeukoVAX wins approval, Viragen's good manufacturing practices biologics production plant in Scotland would be available to manufacture commercial quantities.

In addition, Viragen said it would begin the site selection process for the first U.S. production facility for its own lead drug, Omniferon, a multi-subtype, highly purified natural alpha interferon.

Viragen expects to complete ongoing preclinical trials with Omniferon for hepatitis C by the end of the year, and start human trials early in 1999. As of March 31, Viragen had $12.3 million in cash, with a net loss of $5.7 million for the quarter.

The company's stock (NASDAQ:VRGN) closed Wednesday at $1.218, down $0.031. *