By Lisa Seachrist
WASHINGTON — Cytogen Corp. and Elan Corp. have dissolved their joint oncology venture, Targon Corp., and Cytogen will receive $4 million from Dublin-based Elan as a result.
The move was largely due to the assessment by both companies that Targon would require continued funding into the next fiscal year.
"We were both concerned that it appeared Targon could not be self-funding by next year," said John Bagalay, president and CEO of Princeton, N.J.-based Cytogen. "Our funding capabilities need to be targeted to our core business."
Under the terms of the agreement, Cytogen will receive $4 million cash. However, $2 million represents a new convertible note issued to Elan International Services Ltd., an affiliate of Elan. The seven-year note is convertible at Elan's option at a price of $2.80 per share.
"I believe it will be to Elan's advantage to convert," Bagalay said. "We'd be pleased to have them increase their common stock position in Cytogen."
Upon formation of Targon in September 1996, Elan bought 930,000 common shares of Cytogen and received Series A convertible notes. (See BioWorld Today, Sept. 30, 1996, p. 1.)
Each company leaves the venture with the assets it brought to the table in 1996: Cytogen keeps its Oncotec, Prostatec and prostate-specific membrane antigen technology, while Elan retains Morphelan, an opioid analgesic product. Bagalay said Cytogen exits with a $2.6 million gain.
"This [sale] allows us to concentrate on moving our commercially approved products into the marketplace," Bagalay said. "It will allow us to bring the company to profitability as soon as possible."
Cytogen's approved products include Quadramet, a radiopharmaceutical drug for pain from bone cancer; ProstaScint, a diagnostic imaging agent for prostate cancer; and OncoScint CR/OV, a monoclonal antibody for detecting colorectal and ovarian cancers.
The sale of Targon will alleviate some of the cash constraints Cytogen has experienced over the last few months. In July, Cytogen announced that its Cellcor Inc. subsidiary would be closed in 45 days if a buyer could not be found. Since then, Bagalay noted, the management of Cellcor had expressed interest in buying the company, and several other corporations are looking into the firm.
By opting out of unprofitable joint ventures and focusing on marketable products, Bagalay said it is unlikely that Cytogen will have to draw down on a $12.5 million financing commitment from private investors.
As of March 31, Cytogen had $2.5 million in cash and a burn rate of $1.1 million per month. The company's stock (NASDAQ:CYTO) closed Friday at $1.281 up $0.281.
Also, Elan finalized with Chicago-based Endorex Corp. the details of an oral vaccine joint venture. The companies' new firm, Innovax Corp., of Lake Bluff, Ill., will seek to partner with major pharmaceutical and vaccine companies to convert existing injectable vaccines into oral vaccines.
Endorex and Elan are each providing personnel and funding of activities equivalent to $3 million for the first year of the joint venture. In addition, Elan will contribute its FDA-certified Good Manufacturing Practice process and infrastructure to Innovax.
Innovax is 80.1 percent owned by Endorex and 19.9 percent owned by Elan. A $10 million equity investment in January made Elan an 11 percent shareholder of Endorex.
Endorex shares (AMEX:DOR) closed Friday at $3.00, down $0.125. Elan (NYSE:ELN) ended the day at $67.312, down $1.187. *