By Debbie Strickland

In a deal worth at least $120 million, VIMRX Pharmaceuticals Inc. and Baxter Healthcare Corp. are forming a new cell therapy company centered on Baxter's ex vivo cell separation and storage technology and VIMRX's gene therapy and genomics expertise.

An immunoselection-based cell separator, the Baxter device is already approved under the name Isolex for stem-cell selection and storage in Europe, Argentina, Hong Kong, Israel and New Zeland. Having been tested as a means of selecting and storing blood stem cells prior to chemotherapy -- which destroys them -- Isolex goes before an FDA advisory panel July 24, and is also up for approval in Japan and Australia.

VIMRX will own 80 percent of the yet-to-be-named new company, while Baxter will own 20 percent and receive an equity stake in VIMRX.

Assets of Baxter's immunotherapy division, which generated 1996 sales of $9 million, will be transferred into the new company, to be based in the division's former headquarters in Irvine, Calif.

Following the announcement Thursday, VIMRX's shares (NASDAQ:VMRX) closed at $3.50, unchanged, and ended Friday at the same price.

Baxter's shares (NYSE:BAX) closed Thursday at $54.125, off $0.375, and finished the week unchanged.

Baxter Healthcare, of Deerfield, Ill., is the principal U.S. operating subsidiary of Baxter International Inc., also of Deerfield.

For VIMRX, an 11-year-old Wilmington, Del., company, the agreement is the largest in a string of five collaborations inked since January -- and may be the key to generating investor excitement at last.

"This business has got incredible potential to become large and very profitable," said Richard Dunning, VIMRX's president and CEO.

At present, no financial institution analyst covers the company, but Dunning said he expects that to change in the wake of the Baxter deal.

"The strategic alliance with Baxter, a major global medical products company, dramatically transforms VIMRX from solely a research and development company to a fully integrated commercial enterprise," he said.

At the end of the first quarter of 1997, VIMRX had $42 million in cash.

Baxter Sought Biotech Partner

The alliance is the culmination of the big pharma company's search for a biotechnology partner to develop a range of commercial applications for the cell separation device, both on its own and through additional collaborations.

"We developed a core platform with many applications," said Baxter spokeswoman Deborah Spak. "Some of those fit with our core business strategy and some don't, but we had a strong desire to see that the applications are broadened."

In addition to the stem-cell application, cell separation could be used in the treatment of AIDS and other infectious diseases, blood disorders, genetic diseases, autoimmune and inflammatory diseases, solid-organ transplantation, metabolic disorders, central nervous system disorders, burns, and bone and cartilage repair.

Baxter, however, will handle the manufacture, sales, marketing and distribution of cancer-related cell therapy products for the company.

The company's quest for a biotech partner began about a year ago, and eventually VIMRX's name popped up as a candidate. The two companies had never worked together before, but Baxter executives liked what they saw in the labs and on the balance sheets.

"VIMRX has a great financial structure in place, strong intellectual capital, a number of collaborations in gene therapy and an interest in putting together a unique structure for this new company," Spak said.

Though Baxter has many biotech collaborations, none of them is structured like this one, she said.

The venture will take Baxter's technology into "the important new arenas of cell-expansion and manipulation, including gene therapy for genetic diseases of the blood and immune systems," said Timothy Anderson, vice president for the company's biotech group.

VIMRX Owns Majority Of New Company

In exchange for its 80 percent stake in the venture, VIMRX will give Baxter 11 million VIMRX common shares and convertible preferred shares with a nominal value of $40 million. To the extent that the 11 million common shares are worth less than $50 million at the closing, Baxter will receive additional convertible preferred shares.

The conversion price of the preferred shares will depend on the closing prices of VIMRX's common stock within an 18-month period following the closing, subject to a floor of $5.50 per share and a ceiling of $7.50 per share.

In addition, Baxter will provide initial operating funds of $20 million, and VIMRX will chip in $10 million. The new company will pay Baxter milestone payments related to regulatory approvals of up to $21 million over several years. Baxter will retain its exclusive license of the CD34 antibody used in selection technology and sublicense it to the new company.

Baxter's cell-separation technology is the focus of a patent fight with CellPro Inc., of Bothell, Wash., whose Ceprate SC Stem Cell Concentration System was approved by the FDA in December 1996. Baxter has argued CellPro's product infringes patents held by Baxter, Becton Dickinson & Co., of Franklin Lakes, N.J., and Johns Hopkins University, of Baltimore. A U.S. District judge agreed with Baxter and its co-plaintiffs, but CellPro has appealed. *

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