By Charles Craig

Panax Pharmaceutical Co. Ltd., initially formed in 1995 to discover plant-derived pharmaceuticals, is merging with privately held Sangen Pharmaceutical Co. in a potential $7.2 million stock swap designed to create a new company with broader drug development capabilities.

The merger, which is dependent on completion of financing for the combined firm, brings to Panax two Sangen technologies for battling inflammatory diseases and cancer. It also reunites two former Magainin Pharmaceuticals Inc. executives, Leonard Jacob and Taffy Williams.

Jacob, president and CEO of Philadelphia-based Sangen, was a co-founder and chief operating officer of Magainin, in Plymouth Meeting, Pa.. Williams, president and CEO of Panax, was vice president of research at Magainin.

Williams said a new name for the Panax-Sangen company will have to be selected. "We picked one," he added, "but later found out it was taken by a French firm." The company's headquarters will be located near Philadelphia.

Under terms of the merger, Sangen shareholders will receive a combination of Panax stock and warrants totaling 2.35 million shares. Exchange of some warrants for shares is tied to achievement of development milestones for Sangen's two technologies.

Based on the $3.062 closing price of Panax's stock (NASDAQ:PANX) Jan. 21, when the deal was reported, the stock swap would be worth about $7.2 million. Panax ended Tuesday at $2.25, up $0.188.

Panax, which went public in 1995, initially was focused on an ethnobotanical approach to drug discovery primarily through an exclusive agreement with the Russian Academy of Sciences' Kamarov Botanical Institute. The plants under study for potential therapeutic extracts are traditional medicines used in Russia, Kazakhstan, Kyrigstan and Armenia.

Plant-derived compounds targeting viruses, bacteria and immune stimulation are in preclinical trials, but Williams said the company also has licensed new technologies with the potential to generate more near-term revenues.

Panax's most advanced product development program is a tablet designed to purge the colon prior to colonoscopic examination for cancerous polyps. The drug, an anhydrous form of aqueous sodium phosphate, was developed by Craig Aronchick, a gastroenterologist and head of the endoscopy unit at Pennsylvania Hospital in Philadelphia. Aronchick also is associate professor of medicine at Jefferson Medical College in Philadelphia.

Current methods for clearing the colon prior to examinations involve drinking liquid substances, some in large volumes, that have a bad taste and can cause nausea.

Williams said Panax's colonic lavage tablet could be ready for submission to the FDA in less than two-and-a-half years.

Drugs from the two Sangen technologies would take longer to develop. One product program is based on the discovery of the CD14 receptor on monocytes and the other focuses on the thrombospondin (TSP-1) receptor expressed on cancer tumors.

The CD14 receptor is thought to be involved in the spread of bacterial infections and inflammation. TSP-1, a glycoprotein, is linked to cancer metastasis.

Sangen has identified small peptide compounds that block the genetic targets.

Williams said Panax and Sangen officials are discussing alternatives for financing to support the new company. Panax has about $5 million in cash.

"Now is an ideal time to start," Williams said. The Panax-Sangen combination has a product in late-stage development (the colonic lavage tablet), he observed. Development costs are low as are the number of Panax's outstanding shares. And Panax's stock is trading in the single digits.

"The upside potential is huge," Williams said. *