Houghten Pharmaceuticals Inc., a combinatorial chemistry company,moved to acquire privately held ChromaXome Corp. and itscombinatorial biology for more than 200,000 shares of Houghtenstock, which Tuesday was trading at $8.25 per share.

In addition to issuing 216,000 shares up front to ChromaXomeinvestors, Houghten agreed to pay up to 432,000 more shares uponachievement of milestones related to combinatorial biology's use ingenerating new natural products for potential drug candidates.

Based on Houghten's closing stock price Tuesday, the acquisition isvalued at up to $5.3 million. The shares ended the day down 25 cents.

The two San Diego companies entered a research collaboration inOctober 1995 and part of the deal included an option for Houghten totake over ChromaXome.

Houghten's success in taking the company public was a condition ofthe acquisition, said Robert Leach, ChromaXome's chairman.Houghten raised $27.5 million in its initial public offering in March1996.

Another factor, Leach said, is that before compounds derived fromnatural products can become effective drugs, they usually have to beimproved through chemical modifications, which Houghten performswith its expertise in combinatorial chemistry.

The consolidation of the pharmaceutical industry has reduced thenumber of potential corporate partners for biotechnology firms,Leach observed.

"With fewer drug companies to do deals, the biotechnologycompanies with the broadest based technology will be preferredpartners," he said.

With the addition of ChromaXome's combinatorial biology,Houghten, which has collaborations with two pharmaceutical firms,will be able to expand the source of compounds for potential drugs,said Noel Byczek, Houghten's manager of corporatecommunications.

In combinatorial biology, DNA from hard-to-culture microorganismsis spliced into bacterial hosts which then express new biochemicalsfor testing as potential drugs. The process can generate hugequantities of compounds from never-before studied microbes as wellas unleash chemicals from previously untapped metabolic pathwaysin well-researched organisms.

Using its combinatorial chemistry, Houghten officials said they willtake the newly found compounds and use them to formulate newlibraries of chemicals for screening.

ChromaXome entered a collaboration with Bristol-Myers Squibb Co.,of New York, in September 1995, allowing the pharmaceutical firmto try out combinatorial biology on its library of microbes. Results ofthe Bristol-Myers' studies, which will help demonstrate theeffectiveness of ChromaXome's technology, are expected by the endof this year.

Byczek said ChromaXome, with its 16 employees, will operate as awholly-owned subsidiary of Houghten under the direction of BarneyKing, Houghten's executive vice president of biological sciences.ChromaXome President Michael Dickman will remain as aconsultant.

Houghten has drug discovery partnerships with Novo Nordisk A/S, ofBagsvaerd, Denmark, and Proctor & Gamble Corp., of Cincinnati,along with collaborations with Immunex Corp., of Seattle, and CadusPharmaceutical Corp., of Tarrytown, N.Y.

Houghten also has developed its own drug candidate. HP 228, acytokine regulating agent, is being evaluated in Phase II trials forreducing pain and chemotherapy toxicities in cancer patients. Thesmall-molecule compound also is in Phase II studies for treatment ofobese Type II diabetes patients.

Leach said prior to last year's agreement with Houghten,ChromaXome, founded in 1993, had received less than $1 millionfrom investors. The Houghten acquisition is contingent onChromaXome shareholder approval. The deal is expected to closewithin 60 days.

Leach is chief operating officer of the University of California at SanDiego's CONNECT program, which assists in the start-up ofbiotechnology and other high technology companies. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.

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