A public and two private companies with complementary technologyand with financing worries combined their cash and product pipelinesin what one official described as an unprecedented triple merger.

Argus Pharmaceuticals Inc., the public company, and TriplexPharmaceutical Corp. and Oncologix Inc., both private, have agreedto form a new company headquartered in The Woodlands, Texas,which is home to Argus and Triplex. Oncologix is located inGaithersburg, Md.

Argus Chairman Martin Sutter said, among the initial decisions bythe new board of directors, which includes representatives from eachcompany, will be to name the merged corporation and hire amanagement team, including a CEO. Until those actions are taken,officials at all three firms will assist in the transition.

Sutter told BioWorld Today the new company will focus on cancerand infectious disease drugs, and based on 1994 year-end financialstatements it has about $20 million _ enough cash to keep operatingmore than two years.

He expects the merger, which must be approved by the companies'shareholders, to be complete by the second quarter of this year.

An Unprecedented Deal

"As far as I know a triple merger like this is unprecedented in thebiotechnology industry," said Sutter, who also is general partner ofThe Woodlands/Essex Management Partners L.P.

"We have just a plethora of young companies out there that are good,but not complete," he said, adding they either don't have money ordon't have products in advanced clinical development.

"When you merge these three companies you have adequate capital,five products in clinical trials, two major corporate partnerships and abroad technology platform in four areas," Sutter observed. "We'redoing what many companies should be doing."

Under the merger agreement, Triplex shareholders, the largest ofwhich is Philadelphia-based Hillman Medical Ventures, receive 7.05million new Argus shares. In addition to its technology, Triplex hasabout $10 million in cash, or about half of the new company'smoney.

Argus (NASDAQ:ARGS), which brings the other $10 million to themerger, closed Thursday at $2.37, up 37 cents.

The terms of the deal for Oncologix are more complicated. Itsshareholders _ the largest being Healthcare Investment Corp., ofEdison, N.J. _ receive a series of three warrants, exercisable at 18-month intervals over 36 months, to purchase shares in the newcompany. Oncologix also will get less than 1 million Argus shares.

The first Class A warrants entitle Oncologix shareholders to buy atotal of 4.8 million shares at $2.25 per share. Those who participatealso receive Class B warrants for a total of 6 million additional sharesat $4 per share. If those are exercised, the shareholders get Class Cwarrants allowing them to buy another 7.5 million shares at $6 pershare.

Sutter said the warrants give the new company a built-in financingmechanism. If all Class A warrants are exercised, the total cash raisedwould be $80 million after the first 18 months of the merged group'soperation. Outstanding shares would then total between 23 millionand 24 million.

Sutter said the new company also has the option of changing theterms of the Class B and Class C warrants to prevent too muchdilution of the shares if the stock is performing better thananticipated.

Charles Blitzer, Oncologix's president and CEO, said, "It's not thebest deal [for Oncologix], but it's a good deal in the current[financing] market."

Blitzer said the skepticism of capital markets toward thebiotechnology industry in 1994 forced Oncologix to cancel its initialpublic offering last May. As a result, he said, the company faced acash crunch and decided it was time for more creative action.

"The message here is that you have three companies that bring to theparty their weaknesses and strengths," Blitzer said. "But bycombining the strengths you minimize the weaknesses."

Triplex President and CEO James Chubb said his company hadenough cash for next three years, but needed products that were moreadvanced in clinical development for long-term survival.

"We were looking to reduce risk and increase our opportunity forlong-term success," Chubb said.

The merged company, Sutter said, has four areas of technology: lipid-based drug delivery, oligonucleotide drugs, immunotoxins anddifferentiation therapy.

The Line-Up Of Products Includes . . .

Argus has three products in clinical development. A liposomal formof nystatin is in Phase II studies for systemic fungal infections andhas completed Phase I/II trials for HIV. Tretinoin, a liposomal formof all-trans retinoic acid, is ready to begin Phase II studies forleukemia and is in Phase II/III trials for Kaposi's sarcoma. The thirdproduct, Annamycin, is a liposomal form of anthracycline antibioticand is about to enter Phase I trials for cancers resistant todoxorubicin.

Oncologix also has three products. OLX-102, an adjuvant for nonsmall cell lung cancer, is ready to enter Phase III trials and OLX-103,an oncotaxis for superficial bladder cancer, is ready for Phase IIstudies. The company's OLX-209 is in preclinical trials for lung,ovarian, breast, stomach and bladder cancers.

Triplex's lead product is a guanine-thymine oligonucleotide, calledT30177, and is in preclinical studies for HIV.

Triplex has a partnership with Germany-based Hoechst AG andArgus has a corporate agreement with Genzyme Corp., ofCambridge, Mass.

Sutter said the total employees for the new company number 75 to80, but will be trimmed to between 55 and 60 by the end of this year.n

-- Charles Craig

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

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