While many biotechnology firms find diagnostics an easier route tothe market than therapeutics, Zynaxis Inc. is reversing that conceptfollowing more than a year of frustration with the FDA over thecompany's Zymmune CD4/CD8 cell monitoring kit.

Martyn Greenacre, CEO of Malvern, Pa.-based Zynaxis, said hiscompany is "adjusting its strategic focus" to concentrate exclusivelyon drug candidates.

The adjustment involves two initial steps, he said. In the first,Zynaxis is acquiring Secretech Inc., a privately held mucosal vaccinecompany in Birmingham, Ala. The second involves divestingZynaxis of its diagnostics business, including the flagship Zymmunemonitoring kit, which was submitted for FDA approval in August1993.

In the past year and a half, Greenacre said, Zynaxis twice hassupplied the FDA with additional data, but has received no indicationabout when the kit will be approved.

"I understand there's no substantive technical issue," Greenacre said."How long can you maintain an organization without a clearendpoint?"

Greenacre said Zynaxis can no longer afford to wait for the FDA. Heis negotiating with potential buyers for the company's portfolio ofdiagnostics and he has laid off 50 percent of the staff involved in thatphase of Zynaxis' business, or 12 people.

Although the FDA has not approved the Zymmune test kit, it is onthe market in Canada, Brazil, Spain, Italy, Germany, Switzerland,Greece and the U.K.

The Zynaxis layoffs are the second staff reductions in four months.Last October the company reduced its work force by 25 percent,from 78 to 59 employees. Those cuts followed the FDA's secondrequest for more data on the Zymmune monitoring kit, ensuringanother delay in getting the HIV and AIDS test on the market. TheOctober restructuring saved $3 million and was expected to reducesignificantly the company's $800,000-a-month burn rate.

Greenacre said the sale of the diagnostics business will save Zynaxis$2 million a year. In addition, the company has undertaken a privateround of financing aimed at raising $3 million. Those two moves"will give us 12 months of cash," he said, adding that Zynaxis isseeking corporate partners for drug development.

To purchase Secretech, Zynaxis will issue 3 million new shares of itscommon stock. With Zynaxis trading at about $2 per share, thatwould make the deal worth $6 million. Zynaxis currently has 5.2million shares outstanding.

"We're acquiring Secretech's technology," Greenacre said.Secretech's lead product is an anti-allergy drug in Phase II trials inEurope. The company also has a flu vaccine that is ready to enterPhase I trials in the U.S. or Europe this year.

Products in pre-clinical development include vaccines for rotavirusand pediatric respiratory diseases. Greenacre said the rotavirusvaccine is next in line to enter clinical development.

Secretech was founded in 1989 by researchers from the University ofAlabama at Birmingham (UAB) specializing in mucosalimmunology and virology. The company has a staff of 15 and isdeveloping orally delivered vaccines that stimulate both systemicand mucosal immunity.

Secretech's president, Dennis Schafer, said the merger is a means ofcontinuing the company's drug development programs.

"It's a tough financial market and we needed to raise a lot moremoney than ever before," said Schafer, who is a co-founder of thecompany. "From our point of view, this [merger] is anotheralternative. It's a step forward in product development."

Greenacre said no decisions have been made on how many Secretechemployees will be offered posts in Malvern. Schafer will assist in thetransition. The company's Birmingham facilities will be shut down.

Zynaxis' therapeutic focus has been on the development of its Zyn-Linker drug delivery technology for oligonucleotides and anti-canceragents. The company plans to file an investigational new drugapplication with the FDA in the first quarter of 1996 to begin clinicaltrials in cancer. Zynaxis also has conducted pre-clinical studies of theZyn-Linker technology in restenosis and rheumatoid arthritis.

Zynaxis' stock (NASDAQ:ZNXS) Tuesday closed at $1.94, down 19cents. n

-- Charles Craig

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