Somatix Therapy Corp. bolstered its technology base and its appealto potential collaborators with the acquisition of MerlinPharmaceutical Corp.

Merlin is a two-year-old private company based in New York, withresearch facilities in Research Triangle Park, N.C., that was foundedprimarily on adenoviral (AV) and adeno-associated viral (AAV)technology. Merlin shareholders will receive about 16 percent of thestock of Alameda, Calif.-based Somatix, or 3 million sharescurrently valued at about $10 million.

Somatix's stock (NASDAQ:SOMA) closed at $3.34 per shareTuesday, up 9 cents. The Alameda, Calif., will have about 18.75million shares outstanding when the transaction is completed.

Merlin's scientific founders and collaborators include Richard"Jude" Samulski, professor at the University of North Carolina;Thomas Shenk, professor of molecular biology at PrincetonUniversity; Yale University neuroendocrinologist Matthew During;and Michael Kaplitt, who specializes in central nervous system genetherapy at Rockefeller University. They join chief scientific officerRichard Mulligan and others at Somatix.

A condition of the deal, expected to be completed next month, is thatthe founding scientists stay with Somatix for at least 18 months,which is the period in which half the shares will be in an escrowaccount. The three million shares are subject to lock-up provisionswhereby one-quarter of them will be released every six months. Oneof the founding scientist's departure would reduce the shares givento Merlin.

Merlin chairman Sam Waksal, said Merlin, with its scientists andintellectual property positions, could have had its pick in mergerpartners.

"From our point of view this was a science-driven decision," Waksaltold BioWorld. "We're creating what will be the premiere genetherapy company in the world."

The addition of Merlin's technology will provide an immediatebenefit for development of the company's lead product, GVAXcancer vaccine, which is in Phase I trials for treatment of metastaticrenal carcinoma and advanced melanoma, said Mark Bagnall,Somatix's chief financial officer.

"In our GVAX program there are certain types of cancer that arehard to modify genetically with retroviral vectors, but are easy withadenoviral vectors," Bagnall told BioWorld.

"[The acquisition] is very important in the longer-term strategicsense as we move into new therapeutic areas," Bagnall said. "We'llbe able to assess a gene therapy approach that's across a broad rangeof gene-transfer technologies. We'll be able to mix the best pieces tocome up with truly novel hybrid systems."

Bagnall said Somatix's scientific advisory board told companyofficials that if they wanted to do AV and AAV research, the bestpeople to work with would be Shenk and Samulski, respectively."Bringing in that high level of expertise gives us instant credibility inthose in vivo gene therapy programs."

The addition of Merlin's technology and scientists also adds to thevector-development group put together by Mulligan, who came toSomatix in May.

"We have a broad array of gene therapy techniques," Bagnall said."It's very attractive for potential corporate partners. We know thetypes of things that corporate partners find attractive. They [potentialpartners] have told us fairly directly what they're looking for interms of the ideal gene therapy partnership. This transaction tookplace with those specific items from their checklist in mind."

Bagnall said roughly three-quarters of the patients have been treatedin each of the Phase I trials of GVAX, which is intended as a therapyrather than vaccine. The plan, he said, is to start Phase I trials forGVAX in prostate and colorectal cancers next year. The companyalso is planning a Phase II trial in The Netherlands for melanoma,which could be under way by the end of 1995, he said.

The start of the colorectal cancer trial would trigger a $2.5 millionmilestone from a private investment group. Half of the money wouldbe in milestone payments, half in an equity investment.

With GVAX therapy, tumors are removed and sent to Somatix. Thetumor cells then are genetically altered and irradiated so they won'treproduce. The resulting product then is frozen down intoformulations for subcutaneous injection.

Waksal said Merlin's work progressed so quickly that scientists therealready generated data showing they can use AAV vectors to deliverto the mammalian brain, in vivo, genes which have been shown tohave long-term expression and function. In models of Parkinson'sdisease, he said, the therapy was shown to correct Parkinsoniandisorder.

Merlin, for the most part a "virtual" company, has about sevenemployees. Its research facility in Research Triangle Park will bekept, and scientists added there so they number about 10. The NewYork administrative office will be phased out.

Bagnall and Waksal said Samulski will take a year's academic leavewithin a few months and manage the North Carolina facility whileaway from the university. n

-- Jim Shrine

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