MR contrast company Epix bids for therapeutics specialist

Epix Pharmaceuticals, a struggling developer of MR contrast agents, has hatched plans to acquire privately held Predix Pharmaceuticals. The $90 million deal, which calls for Epix to assume about $7.8 million of Predix debt as part of the purchase price, is expected to close in June or July, subject to closing conditions, including regulatory approval and the formal approval of Epix and Predix stockholders.

If the proposed merger between Epix Pharmaceuticals and Predix Pharmaceuticals goes through, commercialization of Epix's Vasovist, the blood pool contrast agent that lights up this chest MR, will be a near-term priority for the newly combined company. Epix and Predix announced their intention to merge April 3. (Image provided by Epix Pharmaceuticals)

The acquisition is a bit of a reach for Epix. Although Predix reflects the entrepreneurial character of its suitor, it does not share the other company's market focus. Epix has drawn a bead on medical imaging, whereas Predix aims at therapy. The gulf between them, however, may not be as great as it appears.

The Epix board of directors has been moving the company toward therapeutics for some time, according to Michael Astrue, Epix interim CEO. The name change from Epix Medical to Epix Pharmaceuticals about a year and a half ago reflects that shift.

"The process accelerated this past September, when we decided to accomplish the goal through an acquisition," Astrue said.

In screening candidates over the last six months, Epix applied two major criteria: a pipeline with at least two products in clinical development, and a technology platform for the discovery and development of additional products. Predix meets both. It has three drugs in clinical development and a fourth expected to enter the process soon, as well as an efficient and effective drug discovery platform, he said.

PRX-00023 is now in phase III testing to treat anxiety. It is also scheduled for phase II studies in 2007 to treat depression. The company has a prospective Alzheimer's treatment, PRX-03140, ready to enter phase II. Its third product, PRX-08066, is in phase IB development for the treatment of pulmonary arterial hypertension.

These products will be added to clinical efforts already under way at Epix, which is pursuing phase II studies of EP-2104R for imaging arterial and venous blood clots. Further along, but currently stymied in the regulatory process, is Vasovist, the company's blood pool MR contrast agent.

Epix has received an approvable letter from the FDA for Vasovist, but the letter asks for additional data before the agency will render a final decision. A near-term goal for the combined company would be to move Vasovist forward to commercialization in the U.S., according to Michael G. Kauffman, M.D., Ph.D., current president and CEO of Predix.

"We'll do this either through an additional phase III study, an appeal, or some combination of these options," said Kauffman, who is slated to become CEO of the combined company and a member of the reconstituted board of directors. "We have a meeting with the FDA in early April regarding the next steps for Vasovist."

In the meantime, Epix partner Schering has begun marketing Vasovist in Europe. The German firm, which is currently in the midst of a merger of its own (see Bayer plays white knight for Schering, April 2), last fall secured clearance from the European Union to market the product among its 25 member countries. Schering's sales force has been promoting the agent for only a few weeks. Consequently, Kauffman expects sales in the first quarter of this year to be negligible.

"We won't have any sense of how the product is being received until a little later in the year," he said.

The intention of the combined company would be to license later-stage products to larger pharmaceutical or biotechnology companies so as to maximize their value. This strategy would have substantial financial support, as the combined company would have about $125 million in cash and marketable securities at the time of the merger.

Predix is focused on the discovery of novel, highly selective, small-molecule drugs that target G-protein-coupled receptors and ion channels. The technology underlying this process is what Epix was looking for in an acquisition target, according to Astrue.

"The platform is efficient and effective," he said. "It is well positioned to continue to deliver product candidates."

The deal that would bring this platform to Epix appears to be well on its way to completion. Investors holding an approximate 40% stake in Predix have agreed to vote in favor of the merger, according to Epix.

Under the terms of the agreement, which has been approved by the boards of directors of both companies, Epix will issue to Predix investors shares of Epix common stock that will provide a 47% stake in the combined company. Epix stockholders will own approximately 53%.

Upon closing, Predix investors will receive 1.248509 shares of Epix stock for each share of Predix stock they hold. In connection with the transaction, Epix will issue approximately 23.275 million shares, including shares underlying Predix's outstanding options and warrants. Predix investors may receive a milestone payment of $35 million in cash, stock, or a combination of both, based on the achievement of certain clinical or strategic milestones within a specified period of time.

The acquisition, although now embraced by Predix executives, was not the leadership's first choice. Kauffman and colleagues last year were moving the company toward an initial public offering but decided to pull the plug in light of "less than favorable market conditions for biotech IPOs," he said.

The firm's acquisition by Epix accomplishes the goals that were behind the failed IPO offer, Kauffman said, as it will finance development efforts toward an extensive product pipeline. It has the additional advantages of bringing together a critical mass of management and drug development talent.

"The goal here is to put people and capital to work," he said.