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Arris Acquires Sequana; Next Year Firms Will Merge into AxyS Pharmaceuticals

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SOUTH SAN FRANCISCO, Calif.--Following several months of talks, Arris Pharmaceutical here has agreed to buy La Jolla, Calif.-based Sequana Therapeutics for $166 million, creating a new bioinformatics and drug development powerhouse. Directors of both firms approved the deal early this month. It is expected to close early next year, with the resulting company known as AxyS Pharmaceuticals.

AxyS will have more extensive abilities than most drug development companies because it will be able to perform all the steps from finding gene targets to manufacturing any resulting drugs, Arris noted in announcing the deal. John Walker, Arris's president and CEO, will head the new firm. Branch offices in La Jolla, Calif., and Cambridge, Mass.--the former headquarters of Sequana and its subsidiary, NemaPharm, respectively--will be led by Daniel Petree, currently executive vice-president at Arris, who will become AxyS's chief operating officer and relocate to La Jolla. Sequana's senior vice-president of research, Timothy Harris, will manage research after the merger. Michael Venuti, Arris's vice-president, research, and chief technical officer, will continue to head small-molecule research operations here.

A role for Kevin Kinsella, Sequana's president and CEO, has not yet been found at the new company, a source familiar with the acquisition told BioInform, and at least one other senior Sequana executive may depart, the source said.

The deal will come in the form of a stock swap for the outstanding shares of Sequana. Arris will issue 1.35 shares of stock for each Sequana share.

According to a bioinformatics manager who spoke with BioInform, none of the 320 researchers employed by the two firms should be hurt by the merger, because Sequana's and Arris's scientists have expertise in different areas. "I think everyone's going to like it," he said, speaking for the research staffs at the companies. The research alliances each firm has, many of which overlap, will be maintained, he added. These include collaborations with Glaxo Wellcome, Merck, SmithKline Beecham, Bayer AG, Pharmacia & Upjohn, and Abbott.

Sequana provides research and development for gene discovery, characterization, and identification for drug discovery. Arris develops synthetic small-molecule drugs. Each firm employs about 200 people. Morgan Stanley advised Arris on the deal and Lehman Brothers advised Sequana.

The same day the merger was made public, Sequana announced that it had reached an agreement to enter into a five-year genomics alliance with the Parke-Davis division of Warner-Lambert aimed at developing drugs to treat schizophrenia and bipolar disorder. The partnership can be extended in one-year increments for up to a total of eight years. Sequana could earn as much as $103 million in up-front licensing fees, research funding, and milestone payments for providing Parke-Davis with bioinformatics, gene discovery, functional genomics, and high-throughput screening services. Sequana will also receive royalties on sales of any drugs that result from the deal.

Parke-Davis will provide research, development, and clinical expertise in the partnership, and gains exclusive, worldwide commercial rights to any resulting small-molecule therapeutic products, while Sequana retains worldwide rights to develop and commercialize recombinant protein, antisense, gene therapy, vaccine, diagnostic, prognostic, and pharmacogenetic products and services.

The alliance includes Parke-Davis's gaining a nonexclusive license to use some of Sequana's bioinformatics software tools to collect and analyze genomic data in its own laboratory, including LIMS-Lite, SequaSearch, and BioAgent DB. "Sequana brings to this collaboration what we think is the best mix of genomics technologies in the industry," commented Leonard Post, Parke-Davis's vice-president of discovery research. "This collaboration promises to be both an important step for Parke-Davis in the field of genomics, and a major component of our future discovery strategies in psychiatric diseases."

Sequana has already collected DNA samples from several hundred families affected by the diseases that are the subject of the collaboration, done full genome scans, and identified several genetic regions that are expected to contain genes associated with the diseases. The new agreement means Sequana will continue its efforts to zero in on the relevant genetic regions and, together with Parke-Davis, analyze candidate genes and drug targets. Once targets are identified, Sequana will use its proprietary NemaScreen technology to search Parke-Davis's library of small-molecule compounds for appropriate chemical agents.

Meanwhile, Sequana also announced that terms of its 1994 strategic alliance with Glaxo Wellcome in the areas of diabetes and obesity will be renegotiated to allow each company to retain rights to certain independent potential gene discoveries. In September, the firms announced that they have identified distinct regions of DNA that they believe contain genes associated with noninsulin-dependent diabetes. The changes will allow the two companies to continue independent research that might have unintentionally fallen under terms of the original deal.

"We want to ensure that our agreement with Sequana adequately delineates each company's respective responsibilities and rights," explained Lee Babiss, Glaxo's vice-president of biological sciences.

--Joe D'Allegro

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