Avantogen subsidiary and US company to merge

US-listed Innovate Oncology and a wholly-owned subsidiary of Avantogen (ASX:ACU), formerly Australian Cancer Technologies, are to merge.

The merger will see Innovate acquire Avantogen's 50 per cent North American marketing rights in the pancreatic chemoresistance inhibitor RP101.

"All along, Avantogen's board has wanted to have a presence in the US capital market, so it makes the most sense to us to merge into Innovate, which already has the US presence and already has a presence on the Nasdaq bulletin board, the over-the-counter market in the US," said Avantogen CEO Leonard Firestone.

"The jewel in the crown is the pancreatic drug," said Innovate chairman Paul Hopper, who will step down as chairman once the transaction is complete. "The essence of it is that it will own 100 per cent of what we think is a very promising drug."

Avantogen will also pay Innovate US$1.1 million as part of the transaction. In return, Avantogen will be issued with 32 million shares of Innovate common stock, leaving the company with a 54 per cent stake in Innovate. On January 31, Innovate's shares closed at US$1.85.

"The benefits for both sides are pretty even," said Hopper, a former CEO of AustCancer, the company which later became Avantogen.

As part of the proposed transaction, Avantogen's chairman Dr Richard Opara will become the chairman of Innovate. Opara's company, Pantoville, is also a major shareholder in Avantogen.

Two additional non-executive directors with be nominated by Avantogen. The chairman of Bioaccelerate Holdings, the company that founded Innovate, will join the Innovate board and Bioaccelerate CEO Dr Frank Armstrong will continue as a director.

"Instead of having two management teams, two clinical development teams, two boards, figuring out how to finance their 50 per cent rights, it's going to be a cohesive, single board, single management, much more streamlined, and more rapid decision making," said Firestone. "It's going to be less mouths to feed, less of a head count, to support this project from the corporate side."

If approved by shareholders, the acquisition is expected to be completed by the end of March 2006.

RP101 is intended as a co-treatment with cytostatic drugs to prevent the development of resistance to chemotherapy.

About a year and a half ago, when Hopper was still at the helm, AustCancer in-licensed RP101 and then sublicensed half to Innovate Oncology. "When I left AustCancer, Innovate asked me to come over and become chairman of that company," said Hopper.

He said recruitment for a dosing trial of 22 patients in three cities in Germany has finished, and an IND is expected to be lodged with the FDA in the next month or two with a major trial to start in the US once approved. "We're not exactly sure what the composition of the trial will be in terms of patient numbers and that sort of thing," said Hopper, "but it will be a reasonably large trial."

New York-based healthcare investment bank BIO-IB acted as financial advisor to Innovate.