BioWorld International Correspondent

LONDON - SR Pharma plc is acquiring Europe's leading RNAi specialist Atugen AG in a reverse takeover that values the German company at £6.2 million (US$10.8 million). It's also raising new money to fund the enlarged company and pay for further acquisitions.

The venture capital backers of Atugen have put €31 million (US$37.2 million) into Atugen since its formation in 1998. In addition, the 34-employee company has raised €6 billion in government grants and generated €20 million from contract research.

London-based SR Pharma has spent the last year looking for acquisitions after its lead product, SR299, became the company's third product to fail in clinical trials. "The SR board has targeted the acquisition of undervalued assets and businesses in order to augment the company's capabilities," Iain Ross, chairman, told BioWorld International. "The acquisition of Atugen is the first such transaction to come to fruition."

He added, "We have targeted further acquisitions and intend to augment our existing cash reserves by raising substantial funding from new investors."

The issue of 19.7 million shares will give Atugen shareholders 49 percent of the enlarged equity of SR Pharma. Investors including Apax Partners, MPM Capital and Novartis Forschungsstiftung, who will own 46 percent of the enlarged group, have agreed to a 12-month lock-up.

Atugen will remain at its base in Berlin, and Thomas Christely and Klaus Giese, chief operating officer and chief scientific officer, respectively, will keep their positions. Peter Buckel, CEO, will leave the company in September. Three members of Atugen's supervisory board - Jeremy Curnock Cook, David U'Pritchard and Bernd Wetzel - will become nonexecutive directors of SR Pharma.

Although Atugen has revenues from services, therapeutics based on its technology are a ways from the clinic. Ross said the new company will need to raise money to see it through the next three years, but although it is high risk, SR targeted Atugen because it believes RNAi technology will have a "major impact" in drug discovery. In addition, he cited "meaningful" early stage collaborations with Sanofi-Aventis Group and AstraZeneca plc and the highly skilled staff as Atugen's key attractions.

Last year, Atugen had revenues of €3.5 million. It spent €3.1 million on R&D and had a net loss of €2.8 million. Revenue from services has fallen in 2005 and investment in R&D also is down.

Atugen's technologies include atuRNAi, a method of chemically stabilizing siRNA molecules, and atuPLEX, a liposomal system for the in vitro delivery of siRNA. That should make it possible for the company's RNAi therapeutics to be delivered intravenously. The intellectual property portfolio consists of 50 of its own patent applications and licenses to more than 100 other patents. The portfolio includes proprietary, functionally validated drug targets in oncology.

Therapeutics targeting the RNA interference process aim to stop the production of disease-causing proteins by preventing the translation of the genes which encode them, thus inhibiting, or silencing, their function. The RNAi process can be initiated by introducing short interfering RNA into the target cell.

A key element of Atugen's technology is GeneBloc, a method for producing small, synthetic DNA- and RNA-containing molecules that bind specifically to messenger RNA in the cell, preventing translation of the target mRNA into the protein it encodes.

While Atugen has a number of oncology candidates in preclinical development, it also has demonstrated that siRNA could be used to treat metabolic and inflammatory diseases. SR Pharma intends to takes the development of oncology therapeutics up to Phase II before out-licensing them and will seek partners for other therapeutic areas.