Another merger agreement has fallen apart for eXegenics Inc.

For the second time in the past year, the Dallas-based company saw its plans dissolve about two months after initially reporting a decision to combine with another firm. The latest suitor to walk away, AVI BioPharma Inc., said an insufficient number of eXegenics shareholders agreed to the tender offer.

"The shareholders of eXegenics weren't particularly happy with their board and management," Michael Hubbard, AVI's director of investor relations, told BioWorld Today. "They seemed to have no problems with AVI. We received calls from a number of them wanting more information on AVI, so I don't think the issue was with us."

But the Portland, Ore.-based company's bid to buy eXegenics faced competition from an existing offer on the table before AVI came forward. The deal fell apart as its deadline passed overnight Friday.

The news dropped eXegenics' stock (NASDAQ:EXEG) by 13.4 percent Tuesday, or 9 cents, to 58 cents. The company declined to comment specifically, though WaLisa Davenport, its head of investment and human relations, said eXegenics eventually would issue a press release to express its disappointment.

AVI originally proposed a stock exchange valued at the outset at about $11 million, based on a valuation of eXegenics' common stock at 61 cents per share and its preferred stock at 92 cents each. The figures were based on a ratio that would have exchanged each eXegenics common share for 0.103 of a share of AVI common stock, and 0.155 of a share of AVI common stock for each eXegenics preferred share. The deal could have provided AVI cash as well as antisense technology and three validated cancer targets. (See BioWorld Today, July 17, 2003.)

"They had some technology and patents that were adjunct to ours," Hubbard said. "And they had a considerable amount of cash, and they were just spinning their wheels and not getting anywhere. So we felt both of those features were attractive."

Through June 30, eXegenics reported $14 million in cash, cash equivalents, restricted cash and investments. The company also recorded a quarterly loss of $1.8 million for the quarter that ended that day, during which it reduced its research and development costs by 97 percent. eXegenics said its decision to terminate all research activities lowered R&D spending by $1.2 million.

Nevertheless, AVI said the planned acquisition was not vital to its plans going forward. Hubbard said no further buyouts are on the immediate horizon for AVI, though the company would always consider appealing opportunities.

Such plans were disrupted most by an existing offer from Foundation Growth Investments LLC and EI Acquisition Inc., an unsolicited all-cash exchange first proposed in late May, which didn't disappear following the AVI agreement. The Chicago-based firm first proposed to pay 40 cents per share for all of eXegenics' outstanding stock, common and preferred.

eXegenics' board recommended its shareholders reject the offer, after which Foundation and EI attempted to have the board replaced. That failed, and eXegenics moved forward in talks with AVI, a deal the board recommended.

At the beginning of August, Foundation and EI upped their offer to 51 cents in cash for all of eXegenics' outstanding stock. The unsolicited bid group said its offer valued eXegenics at a higher purchase price, noting that AVI's stock had lost almost 20 percent of its value since the merger first was reported.

A week later, AVI upped its exchange ratios by about 20 percent, offering 0.123 of a share of AVI common stock for each eXegenics common share, and 0.185 of a share of AVI common stock for each preferred share. The board again voted in favor of the AVI offer.

"I think it was an opportunity that looked pretty straightforward at first blush," Hubbard said. "I don't think anyone expected that there would be all this distraction with Foundation in there, upping its offer, which probably ended up resulting in this confusing scenario."

But as AVI's Aug. 29 tender offer deadline approached, Foundation and EI again increased their offer to 60 cents per share and extended their deadline to Sept. 8. While the eXegenics board reiterated its recommendation that shareholders reject the cash offer and instead ratify the stock exchange offer, the deadline offer passed without enough votes cast in favor of the AVI merger.

"They upped their cash offer and had a deadline beyond ours," Hubbard said. "I don't know if that led to some confusion."

For eXegenics, the failed union represents the second missed merger opportunity in the past 12 months. Last fall, it scrapped plans to pair with New York-based Innovative Drug Delivery Systems Inc., about two months after entering a merger agreement that would have brought late-stage clinical products to eXegenics. But the companies declined to detail reasons for the breakup. (See BioWorld Today, Nov. 27, 2002, and Sept. 23, 2002.)

The latest eXegenics separation will not slow operations at AVI. Hubbard said that later this month it plans to begin clinical trials of AVI 4020, a drug to treat West Nile virus. The company also has applied for orphan drug designation for the compound to treat severe acute respiratory syndrome and expects to file an investigational new drug application for that indication as well.

AVI also plans to begin Phase Ib trials of an antisense product, Resten-NG, for restenosis. He said the company continues to discuss partnership opportunities for late-stage development of its Avicine cancer vaccine for pancreatic cancer.

AVI's stock (NASDAQ:AVII) dropped 3 cents Tuesday to close at $5.51.