BioWorld International Correspondent

In agreeing last week to merge with Seattle-based Cell Therapeutics Inc., Italy's Novuspharma SpA is following a route opened up last year by another Italian firm, BioSearch Italia. The latter company also merged with a U.S. firm, Versicor, now Vicuron Pharmaceuticals Inc., of King of Prussia, Pa., in a stock-based transaction that was of a similar scale.

BioSearch was taken out at a valuation of US$260.7 million. The CTI offer values Novuspharma at about US$236 million.

The deal, which is expected to close in the fourth quarter, would create a cancer therapeutics company with pro forma cash holdings of US$230 million as of March 31; an approved product, Trisenox; and two compounds in Phase III clinical trials, Novuspharma's Pixantrone and CTI's Xyotax.

The BioSearch Italia transaction paved the way for the CTI agreement, Novuspharma spokesman Karl Hanks told BioWorld International, "in terms of straightening the legal path to the merger." It also had whetted investors' appetite for such a deal. Novuspharma shareholders will receive 2.45 CTI shares for each Novuspharma share and will hold approximately 16 million shares, or 31 percent of the combined company on a fully diluted basis. The enlarged entity plans, like Vicuron, to retain a dual listing on Nasdaq and on the Nuovo Mercato of the Borsa Italiana.

The deal severely depletes the ranks of independent biotechnology firms based in Italy. Four companies were financed through spin-outs or buyouts of big pharma research units during the biotechnology bubble of the mid- and late 1990s. Milan-based Novuspharma emerged as a cancer specialist following the merger between F. Hoffmann-La Roche Ltd., of Basel, Switzerland, and Boehringer Mannheim GmbH in 1998. BioSearch, which focused on antibiotic discovery and development, was the result of a management buyout of the Lepetit Research Center of Hoechst-Marion-Roussel. The two other spin-outs, urology and inflammation specialist BioXell SpA, of Milan, and Bresso-based CNS firm Newron Pharmaceuticals SpA, which are still privately held, have roots in Roche and the former Pharmacia & Upjohn organization, respectively. Each has raised close to €40 million to date.

According to analyst Fabrizio Barini, of Milan-based Intermonte Securities SIM, those four firms owe their origins to the "particular momentum" in the biotechnology market at that time. "Now it is completely different," he said. The rest of the Italian biotechnology sector is highly fragmented and, for the most part, has little prospect of raising significant levels of venture capital. It comprises about 100 firms, he said, most of which are based around the research of an individual academic scientist or clinician. "They are very, very small." Few of them are in a position to develop a proper commercial strategy, he added.

Novuspharma's outlook was international from the outset. Before signing the agreement with CTI, it had considered "a number of different opportunities on both sides of the Atlantic," Hanks said. "I think it is a bad idea for European biotechnology firms to think in national terms," he said. "We need to look to build a critical mass in biotechnology in Europe."