The sometimes thin line separating the drug and device worlds got a little slimmer Monday as Angiotech Pharmaceuticals Inc. signed a definitive agreement to acquire Cohesion Technologies Inc. in a $42 million all-stock merger.

The agreement combines Angiotech's drug-coated device technology with Cohesion's biomaterials business that develops bioactive devices and implants for use in minimally invasive and open surgery.

"We have believed for the better part of five years that the drug-coated stent was going to be the first of its kind, not the only one of its kind, and that the medical device and implant world was going to move progressively toward therapeutic coatings on devices," Angiotech CEO William Hunter said in a press conference. "We felt as if . . . we were going to have to be able to deliver and provide the entire package in order to really build this business."

The sticker price, which includes options and warrants, is $4.05 per common share of Palo Alto, Calif.-based Cohesion. Angiotech will issue 1.2 million shares, and following the merger the combined entity will have 16.9 million shares outstanding. Cohesion reported $9.2 million in cash holdings as of June 30, while Angiotech reported $100 million in cash, with no debt.

Including customary conditions and stockholder approval, the closing is subject to adjustment by a collar provision with respect to the trading price of Angiotech shares. The per-share price reflects a premium of $1.80 to Cohesion's Friday closing price of $2.25.

Cohesion's shares (NASDAQ:CSON) jumped 63.6 percent Monday, or $1.43, to close at $3.68 on the news. Angiotech's stock (NASDAQ:ANPI) dropped 25 cents to close at $39.58.

In addition to combining their complementary technologies, Cohesion's specialized U.S. sales force will now work for the combined entity.

"We've set about for over the last two and a half years looking at just about the entire biomaterials universe, and I can say without hesitation that Cohesion was clearly the best company out there in this field," Hunter said. "We think that we have established a leadership in the field of drug coating, and clearly Cohesion, with a number of approved biomaterials, has certainly been at the forefront of the medical implant business."

The companies said they expect the transaction to close during or before the first quarter of next year.

Angiotech said using biomaterials as a basis for drug-loaded programs will create a variety of drug-loaded implants. The Vancouver, British Columbia-based company currently licenses the drug-coated stent ingredient paclitaxel to Natick, Mass.-based Boston Scientific Corp. and Cook Inc., of Bloomington, Ind.

Angiotech said it would use Cohesion's biomaterials to further develop its drugs and medical device coatings, such as a paclitaxel vascular surgery implant for use during a cardiac bypass procedure.

"We believe that we were one of the first to make a concerted effort in the business of drug-coated medical devices," Hunter said. "Drug coating other implants is an absolutely natural extension for us."

Cohesion brings to the deal three approved products: the CoSeal surgical sealant, CoStasis surgical hemostat and an adhesion prevention gel. Its patent portfolio includes about 75 issued U.S. patents and 10 pending applications. Its product portfolio includes four biomaterials. The firm features multiple technology platforms surrounding synthetic polymers, collagen, thrombin and autologous plasma.

The acquisition will also result in about a 40 percent ownership of Campbell, Calif.-based Neucoll Inc., which focuses on biomaterial solutions for orthopedic problems. Its products include Collagraft, approved in the U.S., Europe, Japan and Canada, and Neuvisc, which is in development.