By Mary Welch

Alliance Pharmaceutical Corp. licensed the manufacturing, sales and distribution rights for Oxygent, its chemical-based oxygen carrier, to Baxter Healthcare Corp. for $20 million in convertible preferred stock and another $30 million in convertible redeemable preferred stock.

¿Obviously, we¿re thrilled,¿ said Duane Roth, Alliance¿s chairman and CEO. ¿It¿s the last piece in really making it all happen ¿ all the years of development ¿ to getting it ready for the marketplace.¿

In addition to the stock deals, San Diego-based Alliance will receive royalty income and an ongoing share in the profits generated by product sales. Roth said both companies will reap profits of about 20 percent to 30 percent on all sales, with the rest of the money going for marketing, manufacturing and other services.

¿We¿re getting money to complete our obligations, including the costs of the trials,¿ he said. ¿But the earnings of the product will drive the value home to shareholders. We¿re equal partners in the profit margins.¿

There are an estimated 2.5 million surgeries in the U.S. requiring blood transfusions ¿ double that figure if you add Europe. Alliance is targeting elective surgeries, which account for two-thirds of the market, which could mean potentially $400 million three years after launch, said Fariba Ghodsian, vice president of Roth Capital Partners in Los Angeles.

Under the deal, if the price of Alliance¿s stock reaches $22 within the next four years, Deerfield, Ill.-based Baxter will be obligated to buy $20 million worth of preferred stock, or about 900,000 shares. If Alliance¿s price does not hit the $22 mark, after four years, Baxter still must buy $20 million worth of stock at market price. Baxter has 18 months to buy the convertible redeemable preferred stock. Currently Alliance has about 45 million shares outstanding.

¿That¿s a way for us not to have to sell stock to them at a small premium,¿ Roth said.

In fact, in the case of the $30 million convertible redeemable preferred stock, Roth said he expects Alliance to ¿use the money and then pay it back. That way we won¿t further dilute the stock.¿

For its money, Baxter has manufacturing, sales and distribution rights to Oxygent (perflubron emulsion) in the U.S., Canada and Europe. If Oxygent is approved for further indications, Baxter will have the right to co-develop Oxygent with Alliance.

Oxygent is an intravascular oxygen carrier, or blood substitute, that carries oxygen to tissues through the bloodstream. A perflubron-based emulsion, Oxygent contains no blood products and doesn¿t perform clotting or immunologic functions. Perflubron is derived from the same process used to make Teflon. In Phase II trials it was more effective than a unit of fresh blood in reversing transfusion ¿triggers¿ ¿ physiological changes that indicate the need for more blood ¿ and in delaying the need for a subsequent transfusion. (See BioWorld Today, Nov. 17, 1998, p. 1.)

It is being developed for use with a procedure called Augmented-Acute Normovolemic Hemodilution (ANH) to eliminate or reduce the need for donor blood transfusion during surgery. Augmented-ANH involves the collection of several pints of blood from the patient just before surgery. Oxygent then would be administered to the patient to replace the oxygen-carrying capacity of the collected blood.

After surgery, the patient¿s blood that was removed and conserved during surgery then would be reinfused to achieve a safe red cell concentration for postoperative recovery. Augmented ANH is intended to reduce the need for donor blood transfusions during and after surgery.

¿One reason why we¿re so pleased that Baxter is our partner is their broad and deep experience in blood,¿ Roth said. ¿But another reason is that the major player in making the blood transfusion decisions in surgery is not the surgeon. It¿s the anesthesiologist. They are the fluid managers. Most people don¿t know that. Baxter is one of the few companies with a dedicated sales staff built around the surgical setting. That¿s why they¿re ideal to market Oxygent.¿

Baxter is a marketing powerhouse both in surgical products and products involving anesthesia, Ghodsian said. ¿The trials weren¿t blinded, so there is some assumption that Baxter got feedback from the investigators. Baxter had its own product in this field, which failed in Phase III, so they have thorough knowledge of the field.¿

Oxygent now is in two Phase III trials. The first, in Europe, is for general surgery procedures, such as cancer, urologic, vascular and orthopedic operations. It is expected to complete enrollment next month. About 485 patients will be enrolled in eight countries. Data should be ready by September, Roth said.

The second trial, taking place in the U.S. and Canada, involves cardiac surgery patients undergoing coronary artery bypass grafting procedures with cardiopulmonary bypass. Enrollment should be completed late this year or early next year with data available three months later.

¿We¿re running about six months behind Europe,¿ Roth said. ¿We will use both sets of data in the U.S. ¿ for a label claim for use in patients undergoing both cardiac and non-cardiac surgery. In Europe we¿ll file for the first indication and then get a broader label with a supplemental filing.¿

Roth¿s best timetable guess would be that Oxygent could be launched in late 2001 or early 2002.

Alliance¿s stock (NASDAQ:ALLP) closed Friday at $11.75, down 12.5 cents.