Alliance Pharmaceutical Corp. Announces Agreement With Inhale Therapeutic Systems for PulmoSpheres Technology.

SAN DIEGO--(BW HealthWire)--Oct. 5, 1999--

Alliance Pharmaceutical Corp. (Nasdaq:ALLP) and Inhale Therapeutic Systems, Inc. (Nasdaq:INHL) announced today that Inhale will acquire Alliance's PulmoSpheres(R) particle and particle processing technology for use in respiratory drug delivery.

The PulmoSpheres technology is a particle formation method designed to enhance the efficiency and reproducibility of drugs delivered in propellant-based metered-dose inhalers and in dry powder inhalers.

Under the terms of the agreement, Alliance will receive $15 million in cash payments from Inhale and $5 million of Inhale stock. For this, Inhale will receive the rights to PulmoSpheres technology in the field of respiratory delivery, other related assets, and $5 million of Alliance stock. On closing of this transaction, Alliance will receive $10 million in cash and Inhale will receive $5 million of Alliance stock.

In the event that Inhale has completed a financing prior to the close of the transaction, Alliance will receive the additional $5 million in cash and $5 million in Inhale stock at the closing. If a financing has not occurred as of the closing date, these additional payments will be made at the earlier of the closing of a subsequent financing or one year following closing.

The price for stock received by both Inhale and Alliance will be calculated as an average of the closing prices on the 15 trading days prior to issuance date, and the stock will be restricted securities. Alliance will also receive potential future milestone payments based on the achievement of defined events, and royalties on eventual sales of a defined number of products commercialized using the technology.

Alliance retains the right to develop up to two respiratory products yet to be specified which will be formulated by Inhale using the PulmoSpheres technology. The parties will mutually agree to the choice of products subsequent to the closing of the transaction.

"The PulmoSpheres technology was derived from Alliance's expertise with surface chemistry, emulsions, and spray dry manufacturing processes," said Duane J. Roth, chairman and CEO of Alliance. "After demonstrating proof of concept that PulmoSpheres could potentially be used to deliver a wide range of drugs to the lungs, we sought to find a partner that specialized in pulmonary drug delivery and was in a position to commercialize the technology broadly. The agreement with Inhale allows Alliance to participate in their success through potential future milestones and royalties, while we retain certain rights to use the technology for two products delivered through the respiratory route and all non-respiratory applications.

"This arrangement provides Alliance with immediate funding, future milestones, and the potential for additional products that fit our strategy of developing novel products that address large patient markets," Roth noted.

"The acquisition of PulmoSpheres technology is a key component in meeting several of Inhale's strategic goals," said Robert Chess, chairman and co-CEO of Inhale. "First, it enhances our position as a leader in the pulmonary delivery of macromolecules, such as proteins and peptides. Secondly, it enables Inhale to leverage its dry powder technology platform to address pulmonary delivery opportunities beyond macromolecules, specifically the delivery of a variety of small molecule therapeutics for respiratory and systemic diseases. In addition, PulmoSpheres technology potentially could solve a formulation challenge that currently limits the application of metered-dose inhalers, thus enabling Inhale to address a potentially significant need in this multi-billion dollar market."

Chess explained that PulmoSpheres technology is also attractive to Inhale because the company can use it with only minor modifications to its existing powder processing, filling and packaging systems. This translates into lower infrastructure investment and rapid technology development timelines. "Our acquisition of Alliance's technology is another example of Inhale's commitment to provide our partners and the pharmaceutical industry with the most advanced respiratory delivery technology available," he said.

The PulmoSpheres technology uses a unique emulsification process to produce a powder of hollow, porous, drug-containing spheres that are the ideal size for deep lung delivery. When suspended in commonly used propellants or the new environmentally-preferred propellants, the aerodynamic PulmoSpheres produce stable formulations that could lead to improved efficiency and reproducibility of drugs delivered to the lung via metered-dose inhalers.

The technology may also be advantageous for drug delivery via nasal sprays and nebulizers, and it could provide enhanced dispersability of certain powders for improved delivery of drugs using dry powder inhalers such as Inhale's proprietary delivery system. Drugs that have been formulated into PulmoSpheres particles include asthma medications such as bronchodilators and anti-inflammatory agents, antibiotics, and proteins and peptides.

Inhale will acquire Alliance's intellectual property portfolio for PulmoSpheres, including several patent applications, and will have the exclusive right to use this technology in the respiratory field.

This transaction has been approved by the board of directors of each company and is subject to the satisfaction of customary closing conditions, including requirements of the Hart-Scott-Rodino Act, which the parties anticipate meeting within 30 days.

Alliance Pharmaceutical Corp. is a research and development company with three products in late-stage clinical (human) development, each addressing a different medical need. Alliance's principal products are Oxygent(TM), an intravascular oxygen carrier ("blood substitute") intended to reduce the need for donor blood transfusions in surgical patients; LiquiVent(R), an intrapulmonary "liquid ventilation" agent for treatment of acute lung injury and acute respiratory distress syndrome; and Imagent(R), an ultrasound contrast agent being developed with Schering AG, Germany.

Inhale, located in San Carlos, Calif., is developing pulmonary delivery systems to create inhaleable drugs, including peptides and proteins, for systemic and local lung indications. The company has tested six drugs in human clinical trials using its delivery system and has feasibility and development partnerships with several pharmaceutical and biotechnology companies, including Biogen, Centeon, Lilly, and Pfizer. Inhale's most advanced program is inhaleable insulin, which is in Phase III trials with Pfizer Inc. and Hoechst Marion Roussel.

Except for historical information, the matters set forth in this release are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein, including the availability of funding for development, the uncertainties associated with the conduct of preclinical or clinical studies and the timing or ability to investigate scientific data. Alliance refers you to cautionary information contained in documents the company files with the Securities and Exchange Commission from time to time, including the last Form 10-K, and those risk factors set forth in the most recent registration statement on Form S-3 (File No. 333-76343).