Arris Pharmaceutical Acquires Khepri Pharmaceuticals.

SOUTH SAN FRANCISCO, Calif.--(BUSINESS WIRE)--Dec. 26, 1995-- Arris Pharmaceutical Corporation (Nasdaq:ARRS) announced today that it has completed the previously announced acquisition of Khepri Pharmaceuticals, Inc., a private company also based in South San Francisco, by purchasing all of the outstanding stock of Khepri.

The transaction involves two payments by Arris: the current transfer of approximately 1.4 million shares of Arris Common Stock and a second payment scheduled to occur December 30, 1996 when at Arris' option, approximately 530,000 additional shares, subject to adjustment, or a fixed cash equivalent, will be issued to Khepri security holders. In addition, approximately 350,000 shares of Arris Common Stock are reserved for issuance upon exercise of options, warrants and exchange rights.

Of the approximately 1.4 million shares of Arris Common Stock transferred to the shareholders of Khepri today, approximately 1,050,000 are subject to a contractual lockup and will not become eligible for sale to the public until January, 1997. The remainder includes approximately 300,000 shares subject to shorter lockup provisions.

Arris president and chief executive officer John Walker explained that the acquisition would be accounted for as a purchase, and that in the 1995 fourth quarter, Arris would write off an amount currently estimated to be approximately $20.5 million as in-process research and development and costs associated with the completion of the acquisition.

Walker also explained that integration of the two companies had required downsizing in both organizations. Individuals who will receive severance packages have been notified, he said, and no additional downsizing is anticipated. Organizational changes required by the newly merged organization will become effective January 1, 1996. Walker added that a transition team led by the senior management of both organizations had worked closely for several weeks to determine transition policies, including personnel issues. He also indicated that both facilities would remain operational, with the Arris, or "North Campus," building housing the protease program and the former Khepri, site or "South Campus," housing the receptor program, Arris' finance group, and certain core technologies.

"In a very short period of time, the synergies between the two companies have become quite apparent. With the new team in place, we can move forward to determine those opportunities that will allow Arris to continue to grow -- both in research and corporate development," Walker said.

Cowen and Company acted as advisor to Arris, while Hambrecht and Quist provided financial advice to Khepri.

Arris Pharmaceutical Corporation is engaged in the discovery and development of synthetic small molecule therapeutics. The company uses structure-based drug design that integrates genomics, molecular biology, structural biophysics and synthetic, combinatorial, medicinal and computational chemistry capabilities to shorten the drug discovery and development cycle. Arris' research and initial product development programs are focused in two major areas: protease inhibitor-based discovery, currently directed at therapeutics for multiple applications; and receptor-based discovery technologies initially focused on oral cytokine and growth factor mimetics.

CONTACT: Arris Pharmaceutical Corporation

John P. Walker or Shari Annes, 415/737-3270