Arris Pharmaceutical to Acquire Khepri Pharmaceuticals.

SOUTH SAN FRANCISCO, Calif.--(HealthWire)--Nov. 8, 1995-- Arris Pharmaceutical Corporation (NASDAQ: ARRS) announced today that it has signed a definitive agreement with Khepri Pharmaceuticals, Inc., a private company also based in South San Francisco, pursuant to which Arris will acquire all of the outstanding stock of Khepri for Arris Common Stock or other consideration valued at $20-22 million.

Under the acquisition agreement, the existing stockholders and other securityholders of Khepri would receive Arris Common Stock or Arris Common Stock options, warrants or rights in a two-stage closing. On the date of the closing of the acquisition, currently expected to be in December, approximately 1.5 million shares of Arris Common Stock will be issued.

These shares will be subject to a contractual lockup; of them, approximately one million will not become eligible for sale to the public until January, 1997. On December 30, 1996, at Arris' option, approximately 525,000 additional shares or their cash equivalent, will be issued. Closing of the transaction is subject to certain conditions, including receipt of a permit following a fairness hearing to be conducted by the California Department of Commerce.

The acquisition will be accounted for as a purchase. In the 1995 fourth quarter, Arris expects to write off a significant portion of the purchase price as in-process research and development.

According to John Walker, president and chief executive officer of Arris, "The Khepri acquisition adds to our already robust pipeline of future product opportunities and results in a portfolio of new targets more extensive than that of any other company pursuing protease drug discovery today. Once the transaction is completed, we will immediately begin to apply our Delta technology -- initially developed for the inhibition of serine proteases -- to Khepri's cysteine protease targets. On that basis, Arris intends to move forward to explore new pharmaceutical collaborations, most likely in infectious disease, oncology, bone disorders, and in inflammatory diseases such as rheumatoid arthritis.

"This is exactly the kind of opportunity to which we have referred when describing Arris' Pivot Point strategy," Walker noted. "We have long recognized that for a discovery company, there is no more important asset than a prolific pipeline. By combining our chemistry with Khepri's expertise in protease biology, genomics, and their unique chemistry designed to produce reversible and irreversible inhibitors of cysteine proteases, we have dramatically expanded the scope of protease targets and therapeutic applications available for collaborative research and development programs.

"Over the last several years, we have built a successful business focused on leveraging pharmaceutical partnerships to reduce capital requirements," Walker added. "In that context, the acquisition strengthens the foundation upon which our business will continue to grow, and it is complementary to Arris' longer-term but equally as exciting receptor-based research program."

Khepri president and chief executive officer, Ron Henriksen, commented, "We are very pleased with Arris' proposal and the opportunity it provides our stockholders and employees. This merger is in keeping with Khepri's long-range corporate goal of being associated with a high quality company with complementary technology and a focused business strategy."

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

Khepri Pharmaceuticals, Inc. is a biopharmaceutical company focused on accelerating the discovery and development of the next generation of protease-based therapeutics. Initial disease targets are asthma and diseases characterized by aberrant protease activities resulting in tissue destruction, such as arthritis, osteoporosis and stroke.

Arris Pharmaceutical Corporation is engaged in the discovery and development of synthetic small molecule therapeutics. The company uses structure-based drug design that integrates 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 Pharmaceuticals

John P. Walker/Shari Annes, 415/737-3270 or 415/737-1679

or

Khepri Pharmaceuticals

Ron Henriksen, 415/794-3500