Somatix acquires Merlin Pharmaceutical Corp. and its in vivo gene transfer technologies.

ALAMEDA, Calif.--(BUSINESS WIRE)--Dec. 19, 1994-- Somatix Therapy Corp. (NASDAQ: SOMA) and Merlin Pharmaceutical Corp. Monday announced that the companies had signed a definitive merger agreement whereby Somatix would acquire Merlin in a stock transaction.

Merlin is a private gene therapy company developing in vivo gene therapies focusing primarily on adenoviral (AV) and adeno-associated viral (AAV) vector technologies.

Merlin's leadership in in vivo gene therapy is primarily a function of its founding scientists, who include noted gene therapy innovator Dr. Richard Samulski, a professor at University of North Carolina and world-renowned adenovirus virologist Dr. Thomas Shenk, Howard Hughes professor of molecular biology at Princeton University. Samulski and Shenk, along with Yale neuroendocrinologist Dr. Matthew During, will become members of the Somatix 11-member scientific advisory board and have signed definitive consulting agreements for continued hands-on involvement in developing vector technologies with Somatix for neural and other diseases.

Merlin's scientists are credited with a number of inventions in the field of gene therapy, the rights to many of which have been licensed to Merlin.

Closing of the transaction is scheduled for January 1995. The transaction has been submitted to Merlin stockholders for their approval.

Merlin stockholders will receive up to 3 million shares of Somatix shares in the merger. Such shares are subject to both (i) lockup provisions providing for the release of one-fourth of the shares at periods of 6, 12, 18, and 24 months after the closing, and (ii) an escrow of 50 percent of the shares for 18 months.

Release of the escrowed shares is dependent on, among other conditions, the continued active involvement of the Merlin founding scientists with Somatix over the 18 month period.

"We are delighted to welcome Merlin as a new and important part of Somatix. The addition of Merlin's scientific capabilities and fundamental intellectual property in the field of adeno and adeno-associated gene transfer technology is consistent with Somatix's long-term strategic goals," said David W. Carter, chairman, president and chief executive officer of Somatix.

"We are pleased and flattered that scientists of the caliber of Jude Samulski and Tom Shenk have chosen to join the Somatix scientific effort. They had many options for collaborations, and the fact that they chose Somatix as the right environment for them, we feel, reflects well on us."

"With this single transaction, Somatix has captured scientific leadership in two important vector systems that are complementary to our existing vector expertise. Expanding our capacity to test and select the most appropriate vector system for the specific therapies we are pursuing, broadens and strengthens our clinical and commercial opportunities for both in vivo and ex vivo gene therapy applications.

"Moreover, we have significantly increased our strategic options for effectively competing in the near-term and long-term gene therapy arenas as well as innovating second- and third-generation technologies and products."

Carter continued: "This is the company's third merger or acquisition in a 3-year period. I believe that the rationalization and consolidation of gene therapy technologies under one roof is vital to the rapid exploitation of this promising field and I will continue to review potential merger or acquisition candidates."

Richard Mulligan, Ph.D., executive vice president research and chief scientific officer of Somatix, said: "This acquisition fits well into the recently reconfigured research organization, which has created a solid foundation for expanding our vector development activities.

"Specifically, we have established a new department of vector biology under the leadership of Dr. Olivier Danos of the Institut Pasteur to accelerate discovery, evaluation and implementation of new gene transfer technologies into our product development areas of oncology, neuroscience and hemophilia.

"With this infrastructure in place, we are poised to take full advantage of a new interactive collaboration with Drs. Samulski, Shenk and the other Merlin scientists in the development of in vivo gene transfer vectors. These efforts will benefit from Somatix's advanced capabilities in construction of cell lines for vector production and in the generation of GMP grade reagents for clinical use.

"Beyond these synergies, we expect that together we can evolve novel second- and third-generation hybrid gene delivery systems possessing key features using different existing vector platforms.

"Merging our technologies and programs will make it possible to develop delivery strategies matched to the technical challenges inherent in specific disease settings, rather than be constrained to the use of one particular gene transfer approach," Mulligan said.

Samulski said: "When you develop a new technology, you want to see it applied as rapidly as possible. With its commitment to scientific excellence, Somatix has many attractions, but we were particularly swayed by their leading expertise in the generation of specialized complementing cell lines, a critical capability for moving our vectors forward into the clinical arena."

Shenk added: "We strongly concur with the strategic view held by Somatix's management team that consolidation of a broad technological base allows one to concentrate on developing products that focus on clinical realities."

Somatix currently has clinical and preclinical programs in oncology, neural diseases, and hemophilia primarily using its proprietary retroviral vector gene therapy technology. The company's lead product, the GVAXTM cancer vaccine, is in Phase I clinical trials for the treatment of metastatic renal cell carcinoma and advanced melanoma.

Additional trials of the vaccine are planned for the treatment of prostate and colorectal cancers. Additionally, the company has research efforts in fundamental gene therapy techniques including a synthetic vector program, a hemopoietic stem cell group and an effort in fourth-generation retroviral packaging cells.

Merlin has a preclinical program using AAV vectors for Parkinson's in collaboration with Yale's Matthew During (this exciting work has been recently published in the October issue of Nature Genetics). Merlin also has collaborations for using AV and AAV technology in cardiovascular diseases and oncology.

Adenoviral vectors are capable of transducing both dividing and non-dividing cells, and have a large capacity which allows for transduction of a sizeable gene of interest. Additionally, they have an affinity for lung tissue, which may make them a good candidate to treat cystic fibrosis and other conditions involving the respiratory tract.

Adeno-associated virus is a non-pathogenic virus which needs helper virus to replicate. AAV inserts its DNA in a very predictable manner. Like AV, it is effective in transducing both dividing and non dividing cells, although its capacity is smaller.

Somatix Therapy Corp. is a leader in the field of gene therapy. The company intends to research, develop and commercialize proprietary processes for the genetic modification of cells and their use in the treatment of human disease. Somatix's assets include its highly efficient gene transfer technology, broad-based intellectual property and product development programs focused on cancer, neural diseases and hemophilia. -0-

NOTE TO EDITORS: GVAX is a trademark of Somatix Therapy Corp.

CONTACT: Somatix Therapy Corp., Alameda

              Mark Bagnall, 510/748-3064
              Merlin Pharmaceutical, New York
              Traci McCarty, 212/691-6346