Q-Med acquires 59% of a company within cell therapy for diabetes

Q-MED ESTABLISHES A NEW BUSINESS AREA AND ACQUIRES 59% OF A COMPANY WITHIN CELL THERAPY FOR DIABETES * Q-Med establishes a new business area, "Cell Therapy and Encapsulation" * As a first step within this business area Q-Med is acquiring, through a towards Q-Med directed new share issue, 59% of Ixion Biotechnology for USD 7.8 million (SEK 68.6 million*) * Ixion has unique competence and technology for achieving a breakthrough in the treatment of insulin-dependent diabetes through the culturing and transplantation of islet cells. * Q-Med's NASHA gel will act as an encapsulating medium for the islet cells, in order to prevent rejection. "The combination of Ixion's stem-cell technology and Q-Med's NASHA gels offers unique research and commercial opportunities. There is great potential in what can be achieved using cell transplants within diabetes," says Q-Med's President and CEO, Per Olof Wallström. Q-Med utilizes its option to acquire further newly issued in the American biotechnology company Ixion Biotechnology, Inc. Ixion has been collaborating with Q-Med since April 1999 and is using Q-Med's NASHA technology to carry out research into the culturing and transplantation of insulin-producing islet cells with a view to treating diabetes. Q-Med has financed a material portion of Ixion's research since April 1999 in exchange for newly issued shares in the company. Up to and including June Q-Med had acquired 562,500 newly issued shares for USD 1.1 million (approximately SEK 9.9 million) and now acquires, through its wholly-owned subsidiary Qvestor LLC, a further 3,337,500 newly issued shares for USD 6.7 million (approximately SEK 58.7 million*). Half of the purchase sum was paid when the agreement was signed on July 14 and the remainder is to be paid no later than 12 months afterwards. Q-Med's participating interest in Ixion thus amounts to 59%. Ixion Biotechnology, Inc. Ixion Biotechnology, Inc. is a biomedical company situated in Gainesville, Florida. The company has 10 full-time employees and a number of part-time employees. The majority of the employees have a Ph.D. and the company has close ties with the University of Florida, USA's tenth largest educational and research institution. For 1999 the business reported a loss of USD 1.1 million. For the period January - May 2000 the loss was USD 0.5 million. Ixion's business focuses on two areas of research. In addition to the diabetes research there is also research and development concerning products connected with oxalate, a substance which is to be found in certain foods, and where an excess can lead to kidney stones, amongst other things. New business area The acquisition of 59% of Ixion Biotechnology is the first action to be taken within Q-Med's newly started business area "Cell therapy and Encapsulation". It is a strategic acquisition for Q-Med, within an area of research that is growing very rapidly and which offers great commercial potential. It is estimated that the capital that Ixion receives through Q- Med's investment in the company will finance Ixion's research for approximately two years. It is estimated that it will cost approximately USD 25 million up until registration to develop Ixion's diabetes products. Patents Ixion's technologies are covered primarily by patents and patent applications held by the University of Florida, but with regard to more recent patent applications Ixion employees are included as co-inventors, which gives Ixion as the employer its own part of the inventions which are included in these applications. Through the patent licence agreements with the University, Ixion has secured exclusive world-wide rights to make use, without any real limitations, of the current patented inventions and those for which a patent has been sought as well as the accompanying know-how. The licences are for the lifetime of the patents. So far two patents have been issued in USA within diabetes, and these run until 2014 and 2015, respectively. A further diabetes patent application is being scrutinized. Patents have been applied for in a number of other countries besides USA. Ixion pays all patent costs that arise and will pay royalty on sales of future products to the University of Florida. For 1999 Ixion's total patent costs amounted to approximately USD 91,000. Royalty for future diabetes products will be paid on a basis of 4% of net sales. Diabetes It is estimated that today up to 100 million people in the world suffer from diabetes. Just below 40 million of these are to be found in either USA or Europe. The area in which Ixion is doing research is of relevance to patients with type 1 diabetes and insulin using type 2 diabetes. Estimates indicate that over 7 million people in USA and Europe suffer from these types of diabetes. In USA alone the costs for diabetes constitute over 10% of the total health service costs or approximately SEK 900 billion (over USD 100 billion) per year. Society's indirect costs, such as for loss of wage earnings, also constitute enormous sums. Today insulin-dependent diabetes is treated primarily through several daily doses of insulin. This controls the symptoms but there can still be considerable swings in the blood sugar level. And this method does not mean that the underlying disease is cured either. Results have recently been reported where insulin-producing islet cells from the pancreas from organ donors have been transplanted into a small number of diabetes patients with good results. Access to pancreases is, however, very limited, which prevents the treatment from being carried out on a large scale. The patients also need to be treated with a number of medicines to prevent rejection, and this impairs the immunological defence. Ixion's treatment technology and NASHA Ixion's technology involves stem cells which produce insulin-generating islet cells being taken from the pancreas and then being cultured and differentiated in the laboratory for several generations. The islets are then transplanted to the diabetic patient. A first application will be autologous cells (cells which are taken from an individual, cultured and differentiated and then transplanted back to the same individual). A wider application is the transplantation of allogenic cells (from one individual to a number of other individuals). In the first case, there will be no general need for immunosuppressive drugs, but in the second case the islets must be protected from rejection. Q-Med's NASHA gel is experienced by the body as an endogenous substance and will give the cells protection during the transplantation and after in the host organism. Ultimately medication against rejection would be able to be completely eliminated or considerably reduced. Ixion's technology is still at the research stage. Experiments have been performed on mice where it has been shown that the transplanted cells successfully took over the regulation of blood sugar in the host animals. These initial experiments have been published recently (Ramiya, V. et al. Reversal of insulin-dependent diabetes using islets generated in vitro from pancreatic stem cells. Nature Medicine, March, 6: 278-282, 2000). It is estimated that trials on humans will be able to be begun during 2002. Effect on income and status Ixion will develop as an independent company with all the competences necessary for successful development. In addition to capital and technology, Q-Med will also provide industrial development competence as well as commercial experience and international structure. For the second half of 2000 it is estimated that approximately SEK 7 million (USD 0.8 million*) will be charged to Q-Med's income statement with regard to Ixion. Other ownership and the Board Other major owners of Ixion are the company's three founders, W. Gaines, D. Peck and A. Peck. In addition there are approximately 130 smaller owners, including most of the company's employees. Since July 1999 Q-Med's founder and principal owner Bengt Ågerup has been a member of Ixion's Board. After the acquisition Q-Med's President and CEO, Per Olof Wallström, will also take a seat on the Board. July 17, 2000 Uppsala, Sweden Q-Med AB (publ) Per Olof Wallström President and CEO * For translation purposes a dollar rate of SEK 8.80 has been used. Queries should be addressed to Per Olof Wallström, President and CEO, on +46(0)18-474 90 00 or +46(0)70-974 90 70. Q-Med AB (publ), Seminariegatan 21, SE-752 28 Uppsala, Sweden. Corporate identity number 556258-6882. Tel: +46(0)18-474 90 00. Fax: +46(0)18-474 90 01. E-mail: info@q-med.com. Home page: www.q-med.com ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/07/17/20000717BIT00070/bit0001.doc http://www.bit.se/bitonline/2000/07/17/20000717BIT00070/bit0002.pdf