Baxter to Shed Medical Research Division in O.C.

IRVINE — Baxter International Inc. said it will spin off an Irvine-based medical research division, forming a new venture with a small Delaware biotech company to develop treatments for cancer, AIDS and other diseases.

Vimrx Pharmaceuticals Inc. of Wilmington would own a controlling stake in the new company, which would be located in Irvine. The new company, which has yet to be named, will receive a $30-million infusion--$20 million from Baxter and $10 million from Vimrx--to fund research and development of various treatments.

“This is a step on the road to a dream,” said John Osth, president of the Baxter division. He is expected to wind up in a leadership role in the new company.

Among its other goals, Osth said, the new company aims to develop technologies for preparing cells to treat various diseases, either as alternatives or adjuncts to drugs.

As a result of the deal, Baxter will be distancing itself from its Immunotherapy division, which has experienced ups and downs common among biotech companies. Started as a research project a decade ago, the business grew into a full-fledged division in 1991.

Last year, it posted sales of about $9 million, mostly in Europe, but development of cancer therapies has been slow and the unit continues to lose millions of dollars a year, analysts say. Its payroll, which totaled 180 employees at its peak, has been trimmed to 130 employees.

“This is an area that Baxter has had high hopes for, but $10 million of sales after 10 years of investment at $5 million to $10 million a year is not earth-shatteringly good,” said Kenneth Abramowitz, an analyst with Sanford C. Berstein.

Officials said they have yet to decide where the Baxter division employees, including 85 in Irvine, will end up. They indicated that though some might remain with Baxter and some jobs might be cut, most would shift to the new company.

“Irvine is primarily a research organization,” said Richard Dunning, Vimrx’s chief executive. “It has people who work on clinical and development, marketing and customer service. They’ll form the nucleus of the new company.”

Ten division jobs in Illinois will be transferred to the new company in Irvine, Osth said. It’s unclear whether the division’s Munich, Germany, operation, which employs about 30, will remain part of Baxter.

In the joint venture, Baxter, a giant health-care products company based in Deerfield, Ill., would contribute its patented process for isolating cells--a method that it expects can be used in treating cancer, immune diseases and other ailments.

Baxter would get both a minority stake in the new company and a 30% interest in Vimrx itself. Baxter’s Vimrx stake--consisting of 11 million shares of common stock plus convertible stock--would be worth about $90 million, said a Vimrx official.

The Illinois company also stands to receive as much as $21 million in payments from the joint venture over the next few years if certain product development efforts pan out.

However, Baxter would retain rights to use its patented process for isolating stem cells, which can be used to restore a cancer patient’s blood and immune systems following chemotherapy. It will make, sell and market cancer-related cell therapy products for the new company.

Vimrx, a research and development company, has no sales. It reported losses last year of $20 million, including $15 million in write-downs of research-oriented companies it purchased. Among other ventures, it’s working to develop treatments for HIV, brain cancer and hepatitis C.

Baxter stock slipped 37.5 cents a share Thursday to close at $54.125 in New York Stock Exchange trading, while Vimrx was unchanged at $3.50 on the Nasdaq market.