Entelos, Inc., a life sciences company that leverages its proprietary in silico disease models, announced that it has entered into an agreement to acquire Iconix Biosciences, Inc. (Iconix), a privately held predictive toxicology company located in Mountain View, California, in an all-share transaction.

"We believe the combination of our predictive efficacy models with Iconix's toxicology expertise can create a new paradigm for discovering and developing drugs," commented James Karis, president and CEO of Entelos, Inc. "Drug failures are often due to efficacy or toxicity issues, and while Entelos' predictive disease models address efficacy, Iconix's toxicology databases help to address toxicities. In addition, Entelos' recently announced collaboration with the FDA to build a model of drug-induced human liver injury to identify patients at risk for developing hepatotoxicity and the addition of Iconix will expand our capability for drug safety assessment."

Jim Neal, CEO of Iconix stated: "We believe the merger of our predictive toxicology services into Entelos creates the best value for our shareholders. By combining our powerful approaches to better understand efficacy, safety, and new drug uses, the expanded company will be well positioned to take advantage of the synergies and achieve greater commercial success."

The initial consideration for the acquisition is to be satisfied by the issue of up to 12,776,658 Entelos shares (to be adjusted for net working capital) and a potential maximum earn out payment of $25.0 million if certain financial milestones are achieved. Such deferred consideration is to be also satisfied in Entelos shares, which will be based on a 10-day average closing price for the period prior to an earn out payment.

Iconix is the leading provider of toxicogenomic reference information used by pharmaceutical companies to prioritise chemical compounds in development and minimise or eliminate toxicity. In traditional drug development, safety assessment of drug candidates is performed in vivo in laboratory animals only after lead compounds have been selected and initial efficacy studies have been completed. As a consequence, adverse events and potential side effects of a chemical compound or compound series are often discovered relatively late in the development process. Iconix provides core toxicology databases that contain gene expression patterns for hundreds of drug compounds with known toxicities that can be used to help predict and rapidly test novel molecules for potential toxicities using much shorter and faster in vitro (in a test tube) studies.

Iconix will become part of Entelos' Technology and Services division. As a consequence of the acquisition, Entelos anticipates consolidating certain administrative and operational positions at Iconix to Entelos' headquarters in Foster City, California. Mr. Neal will join Entelos as the company's chief business officer.

Under the transaction details, the closing initial payment is up to $14.1 million, adjusted for net working capital, to be satisfied by the issue of up to 12,776,658 Entelos shares, with a reference price of 55 pence per share, to Iconix shareholders for the entire share capital of Iconix. Based upon the closing share price of the Company of 32.5 pence as at 29 August 2007, being the latest practicable date prior to this announcement, the initial payment for Iconix is valued at up to $8.3 million.

If certain financial milestones are achieved following closing, Entelos shares will be issued upon the occurrence of certain events for the earn out worth up to a maximum of $25 million. The total number of shares to be issued for the earn out will be calculated using a 10-day average closing price for the period prior to any earn out payment.

Iconix's major investors, who as a result of the transaction will have an interest in Entelos shares, are Abingworth Management, Institutional Venture Partners, Kleiner Perkins Caufield and Byers, and MDS Pharma Services.

All of the shares to be issued in connection with the initial consideration will be subject to a lock up agreement that provides that subject to certain limited exemptions (including with the prior written consent of Entelos) the issued shares will not be disposed of for 12 months following the expected effective date of the merger of 31 August 2007. Earn out shares issued one year after the closing will be subject to a six-month lock up from the date of issue.

Under US GAAP rules, for the year ended 31 December 2006, Iconix reported $4.9 million in revenues and a loss of $11.2 million with gross assets of $7.6 million. Entelos expects Iconix to be cash-flow neutral on a pro-rata cash basis going forward and to add about $1 million to 2007 recognized revenues.