By Randall Osborne
West Coast Editor
Microcide Pharmaceuticals Inc. plans to take over The Althexis Company Inc. in a stock swap worth about $22 million, and the new firm has nailed down $60 million in private equity funding to boost programs for drugs against infectious disease.
Mark Skaletsky, chairman and CEO of Althexis, will become chairman and CEO of the new company, for which a name has yet to be chosen.
To me, it was very important that the merger include a financing, Skaletsky told BioWorld Today. Well close the merger and, 30 seconds later, close the financing.
Under the terms of the deal, approved by the boards of directors of both companies and expected to close in the third quarter, Mountain View, Calif.-based Microcide will issue about 5.3 million shares of stock for all outstanding shares of Althexis.
Based on Fridays $4.19 closing price of Microcide shares (NASDAQ:MCDE), the buyout is worth $22.22 million. The closing price Monday of Microcide was $4.57, up 38 cents. It had about 11.5 million shares outstanding on March 31.
Microcide will assume the outstanding options of Althexis, and all but about 400,000 of the newly issued shares will be subject to restrictions on resale for a year from closing.
The new $60 million comes in the form of a private placement of redeemable preferred stock, convertible into shares of Microcide common stock at a fixed rate of $3 per share, which is a 24 percent discount from the 20-day average closing price of Microcide as of July 19, when the offering was authorized.
Conducting the transaction, in which the preferred shares will be subject to lockup for up to nine months after closing, are Prospect Venture Partners LP, of Palo Alto, Calif.; New Enterprise Associates, of Menlo Park, Calif.; and Schroder Ventures, of Boston.
Skaletsky formerly was CEO of Waltham, Mass.-based GelTex Pharmaceuticals Inc., acquired by Genzyme General, of Cambridge, Mass., about one year ago for over $1 billion. (See BioWorld Today, Sept. 12, 2000.)
Here we go again, joked Skaletsky, but noted Microcide and Althexis had been talking about partnering in a technology way, because the scientists saw the synergy, before he joined Microcide in April of this year. He was a member of Microcides board, but resigned upon being hired by Althexis.
Discussions of the merger began fairly quickly after I joined, and [were] initiated on the Microcide side, he added.
Althexis, of Waltham, brings to the union its structure-based drug design approach, which exploits atomic information for what the company says provides more specific data about disease targets, along with a target validation system known as ACTT, which stands for Althexis Calorimetric Target Triage.
The system uses calorimetric methods to measure the function of proteins as drug targets. First to be studied is a bacterial enzyme, the structure of which is clear in a broad spectrum of pathogens. In that effort, Althexis collaborated in a deal worth up to $14.4 million with Pliva Pharmaceuticals Inc., of Zagreb, Croatia, originator of the popular antibiotic Zithromax (azithromycin), marketed by New York-based Pfizer Inc. (See BioWorld Today, March 12, 1999.)
Microcide will use methods devised by Althexis with its own discovery platforms, including what the company calls VALID Microbial Genomics. Focused on antimicrobials, Microcide aims to develop new antibiotics and antibiotic potentiators, or efflux inhibitors, to tackle the problems of bacterial and fungal resistance.
The combined firm will have six lead optimization programs for anti-infectives and one clinical program, with a pipeline that includes a compound in Phase I trials that is designed to treat Gram-positive infections (including those caused by bacteria not affected by other antibiotics).
Thats [Microcides] arrangement with J&J, Skaletsky said. The $8 million agreement with Johnson & Johnson, of New Brunswick, N.J., was signed in 1995, and brought an equity investment of $5 million. (See BioWorld Today, Oct. 26, 1995.)
The whole cephalosporin program with J&J includes an injectable [product] thats the clinical one and theres an oral, which is in preclinical study, he said.
Another Microcide deal, with Tokyo-based Daiichi Pharmaceutical Co. Ltd., is based on efflux inhibitors and valued at $10 million. (See BioWorld Today, Nov. 20, 1995.)
I had to have the scientists bring it down to my level, but basically [efflux is] a pump that, when antibiotics are put in, it kicks them out, Skaletsky explained. Microcide and Daiichi also are looking at antifungals, he said.
With the new firm, to be based in Waltham, were going to be looking at taking care of partnerships in place, taking care of those goals, but also moving into development of our own, Skaletsky said. A research and development facility will remain in Mountain View, he added.
Jim Rurka, president and CEO of Microcide, told investors during a conference call that the merger is a truly transforming event for his firm, likely to make it self-sufficient and more powerful.
Skaletsky said the new company will have about $70 million in cash when the deal closes, or enough for three-plus years of operation.
Of course, that will depend on if we find interesting opportunities we want to bring in, he said during the conference call.
Meanwhile, Skaletsky told BioWorld Today, the firm will work its own drug development plan.
We got products approved at GelTex, and thats what were going to do here, he said.