Newlink Genetics Corp. and Lumos Pharma Inc. have agreed to merge, with the deal expected to close in the first quarter of 2020. Lumos will become a wholly owned subsidiary of Newlink, which will be renamed Lumos Pharma Inc.

The combined company is expected to have offices in Austin, Texas, and Ames, Iowa, and will focus on developing Lumos' lead candidate, LUM-201 (ibutamoren), an oral therapy for pediatric growth hormone deficiency and other rare endocrine disorders. Patients currently are treated with injections, often resulting in many thousands over a lifetime.

As part of the restructuring, Newlink is chopping its workforce back about 60% by shedding 28 employees, some of whom are management. Nicholas Vahanian is one, as he leaves the company presidency and its board. He co-founded Newlink 20 years ago, presided over it for the past 10 years, and sat on the board for the past four years. He's also been Newlink's chief medical officer and chief operating officer.

The restructuring is expected to be completed by year-end. Newlink expects the savings to add up to $5 million to $6 million annually.

Once the merger is completed, Richard J. Hawkins, Lumos' CEO, is expected to become CEO of the combined company. He was on hand for Tuesday morning's investor conference call and made it clear the priority was getting LUM-201 into a phase IIb trial starting in mid-2020.

"Available market data show that global sales of recombinant human growth hormone prescribed for pediatric patients reached over $1 billion in 2016," Hawkins said. "This market is projected to increase by a compounded annual growth rate of 3.5 percent, reaching a potential market of nearly $1.6 billion in 2026. In 2016, 65.2 percent of these sales represented patients tested [and] treated in the United States, while the rest of the sales were divided up in two regions, with Japanese patients accounting for 20.6 percent and the remaining 14.2 percent of sales were divided among the five largest European Union markets. The U.S. market is forecasted to see the strongest growth in upcoming years and projected 4 percent compounded annual growth rate."

LUM-201 is an agonist growth hormone secretagogue receptor 1a. Secretagogue stimulates the release of another substance, which is part of LUM-201's mechanism of action. John McKew, Lumos' chief scientific officer, told investors on Tuesday's call that it "is distinct from recombinant human growth hormone replacement therapy, and that LUM-201 stimulates the body to increase the amplitude of endogenous pulsatile growth hormone secretions. Like other growth hormone secretagogues, such as the natural ligand for the growth hormone secretagogue receptor, a negative growth hormone IGF-1 feedback loop exists that prevents LUM-201's overstimulation of growth hormone release."

Eugene Kennedy, Newlink's chief medical officer, looked at other indication options for LUM-201 such as "rare diseases, particularly in the endocrine space where recombinant human growth hormone is approved," including "Turner syndrome and children born small for gestational age, which we plan to prioritize, as well as Prader-Willi syndrome and idiopathic short stature, which we may explore, providing funds are available."

LUM-201 has orphan designation for treating growth hormone deficiency in the U.S. and the EU. It also has a U.S. patent, which expires in 2036.

Kennedy said company officials are evaluating Newlink's ongoing oncology programs, which includes a phase IIb trial in diffuse intrinsic pontine glioma whose results are expected later this year. The company is keeping the door open to acquiring or in-licensing assets to rare diseases.

Being dropped from the Lumos pipeline is LUM-001, a small-molecule therapeutic for treating creatine transporter deficiency, a rare disease.

Converting all Lumos capital stock will end with each firms' stockholders owning about 50% of the combined company's outstanding common stock. A stock split is also planned.

The combined company stock will trade on Nasdaq as LUMO. While Lumos is privately held, Newlink (NASDAQ:NLNK) sagged 22% to close at $1.24 on Tuesday.

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