Assistant Managing Editor

Only months off its official spinout from its parent company, Salt Lake City-based Myriad Pharmaceuticals Inc. is buying Javelin Pharmaceuticals Inc. in an all-stock transaction that gives Myriad a near-term revenue stream with injectable NSAID Dyloject - now under FDA review - and provides cash-strapped Javelin with the firepower to get Dyloject to market.

Under the terms, Myriad will issue 0.282 shares of its stock for each share of Javelin. Based on 63.86 million Javelin shares outstanding, the deal values the Cambridge, Mass.-biotech at about $1.50 per share (or about $96 million), marking a 22 percent premium over Thursday's closing price. At the closing, Javelin shareholders would own about 41 percent of the combined company - that could increase to 45.1 percent if Dyloject approval comes before Jan. 31, 2011.

But an all-stock deal for Myriad, which has been trading below cash since its Nasdaq debut in July, left some shareholders scratching their heads. One investor on the companies' joint conference call Friday morning urged shareholders to vote against what he called "a terrible deal."

Shareholders of both companies have to approve the transaction.

Piper Jaffray analyst Edward Tenthoff acknowledged that the dilution and current discount to cash might lead some shareholders to resist. "However, in the long term, if Dyloject gets approved, it could be a major positive for Myriad," he wrote in a research note.

If approved, Dyloject would be the first injectable version of diclofenac, a nonsteroidal anti-inflammatory drug widely used for postoperative pain. Javelin has estimated the nonopioid pain market potential of up to $500 million per year.

Myriad execs defended the terms, stating that an all-stock deal preserves the company's cash, which totaled about $159 million as of Sept. 30, to fund Dyloject's commercial launch, including putting into place a 100- to 150-member hospital-targeted sales team.

The deal isn't exactly a winner from Javelin's perspective, either. But Leerink Swann analyst Gary Nachman said the deal "could lead to better offers if other potential bidders are still in the picture."

Javelin ended the third quarter with a mere $3.3 million in cash - adding $3.7 million in an October financing - and "had little negotiating leverage despite having just submitted the Dyloject NDA," Nachman added.

Concurrent with the definitive agreement, Myriad agreed to provide up to $6 million of interim financing to fund Javelin's operating activities prior to the deal's close, expected in the first quarter of 2010.

Javelin had been seeking a U.S. deal for Dyloject. Early this year, the firm signed Therabel Pharma, of Brussels, Belgium, to a potential $71.5 million European partnership, under which Javelin also is entitled to double-digit royalties on Dyloject sales. (See BioWorld Today, Jan. 16, 2009.)

Shares of Javelin (AMEX:JAV) gained 7 cents, to close Friday at $1.30, while shares of Myriad (NASDAQ:MYRX) fell 30 cents, to close at $5.03.

Myriad, which was spun out of Myriad Genetics Inc. in July in an effort to separate the biologics and diagnostics business units following Flurizan's flop in Alzheimer's disease, has several programs in earlier development, including an HIV therapy, MPC-4326, which recently began Phase IIb testing. (See BioWorld Today, July 2, 2009.)