BioWorld International Correspondent
IsoTis SA unveiled a definitive merger agreement Tuesday to acquire GenSci Regeneration Sciences Inc., a Toronto-based orthobiologics firm that is emerging from Chapter 11 bankruptcy.
The deal, which is scheduled to close in the fall, would create a company focused on bone substitution, with combined revenues of US$24 million in 2002 and US$85 million in cash as of March 31. IsoTis shareholders would hold 60 percent of the enlarged entity, while GenSci shareholders would have 40 percent.
The merger would give Lausanne, Switzerland-based IsoTis substantial revenues and a beachhead in the U.S. market. GenSci had 2002 sales of US$22 million and reported US$7.5 million in new product sales and positive cash flow from operations for the first quarter. It also would be expected to accelerate its move into the black by around one year, from 2006 to 2005.
For GenSci, the deal would give it access to precious cash. The company has about US$3 million at present, following its US$7.5 million settlement with OsteoTech Inc. last week, arising out of patent infringement claims that required it to revamp its entire product line.
"The IsoTis team has enormous appreciation for the way in which GenSci management succeeded in turning the company around under very difficult circumstances. Coming out of Chapter 11, GenSci will have a clean slate and remarkably stable sales revenues," IsoTis CEO Jacques Essinger said.
IsoTis shareholders signaled their approval of the deal, pushing its share price up by 11.7 percent to CHF1.43 during mid-morning trading on the Swiss Stock Exchange in Zurich.
London-based analyst Adrian Howd, of ABN Amro, also was supportive. "I don't think they're overpaying for it, that's my initial reaction," he told BioWorld International. "I think this is quite a bold move into the U.S. market."
Later Tuesday, IsoTis was granted a stock option to purchase up to 19.9 percent of GenSci's issued and outstanding common shares. The option is subject to either the approval of the U.S. Bankruptcy Court or the dismissal of the bankruptcy case against GenSci on or before July 31. IsoTis can pick up the option if GenSci's shareholders do not approve the deal, or if the deal is not completed by Dec. 31.
GenSci majors in "natural" demineralized bone matrix products. Its portfolio includes the OrthoBlast II, DynaGraft II and Accell DBM 100 product families. IsoTis has focused on synthetic bone substitutes, which are more prevalent in Europe. Its OsSatura BCP product gained a CE mark earlier this year, clearing the way for pan-European marketing approval.
"I think at the end of the day, the product fit is pretty compelling," Howd said.
Howd also expressed support for the IsoTis management, which already has taken the company through an earlier merger, between the Swiss firm Modex Therapeutics and the Dutch company IsoTis. "I don't think the market has appreciated what they have done since the Modex deal," he said, referring to their efforts to reduce cash burn and focus on projects with near-term revenue potential.
Essinger is slated to lead the enlarged company, while GenSci CEO Douglass Watson would become its North American president. James Hogan, IsoTis chief operating officer, would become European president; John Kay, GenSci vice president of R&D, would head up research and development; and Pieter Wolters, chief financial officer of IsoTis, would take the same role in the enlarged company.