Washington Editor

Corgentech Inc. and AlgoRx Pharmaceuticals Inc. are coming together via merger to create a late-stage company focused largely on pain management and inflammation. On the surface, the combination provides both companies a future pathway that previously wasn't apparent.

"During this past year, we have identified and analyzed companies with late-stage products that we believe are exciting and attractive," Corgentech's newly named president, James Huang, said of the merger and acquisition process that began after its lead E2F Decoy product failed two large Phase III studies. "We came across AlgoRx, which was probably one of the most exciting companies that we looked at because it has multiple products in multiple indications. It's a very nice fit."

For AlgoRx, which abandoned plans for an initial public offering due to unfavorable market conditions, the merger provides a means to a stock exchange listing.

"We have a very good infrastructure for developing drugs and getting them registered," AlgoRx CEO Ronald Burch told BioWorld Today. "What we don't have is a commercialization structure, so Corgentech provides that."

Specific financial terms of the deal were not disclosed, but the definitive agreement calls for Corgentech to issue an unnamed number of common shares so that privately held AlgoRx's stockholders will own about 62 percent of the combined company on a pro forma basis. Corgentech's shareholders will hold the remaining 38 percent.

The boards of both companies have approved the transaction, which remains subject to approval from AlgoRx and Corgentech stockholders. Such votes should occur in late December or early January, after all government filings are completed and approved.

Going forward, the combined company's pipeline would include three offerings from AlgoRx's pain management portfolio, as well as Corgentech's NF-kappaB Decoy product. To further those programs, the new entity would draw from the $124 million in cash, cash equivalents and short-term investments held in total by the two companies at the end of the second quarter.

"This is a wonderful way to deploy the cash to develop these products," said Huang, who has been with the company for three years as its senior vice president of business development and commercial operations before his promotion. Corgentech, which had about 28 million shares outstanding prior to the merger, reported reserves of $95.6 million through June 30. AlgoRx's most recent private financing raised $65 million in a Series C round that closed early last year.

ALGRX 3268 represents the nearest-term commercial opportunity, with Phase III expected to end this year and a new drug application scheduled for submission next year. A topical local anesthetic, it is designed to reduce pain from needlesticks and intravenous line placements through its use of a needleless injection system to accelerate lidocaine particles into the epidermis in order to anesthetize nerves.

Another product, ALGRX 4975 is a VR1 agonist in Phase II development for site-specific, severe or intractable pain. Current studies are evaluating the non-opioid product's use for post-surgical pain, as well as for Morton's neuroma and tendonitis.

For NF-kappaB Decoy, a selective inhibitor of the NF-kappaB transcription factor that is implicated in inflammatory diseases such as eczema, asthma and inflammatory bowel disease, data are expected in the first quarter of next year. Two Phase I/II trials, one in the U.S. and the other in Australia and Switzerland, include nearly 200 patients.

Lastly, ALGRX 1207 is expected to enter clinical trials next year for cutaneous neuropathic pain such as chemotherapy-induced neuropathy. Part of a new class of anesthetics designed for topical, local administration, it acts by binding to the fast sodium channel and could have a faster onset and longer duration of action, as well as improved penetration when compared with currently marketed products.

Of course, absent from this pipeline is Corgentech's E2F Decoy (edifoligide), for which the company dropped all development earlier this year and lost a potential $250 million partnership in the process. The downward cascade began late last year when the product failed to show a benefit vs. placebo in lowering the rate of vein graft failure in peripheral artery bypass patients.

That Phase III miss was followed by a failure to hit primary and secondary endpoints in another Phase III trial to test its use in preventing vein graft failure following coronary artery bypass graft surgery.

As a result, New York-based Bristol-Myers Squibb Co. pulled out of a collaboration on the product and shortly after, Corgentech cut its staff almost in half. (See BioWorld Today, Dec. 7, 2004, March 31, 2005 and April 21, 2005.)

Pending stockholder approval of the merger, Corgentech CEO John McLaughlin will retain that title and Burch will be its vice president of development. Richard Powers will serve as chief financial officer. Its board will include McLaughlin, Richard Brewer, Charles Cohen, Thomas Colligan, Carter Eckert, Rodney Ferguson, Arnold Oronsky and Michael Powell.

"Together, we have the makings of a very strong group that can take things from the beginning of clinical development," Burch said, "and move those forward to commercialization."

Corgentech's South San Francisco facility will become the combined company's headquarters, with AlgoRx's site in Secaucus, N.J., to remain operational as well.

Together, both companies have about 95 total employees who will be integrated to identify synergies and redundancies across the combined organization, which will retain the Corgentech name. Huang is coordinating integration relating to the merger.

As a result of this deal, Corgentech withdrew its full-year financial guidance provided earlier this year and plans to offer updated guidance after the deal closes.

Lazard Freres & Co. LLC in New York served as financial advisor and Heller Ehrman LLP as legal advisor to AlgoRx, while Houlihan Lokey Howard & Zukin provided a fairness opinion to its board. For Corgentech, Piper Jaffray & Co. in New York acted as financial advisor and Cooley Godward LLP served as legal advisor.

On Monday, Corgentech's shares (NASDAQ:CGTK) lost 22 cents to close at $2.44.

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