West Coast Editor
Diagnostics firm Nanogen Inc. and Epoch Biosciences Inc., focused on genomic analysis, are merging in an all-stock deal valued at about $58 million that is expected to close in "the December time frame," said Howard Birndorf, Nanogen's chairman and CEO.
"We've been working on and off with them on various projects for about a year," he added, and the deal grew out of that.
Nanogen's stock (NASDAQ:NGEN) closed Wednesday at $4.19, down 38 cents. Epoch's shares (NASDAQ:EBIO) ended the day at $1.90, up 12 cents.
Nanogen has agreed to an offer price of $2 each for about 29 million outstanding Epoch shares, a 30 percent premium over the average closing price for the 20 trading days ending Sept. 1.
San Diego-based Nanogen plans to fold Epoch's administration, marketing and sales into operations there, and leave Epoch's research and development capabilities and reagent manufacturing operations in Bothell, Wash., where officials from both companies met with employees Wednesday.
"We think everybody is very enthusiastic about it," Birndorf said. "We certainly are, and their company is. We don't expect any glitches." He said Nanogen will "try to keep most" of Epoch's employees, although some will be let go.
"We expect they will be mainly in the administrative work force as we combine the companies," he said.
Birndorf noted the companies target many of the same customers. Epoch has the MGB Eclipse Probe System, which consists of reagents and software for improving all types of molecular analyses, including gene expression, single nucleotide polymorphism and mutation detection, and identification of infectious organisms. Nanogen has begun incorporating Epoch's technology into its own assays.
Epoch also brings to the table research reagents and services for real-time polymerase chain reaction work. In July, the firm launched 21 MGB Eclipse detection reagents, real-time analyte-specific reagents (ASRs) for the molecular diagnosis of infectious and genetic diseases and cancer.
"Their ASR products fit very nicely alongside our microarray products," Birndorf noted.
Nanogen's NanoChip Molecular Biology Workstation allows for complex analysis of multiple markers.
In the merger, Epoch shareholders will get a number of Nanogen shares based on an exchange ratio determined by dividing the offer price by Nanogen's issue price as calculated at closing. Nanogen's issue price will be figured according to the average closing price of its shares for the 20 trading days ending on and including the third trading day before the closing. Both firms agree the exchange ratio will not be less than 0.4673 nor will it exceed 0.6329 of one Nanogen share.
Directors of both companies and certain other stockholders of Epoch have signed an agreement to vote in favor of the transaction, which is expected to be tax-free to Epoch stockholders. The deal is subject to approval by shareholders and the usual conditions.
Epoch chalked up revenues for the six months ended June 30 of $3.9 million, with an operating loss of $1.4 million. Last year's total revenues were $8.9 million.
The merger mostly is to gain products and technology, Birndorf said.
"They have about $9 million in cash, and they're very close to breakeven," he told BioWorld Today. "We expect their revenue stream will actually generate cash for us within six months after the integration." Nanogen, for its part, had $60 million in cash at the end of June.
"We've been actively looking at a number of different companies," Birndorf said. "We've stated that our goal is to try to build, whether through internal [efforts] or acquisitions, and be a strong diagnostics company."
In February, Nanogen disclosed its plan for an all-stock acquisition of SynX Pharma Inc., of Toronto, in a transaction valued at about C$16.3 million (US$12.3 million). The deal was completed in April.
"We don't have anything [else] on the near-term horizon, but we're certainly going to continue to look," Birndorf said.
Acting as Nanogen's adviser in the deal was Seven Hills Partners LLC, of San Francisco. Molecular Securities Inc., of New York, acted as financial adviser to Epoch.