BioWorld International Correspondent

SYDNEY, Australia - Two unlisted biotechnology companies have merged in order to get better access to funds for what would have been the third round of financing for both companies, and to develop two lead compounds.

Cerylid Biosciences Ltd. and Kinacia Pty. Ltd., both based in Melbourne, said last week they completed a deal in which Kinacia shareholders swapped their equity for shares in Cerylid to create a larger, merged company.

No financial details were revealed, but media reports have set its value at A$60 million (US$42 million).

Jackie Fairley, CEO of the merged Cerylid, said that with the deal completed the board of the merged company now is considering funding options, with one of those options including an initial public offering.

She said that investors have expressed considerable confidence in the merged company.

Both Fairley and Cerylid chairman designate, Ken Windle, who was CEO of Kinacia, also said that they saw the merger as part of a general rationalization of the industry, both in Australia and overseas. In Australia, in particular, the sector features a large number of small companies, each developing a few promising lead compounds.

In April, as part of what observers consider to be that general consolidation of the industry, Peptech Ltd. in Sydney merged with Agenix Ltd. in Brisbane to create a company with an expected market capitalization of A$400 million to A$500 million - the largest capitalization for a pure biotech company on the Australian market.

However, the immediate reasons for the latest merger were the benefits of synergy and the need to remain attractive to investors.

Windle said that the merger occurred because both companies happened to be looking for their third round of funding at the same time and went to the same set of advisers (Pattersons in Melbourne).

After making contact, the companies realized they had considerable synergy. Kinacia has a library of 350 novel synthetic P13-kinase inhibitors - a family of enzymes with potential in a number of markets, including treatment for inflammation and cancer. The company also has an antithrombotic lead, KN309, scheduled to go into clinical trials next year.

Cerylid has a cancer compound, CBL 316, which is showing efficiency in animal models and also is expected to enter clinical trials next year. The company has expertise in clinical trials, which Kinacia will soon need, and has a bioscreening process that can be applied to the kinase library.

But merging the two companies also meant that new investors would be "spreading the risk" when they put money into the company.

"Not too many companies go beyond their third round of funding," Windle said.

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