BioWorld International Correspondent

SYDNEY, Australia - Two biotech companies agreed to a share-swap merger in what they declare is the first move in building Australia's biggest pure biotech company, with more acquisitions to come.

Mel Bridges, executive chairman of Peptech Ltd. in Sydney, said that after merging with Agenix Ltd. in Brisbane, the merged company is expected to have a market capitalization of A$400 million to A$500 million (US$291 million to US$364 million).

Existing Peptech shareholders will own 58 percent of the merged company, which also will immediately start looking for acquisitions in Australia and overseas, particularly in the UK.

Bridges declined to nominate any targets, but said that the company is aiming for a market capitalization of more than A$1 billion, which will put it among the top 10 health care-biotech companies in Australia.

The other major health care-biotech companies focus mainly on health care, and even those with biotech operations, such as CSL Ltd. in Melbourne, have substantial operations in other areas. As a result, if the merged group (which would retain the Peptech name) attains its ambition of an A$1 billion market value, it easily would be the largest pure biotech company in Australia.

In addition, last week Peptech declared itself sufficiently confident of the outcome of its patent dispute with Centocor Inc., of Malvern, Pa., a subsidiary of Johnson & Johnson, over the rheumatoid arthritis treatment Remicade to announce a dividend to shareholders. Peptech did not develop the drug but holds key patents for the tumor necrosis factor-targeting drug. The dispute is in arbitration, and a decision is expected this year.

The dividend of A$0.20 a share, which works out to a payment of A$32 million, is conditional on the agreed merger going ahead and the dispute being resolved in Peptech's favor.

Peptech and Agenix announced the merger last week, with the deal to occur through a share swap. Peptech would issue Agenix shareholders seven of its shares for every 10 Agenix shares they hold. Based on the average pre-announcement prices of the companies, the terms represent A$0.90 a share for Agenix shareholders, or a 25 percent premium on an average price before the announcement, but a slight discount to the latest share price of A$0.87.

Investors pushed down Peptech's share price from A$1.58 to A$1.43, but the share price recovered to A$1.50 by the close of business on Friday.

Both boards have approved the deal unanimously, but Australian takeover law requires them to jump through several regulatory hoops, including gaining permission from shareholders.

The two companies have substantial biotech operations and distribution channels, in both animals and human health, including a blood-imaging product called ThromboView held by Agenix.