BioWorld International Correspondent
LONDON - ReNeuron Holdings plc, the UK's only quoted stem cell company, is being taken private by its venture capital backers, the Merlin Consortium, in a recommended cash offer of 10 pence per share, valuing ReNeuron at £3.6 million (US$5.7 million).
While that represents a premium of 90 percent to the closing price of 5.25 pence Monday, when ReNeuron floated on London's Alternative Investment Market in November 2000 it raised £19.5 million. It still has £5.7 million in cash, sufficient at the current burn rate to last until December.
CEO Martin Edwards told BioWorld International, "We've been working to find a financial solution for the company for two to three months and have looked at a lot of different options. If you had asked me two years ago, I would have said it was a bad idea to go private. But we had to do something to raise money within 12 months, and in the current environment, what else could we do?"
The Merlin Consortium, which put £5 million of venture capital into Guildford-based ReNeuron, has formed a new, wholly owned company, St. James MPG Ltd., to implement the offer. Mark Clement, chairman of St. James and a director of Merlin Biosciences Ltd., one of the three funds in the Merlin Consortium, told BioWorld International, "ReNeuron lives on in an unquoted format. Those people minded to take cash get something. Those people who want to maintain an interest can keep their shares."
St. James has an agreement with the Merlin Consortium to acquire 18.9 million ReNeuron shares, representing 52.7 percent of the existing share capital, in exchange for new St. James shares. In addition, Edwards and two of the founders of ReNeuron, John Sinden and Helen Hodges, have agreed to exchange their combined 7.1 percent shareholding.
Clement said that although ReNeuron has £5.7 million in cash the £3.6 million offer is fair. "We've looked at the free cash, and bearing in mind it would take two to three months to wind down the company with the ongoing cash burn, and the write-off costs, we're not far from where we've pitched the offer."
He added, "A number of microcap stocks are in a difficult position. They have fallen out of favor with the market generally, and haven't enough cash to meet development milestones. In reality their share price is only going to drift in one direction, and a number of people are writing off investments."
Clement said Merlin will support the company going forward and has allocated funds to do so, but declined to say how much. "We wouldn't be doing this to close it down. We will focus on the core programs and stretch the burn rate in a responsible manner." At present there is no intention to merge ReNeuron with any other Merlin-supported companies.
The crunch came for ReNeuron in January when its lead compound, ReN1869, a painkiller in-licensed from Novo Nordisk A/S, failed in two Phase II trials. That followed long delays in its human stem cell program because of problems with the genetic stability of the cell lines.
Edwards said Merlin and ReNeuron will review its programs, but added, "We don't have that many projects. All our in-house researchers are working on stem cells. It's not as if we are in the situation of having 15 programs and we are going to cut back half of them."