NPS Pharmaceuticals Inc. and Enzon Pharmaceuticals Inc. shook hands on a merger that would create a combined company valued at $1.6 billion, a deal in which NPS essentially is offering about $750 million in stock for Enzon.

The companies said Thursday they signed a definitive agreement for a merger in which each NPS shareholder would receive a full share of the combined entity's common stock for each NPS share owned, and each Enzon shareholder would receive 0.7264 shares for each Enzon share. Prior to the deal, NPS reported about 35.1 million shares outstanding, while Enzon reported about 43 million shares outstanding.

The deal represents a 26 percent premium to Wednesday's $14.03 closing price of Enzon shares (NASDAQ:ENZN). On Thursday its shares fell $1.13 to close at $12.90, while NPS's stock (NASDAQ:NPSP) dropped $6.07, or 24.9 percent, to close at $18.27.

"I don't think you've seen one of these before. This is truly a transformational merger of equals that we have not really seen in biotech before," Kenneth Zuerblis, Enzon's chief financial officer, told BioWorld Today. "When you put our two companies together, you have a company that has a very strong current revenue base of five approved products, a sales and marketing infrastructure, and then you end up with one of the deepest pipelines in the industry, all in a company that has the maturity and infrastructure of a fully integrated pharmaceutical company."

David Clark, NPS's vice president of operations, said his company ended its year with about $235 million in cash, cash equivalents and short-term investments. Combined with $145 million held by Enzon, the combined entity ended 2002 with about $380 million on a pro forma basis.

The new company would have about 66 million shares outstanding, with NPS controlling about 53 percent of the stock. Upon closing, expected in June, the combined company's board will include six NPS board members and four from Enzon. The $1.6 billion value is based on the 66 million shares and NPS's closing price Wednesday.

The company will be headquartered at Enzon's base in Bridgewater, N.J., and will maintain research, development and manufacturing facilities in Salt Lake City - NPS's home - as well as in Toronto, Indianapolis and additional locations in New Jersey. NPS had about 200 employees prior to the deal, while Enzon employed about 300.

"We truly have a merger of equals in two growing companies," Zuerblis said. "This company will grow in all areas."

The combination joins Enzon's profitability and marketed drugs with NPS's four late-stage clinical programs. Six months into its current fiscal year, Enzon reported $24.8 million in earnings, with a large portion due to royalties from its PEG-Intron marketing partnership with Kenilworth, N.J.-based Schering-Plough Corp. The product pairs Enzon's Pegylation technology with Intron A (interferon alfa-2b, recombinant) to create a longer-acting form of the drug to treat chronic hepatitis C.

The combined company, through a commercial organization already established by Enzon that includes about 70 sales employees, is estimated to generate revenues of about $200 million for the year ending Dec. 31, 2003. That, combined with its cash holdings, puts the new company in a favorable position to turn profitable by 2006 or sooner, Enzon Chairman, President and CEO Arthur Higgins said during a conference call. More specifically, he said the new company could achieve revenues in excess of $500 million by 2007.

He will serve as the new company's CEO, while NPS Chairman, President and CEO Hunter Jackson will serve as executive chairman. Both also will sit on the new company's board.

"We have been telling The Street for some time that we were looking to round out our story by acquiring late-stage products and infrastructure," Clark told BioWorld Today. "The fit with Enzon is perfect from those standpoints."

In addition to PEG-Intron, the combined company's revenues initially will be driven by four products currently marketed by Enzon - Abelcet, used in hospitals to treat invasive fungal infections related to cancer, organ transplantation and other conditions; Oncaspar, a PEG-enhanced version of a naturally occurring enzyme called L-asparaginase used with other chemotherapeutics to treat acute lymphoblastic leukemia; Depocyt, an injectable chemotherapeutic to treat lymphomatous meningitis; and Adagen, a PEG-enhanced enzyme replacement therapy used to treat severe combined immunodeficiency disease, also known as bubble boy disease.

But more promising therapeutics are on the horizon, thanks in large part to NPS's late-stage pipeline. The company brings to the table a pair of Phase III programs - Preos for the treatment of osteoporosis, the potential blockbuster, and cinacalcet HCl, which is being developed by Thousand Oaks, Calif.-based Amgen Inc. to treat secondary hyperparathyroidism.

During the conference call, Jackson reiterated plans to partner Preos, but he added that the merged entity would have a more favorable position in retaining more of the asset than NPS would have had on its own. In the fall, NPS raised $95.8 million in a public offering, funds assigned in part for further development of the drug. NPS had filed a shelf registration for $250 million last January. (See BioWorld Today, Oct. 28, 2002.)

He gave guidance for filing a new drug application for Preos with the FDA in the middle of next year, with product launch scheduled for a year later. Jackson said NPS expects to see one-year data from the ongoing PaTH (PTH and alendronate) study later this month. The trial, sponsored by the National Institutes of Health in Bethesda, Md., is being held at the University of California at San Francisco. The TOP (treatment of osteoporosis with PTH) study remains on track for conclusion in September.

Cinacalcet also is being studied in a Phase II program to treat primary hyperparathyroidism. NPS has advanced its ALX-0600 candidate into Phase II to treat short bowel syndrome and other gastrointestinal disorders, while Enzon's Prothecan also is in Phase II for various solid tumors.

"We have two companies that were building out two different areas of their business, but by coming together we will produce cost savings because we are bringing together two complementary assets," Zuerblis said. "We had talked about increasing spending on our research and development pipeline."

Deeper in its pipeline, the combined company also will feature 10 early stage programs in endocrinology, immunology, oncology, neurology and gastroenterology.

Both companies' boards have unanimously approved the merger, though it remains subject to certain closing conditions including shareholder approval.

Morgan Stanley advised NPS and SG Cowen advised Enzon in the transaction.