Pharmacopeia Inc. and Eos Biotechnology Inc. said they mutually agreed to call off a planned merger that initially was valued at $197 million.
The companies said in August that Pharmacopeia, of Princeton, N.J., would acquire South San Francisco-based Eos in a stock and cash deal, but since then the merger has faced public opposition from at least one of Pharmacopeia’s stockholders, OrbiMed Advisors LLC, which owns about 10 percent of Pharmacopeia’s stock.
Stockholders were scheduled to vote on the merger Friday, a meeting that was canceled.
“Basically, I think this mutual decision [resulted because] we couldn’t come to terms with a lot of these issues that were raised in a way that was satisfactory to all parties involved,” Sue Rodney, manager of investor relations for Pharmacopeia, told BioWorld Today. “We had obligations to our employees, our shareholders, our pending partner, and some of these issues we just didn’t seem to come to terms with in a fashion that satisfied [everyone].
“We failed to gain the necessary support,” Rodney said. “OrbiMed was certainly one of the groups that we were concerned about. That was definitely part of it.”
As far as where Pharmacopeia goes from here, Rodney said, “We haven’t made any public announcements as far as what we could do. We feel very strongly about the quality of our science, and over the ensuing weeks we’ll pursue other alternatives that have been brought before us.”
Those alternatives include other partnerships and other forms of strategic alliances.
“It’s anything that we think can complement the existing science and technology that we’ve assembled,” Rodney said.
In a prepared statement, Joseph Mollica, chairman, president and CEO of Pharmacopeia, said, “We remain optimistic about the future prospects of the science, technology and people at Pharmacopeia. We believe there are many ways in which we can prosper by adding to and leveraging our existing biology and chemistry capabilities. We will continue to pursue the many alternatives available to us.”
Pharmacopeia last month sent shareholders a letter saying its board and executive committee supported the merger. The company also said earlier this month that it planned to mail a letter from Institutional Shareholder Services, an independent proxy advisory firm, to all Pharmacopeia stockholders regarding the merger with Eos, recommending that stockholders vote for the merger.
In the letter to shareholders from Mollica urging them to support the proposed merger, he wrote, “Your company is at a crossroads. We view our proposed acquisition of Eos as a key step in our strategic plan to maximize the value of both segments of our business.
“Eos will add proprietary drug targets and therapeutic development capabilities to Pharmacopeia’s existing drug discovery resources,” he wrote. “Eos will also enhance Accelrys, Pharmacopeia’s software business, by adding proprietary gene expression databases to the Accelrys bioinformatics software solutions. We are confident that the proposed merger will position both Accelrys and our drug discovery unit as viable, stand-alone businesses.”
Bill Tanner, an analyst with SG Cowen Securities Corp. in New York, said the stockholders had exerted pressure on the merger.
“The largest shareholder had publicly expressed disfavor with the merger, and they were trying to muster support to that end to get shareholders [to vote against it],” Tanner said. “The principal concerns were about dilution, and about whether the deal was struck at a time when shares were unduly suppressed.”
Tanner said if they merger had proceeded, Pharmacopeia’s profitability “was going to take a bit of a hit.”
Eos shareholders would have owned about 30 percent of the combined company. (See BioWorld Today, Aug. 23, 2001.)
However, Tanner said the merger would have made strategic sense in the long term, as it would have, as Mollica suggested, given Pharmacopeia a foothold as a drug developer.
“They recognized the need to develop their own drugs, and the one thing they felt could jump-start that effort was Eos,” Tanner said.
Regarding the desire to build a drug discovery business, Rodney said, “It’s a strategy that we do believe in and feel strongly about pursuing.
“We currently have a service-oriented drug discovery business, and part of what we’ll be evaluating is looking at those two business models and deciding which of them offers the most opportunity to enhance shareholder value,” she said.
Privately held Eos issued its own release regarding the merger termination, with President and CEO David Martin stating, “Eos has the people, technology, partners and vision to build a leading therapeutic development company.
“We are currently focused on establishing a robust pipeline of novel therapeutic antibodies from the over 90 targets selective to cancer cells across six major human cancers and to the process of angiogenesis,” Martin said.
He also noted that its lead therapeutic antibody is being manufactured by ICOS Corp., of Bothell, Wash., and is expected to enter clinical trials by the end of the year for cancer. He said the company has $36 million in cash, which should provide for the company’s growth in the foreseeable future.
Eos has an ongoing research and development collaboration with Biogen Inc., of Cambridge, Mass., to identify novel targets for antibody and protein therapeutics in breast cancer. The deal is worth up to $55 million for Eos, not including royalties. (See BioWorld Today, Sept. 13, 2000.)
In October, Pharmacopeia signed a research and development agreement with Ester Neurosciences Ltd., of Tel Aviv, Israel, focusing on neurological diseases. (See BioWorld Today, Oct. 24, 2001.)
Pharmacopeia’s focus is on chemistry-based drug discovery and Accelrys, its software subsidiary that develops and commercializes molecular modeling and simulation software as well as bioinformatics tools. It employs about 800 people and had about $119 million in revenues last year. Eos develops, applies and integrates a number of high-throughput genomics, bioinformatics and biological processes to develop therapeutics and diagnostics in the areas of oncology, angiogenesis and inflammation.
Pharmacopeia’s stock (NASDAQ:PCOP) closed unchanged Friday at $13.70.