By Alan Sverdlik
In a continuation of the consolidation trend in the genomics sector, Pharmacopeia Inc. and privately held Eos Biotechnology Inc. said they would merge in a $197 million stock and cash deal that will bring Eos¿ broad range of disease targets to Pharmacopeia¿s drug discovery program.
Pharmacopeia, of Princeton, N.J., said it would issue 10 million new shares to buy South San Francisco-based Eos and assume options for an additional 600,000 shares. Pharmacopeia, which has 23.5 million outstanding shares, absorbs Eos¿ $44 million cash position in the transaction, which is subject to regulatory and stockholder approvals. That would give the combined company about $210 million in cash, Eos CEO David Martin said.
After the numbers settle, about 30 percent of the combined company will be owned by Eos shareholders, Pharmacopeia CEO Joseph Mollica said.
The merger announcement, which Martin described as ¿genomics plus biology plus chemistry,¿ got a nod from Wall Street.
With scant supplies of venture capital, a dicey IPO market and a nervous mood among investors, ¿it¿s a smart move on both of their parts,¿ said Michael King, managing director at Robertson Stephens. ¿And it¿s testimony to the fact that there¿s been a consolidation trend in genomics in the last few months.¿
King said the companies had reached ¿critical mass¿ in their respective specialties ¿ chemistry-based drug discovery in Pharmacopeia¿s case and high-throughput genomics and bioinformatics at Eos ¿ and that they needed each other to break new ground.
¿Chemistry and biology have to meet and get along better,¿ King said. ¿The chemistry guys, in particular, have been trying to go it alone, and now they¿re trying to find an ally.¿ In fact, Pharmacopeia indicated ¿that they were looking for a strategic alternative.¿
King said he doesn¿t expect any problems when the companies begin integrating, especially since Pharmacopeia CEO Mollica and Martin, his counterpart at Eos, had once worked together at DuPont Merck. ¿They have a common cultural background you don¿t find when people are strangers,¿ King said.
¿We have known each other for 10 years and ultimately we saw that that our companies were a logical fit,¿ Mollica said. ¿I saw [Martin] a couple of months ago and we initiated discussions of a merger.¿
Said Martin, ¿Joe showed up on our door in mid-June and said, Let¿s get serious.¿¿
Eos, which was founded four years ago, employs 78 people. It develops, applies and integrates a number of high-throughput genomics, bioinformatics and biological processes to build a pipeline of novel therapeutics and diagnostics in the areas of oncology, angiogenesis and inflammation.
Eos, which is backed by venture capital firms including Bay City Capital, ProQuest Investments and others, considered an IPO but opted for a merger instead. ¿I believe we might have been very successful with an IPO,¿ Martin said during the question-and-answer session that followed a joint conference call. ¿We felt we needed to go beyond an antibody research company.
¿If we had gone public and put a lot of cash in our coffers, we would have missed an opportunity,¿ Martin explained to BioWorld Today. ¿I consider that opportunity to be access to a large number of world-class chemists that we would never have been able to build organically, to a sales and marketing force, to customers and to the ability to leverage the genome for discovering and validating novel molecular targets.¿
With $44 million in cash, Eos was in no rush to broker a deal, he added.
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. 14, 2000.)
It also has collaborations with several other companies: Affymetrix Inc., of Santa Clara, Calif., for the development and manufacture of GeneChip DNA Array; Medarex Inc., of Princeton, N.J., for the development of fully human antibodies directed against genome-derived targets for treating certain cancers; and Aventis-Pasteur for genome-derived targets for the development of cancer vaccines.
Mollica told BioWorld Today that his company has traditionally collaborated with large pharmaceutical firms to support their drug discovery goals, but with the merger, the emphasis will be on enhancing Pharmacopeia¿s drug discovery. ¿We will have the full spectrum of drug discovery capabilities from target discovery and validation, through lead discovery, enhancement and optimization,¿ he said.
¿We want access to proprietary targets that give us a greater control over our destiny,¿ he said.
Besides its drug discovery unit, Pharmacopeia also has Accelrys, a software subsidiary. ¿The Eos database is a logical fit with our software business,¿ Mollica said.
Assuming the deal closes in the fourth quarter, Pharmacopeia officials said they expect 2002 drug discovery revenues of more than $45 million and a drug discovery pro forma operating loss of $30 million, excluding acquisition charges.
Blaming sagging drug discovery revenue, Pharmacopeia posted a second-quarter loss, before certain charges, of $1.9 million, or 8 cents a share. Revenue rose to $29.2 million from $27.9 million in the second quarter of 2000. Software revenues surged 45 percent to $20.3 million.
Pharmacopeia¿s stock (NASDAQ:PCOP) fell 39 cents Wednesday to close at $18.12.