By Randall Osborne

West Coast Editor

A form issued by the FDA that calls into doubt some aspects of Gliatech Inc.'s pivotal trial for its only U.S.-approved product, Adcon-L gel, quashed the company's proposed $203 million merger with Guilford Pharmaceuticals Inc.

The news sent Cleveland-based Gliatech's stock (NASDAQ:GLIA) into a nosedive, closing Tuesday at $10.1875, down 60 percent. Guilford's shares (NASDAQ:GLFD) ended the day at $22.25, up $3.625.

Triggering the blow-up of the deal was Gliatech's receipt of Form 483, in which the FDA questions how data from a U.S. clinical trial of Adcon-L gel were recorded and reported.

The form "really [pertains to] questions the FDA has about the data itself," said Stacy Jurchison, spokeswoman for Guilford, of Baltimore. "Unless there's something they're citing, they wouldn't issue the form. For Guilford, this is a new, recent development. We're disappointed."

Gliatech officials were in meetings and could not be reached. In a news release that characterized the termination of the merger as "mutual," the company said it also was disappointed and is "actively developing a response" to the FDA.

Adcon-L's Future Unclear

Adcon-L, one in a family of biopolymer products under development, was approved in May 1998 for inhibition of post-surgical scarring and adhesions following lumbar spine surgery. Although receipt of the Aug. 23 form does not stop Gliatech from continuing to sell Adcon-L in the U.S. (as well as 28 other markets where it's approved), what will happen otherwise is unclear.

The company said it will cooperate with the FDA to provide answers and resolve the matter. Meanwhile, Jurchison said, Guilford decided it is "not in the company's best interest" to continue with the merger. For now, she added, neither side is disclosing much information, and the form itself has not been made publicly available.

Worldwide, Adcon-L's market potential is $400 million, Gliatech has said. In the U.S., the number is $200 million, with no competitors.

Gliatech is marketing Adcon-L and Adcon-TN gel, for the inhibition of post-surgical scarring and adhesions following tendon and peripheral nerve surgery, through independent medical device distributors outside the U.S., including the European Union. Adcon-TN is not approved in the U.S.

Three months ago, Gliatech and Guilford made known their plan to merge in a fixed-exchange ratio agreement, under which Gliatech shareholders would receive 1.38 shares of Guilford common stock for each Gliatech share owned. With about 9.5 million Gliatech shares outstanding, the transaction was valued at about $203 million, based on Guilford's opening stock price on the day the agreement was made public. (See BioWorld Today, May 31, 2000, p. 1.)