By Karen Pihl-Carey

LJL BioSystems Inc. will merge with Molecular Devices Corp. in a stock deal valued at about $262.83 million.

The companies are joining, they said, to create critical mass and bring together complementary technologies to meet the challenges of pharmaceutical, biotechnology and genomics companies.

"In order to build the leading organization in this marketplace, you need to have certain critical mass," said Lev Leytes, chairman and CEO of LJL. "We could have gone it alone - we have very exciting technology - but we felt we could build a much stronger presence by merging."

Under terms of the merger, each share of LJL common stock will convert into 0.3 of a share of Molecular Devices common stock. LJL has about 14.8 million shares outstanding. Molecular Devices expects to issue about 4.45 million shares in the transaction, valuing the deal at $262.83 million based on the $59.06 closing price of the company's stock on Wednesday. Molecular Devices also will assume options and warrants to acquire about 675,000 additional shares of LJL stock. LJL stockholders will own about 30% of Molecular Devices.

LJL's stock (NASDAQ:LJLB) closed Thursday at $17.562, up $1.312. Molecular Devices' stock (NASDAQ:MDCC) closed at $61, up $1.938. At that price, the deal would be worth $271.5 million.

Molecular Devices will bring about $90 million in cash to the merger, and LJL will bring about $26 million. While LJL has a burn rate, Molecular Devices is a company with cash flow, Leytes said.

"Our financial future is now much more secure," he told BioWorld Today.

LJL filed a registration statement in March for a proposed offering of up to 2.5 million shares of common stock that would raise the company about $70 million, but later withdrew the offering.

Leytes expects to join the board of directors at Molecular Devices, and Joseph Keegan will continue as president, CEO and board member. ING Barings LLC, of New York, advised Molecular Devices in connection with the transaction, while Gleacher & Co., of New York, advised LJL.

Molecular Devices, based in Sunnyvale, Calif., develops bioanalytical measurement systems to accelerate and improve drug discovery. Its systems help pharmaceutical and biotechnology companies identify and evaluate drug candidates. LJL, also based in Sunnyvale, designs, produces and sells infrastructure tools that accelerate and enhance the process of discovering new drugs. The company recently introduced its first-generation High Efficiency Fluorescence Polarization assay for cyclic AMP (cAMP) to be used in cell-based analysis. The assay can be used to monitor responses of G protein-coupled receptors to drug candidates by measuring levels of intracellular cAMP to determine adenylate cyclase activity.

Together, the two companies have an installed base of more than 15,000 systems and products at all of the world's largest pharmaceutical and biotechnology companies, they said.

"The technologies are totally complementary," Leytes said. "We have things they don't have; they have things we don't have."

For example, LJL has products used in single nucleotide polymorphism (SNP) genotyping, whereas Molecular Devices has nothing in that field, Leytes said. And Molecular Devices is one of the leaders in genetic cell-based technology, which includes its FLIPR product. FLIPR evaluates changes in intracellular calcium in a high-throughput screening environment.

The transaction is expected to close in the fourth quarter, following regulatory approvals and shareholder votes. It will be accounted for as a pooling-of-interests and will be a tax-free reorganization.