By Karen Pihl-Carey
Guilford Pharmaceuticals Inc. plans to acquire Gliatech Inc. in a merger agreement valued at about $203 million to create a new company focused on biopolymer products and drugs to treat neurological and psychiatric disorders.
The combined company, which will have three marketed products and nine clinical product candidates, will retain the Guilford Pharmaceuticals name and be located at Guilford's headquarters in Baltimore. Gliatech's corporate and research operations in Cleveland will close, but the new company will retain a manufacturing facility in Solon, Ohio.
As part of the fixed-exchange ratio agreement, each Gliatech shareholder will receive 1.38 shares of Guilford common stock for each Gliatech share owned. With about 9.5 million Gliatech shares outstanding, the transaction is worth about $203 million, based on Guilford's opening stock price (NASDAQ:GLFD) Tuesday of $15.50. The company's stock closed Tuesday at $14.125, down $1.375. At that price, the transaction would be worth about $185 million. With about 36.5 million shares outstanding, the market capitalization of the combined company would be about $515.6 million.
Gliatech's stock (NASDAQ:GLIA) closed Tuesday at $18.75, up $2.375, or 14.5 percent.
"Gliatech will hold 37 percent ownership in the new company," Thomas Oesterling, chairman and CEO of Gliatech, said in a conference call Tuesday. "We think it's just a very good combination with products and research programs that fit very nicely together. The combined company will have $154 million in cash," giving the company a lot more options in the way it moves forward, he said.
Guilford shareholders will hold 63 percent of the combined company, and Craig Smith will remain president and CEO. Oesterling will become a member of the board and a part of management focused on strategic planning activities.
Smith said his company was attracted to Gliatech's biopolymer platform. "We think they're well protected," he said in the conference call. "The thing that was most interesting to us is this stuff works. You need products that work and people that know what they're doing. And we think by putting the companies together, we're going to have more of both."
The merger is expected to close in the third quarter, following shareholder votes and regulatory approval. Both boards already have approved the merger, which will be accounted for as a pooling of interests. Prudential Vector Healthcare Group and SG Cowen Securities Corp., both of New York, acted as financial adviser to Guilford and Gliatech, respectively.
The combined company's marketed products include: Adcon-L gel approved for the inhibition of post-surgical scarring and adhesions following lumbar spine surgery; Gliadel Wafer, a site-specific biopolymer-based chemotherapeutic approved to treat recurrent glioblastoma multiforme, or malignant brain cancer; and Adcon-T/N Gel approved for the inhibition of post-surgical scarring and adhesions following tendon and peripheral nerve surgery. Adcon-L is approved in the U.S. and 28 other markets, while Gliadel, marketed by Aventis SA, of Frankfurt, Germany, also is approved in the U.S. and 21 other countries. Adcon-T/N Gel is available in 28 markets, but is not yet approved in the U.S. (See BioWorld Today, May 29, 1998, p. 1; and Sept. 26, 1999, p. 1.)
Oesterling said that while the Adcon-T/N product showed efficacy in a clinical trial in the U.S., the FDA wants the company to conduct a larger study. "Since we need to do the same type of study for each of the Adcons, a full-blown efficacy pivotal trial, we simply didn't have the resources to do that. We had to put Adcon-T/N on the back burner." Now, with the merger, the money may be available to progress with the product, he said.
Smith said the three approved products had combined 1999 gross sales of about $45.3 million. While the Adcon products now are being sold in the U.S. through an independent sales force, Smith said the new company may set up a commercial operations group in order to field its own sales force for future products.
"What we need to do is build critical mass, so the investor can be reasonably confident that a sufficient number of products will move through development," Smith said.
Nine product candidates are in clinical trials or close to clinical development. Gliadel, for instance, is in a Phase III trial expected to be completed this summer for the first-line therapy of glioblastoma multiforme. Smith said Phase III results will be available in the next few months, and the product could receive a significant label expansion sometime in 2001.
The Gliatech Adcon products are at different stages. Adcon-P, a biopolymer liquid to inhibit post-surgical scarring following pelvic and gynecological surgeries, is in pivotal trials, and a premarket approval (PMA) submission is expected by the end of the year. From the time of submission, the company estimates it could take the product between a year and 18 months to reach the market.
Adcon-A is in a pilot study to inhibit scarring following abdominal and colorectal surgeries. It is expected to enter pivotal trials this year. And Adcon-I recently completed enrollment in a pilot clinical trial to inhibit adhesions following breast augmentation and reconstructive surgery. Also, Paclimer Microspheres, a site-specific biopolymer formulation of paclitaxel being developed to treat ovarian cancer, is in a Phase I trial.
Aside from the biopolymer platform, the combined company also will have neurological products, Perceptin and NIL-A, in the clinic. Perceptin, a histamine H3 receptor antagonist to treat attention-deficit-hyperactivity disorder, is enrolling patients for a Phase II study. And NIL-A, a small-molecule drug tested to promote nerve growth and repair, is moving into Phase II for Parkinson's disease. NIL-A is the lead compound in the neuroimmunophilin ligands platform, and Amgen Inc., of Thousand Oaks, Calif., is Guilford's development partner.
"Whatever may happen in the short term regarding any of these programs, we feel that the Adcon line of products is very promising," Smith said.
The market potential for Adcon-L on a worldwide basis is $400 million, he said. In the U.S., the product's market potential is $200 million, and it has no competition, he added. For the total group of products in the Adcon family, Smith said, the market potential worldwide is in excess of $1 billion.
In late preclinical development, the combined company will have GPI-15715, a water-soluble prodrug of propofol being tested as an anesthetic, and GPI-5693, a small-molecule NAALADase inhibitor to treat neuropathic pain associated with diabetic peripheral neuropathy.