By Karen Pihl-Carey
Insmed Pharmaceuticals Inc. entered into a definitive agreement to acquire Celtrix Pharmaceuticals Inc. to form a company the market valued at $178 million, and one that thrusts privately held Insmed into the public arena.
The combined company will have three drug candidates in advanced clinical trials, including Celtrix's lead product, SomatoKine. The stock will continue trading under Celtrix's symbol, CTRX, until the deal closes at the end of the first quarter of 2000.
Celtrix's stock (NASDAQ:CTRX) rose 26 percent Wednesday to close at $1.968, up 40.63 cents. At that price, the combined company has a total value of about $178 million, about $38 million more than what was estimated with Tuesday's closing stock price. The new company will have 90.2 million outstanding shares, with Celtrix shareholders holding 37 million shares, or 41 percent, and Insmed shareholders holding 53.2 million, or 59 percent.
"It provides us an opportunity to get into the public arena," said Geoffrey Allan, president and CEO of Richmond, Va.-based Insmed. "[And] brought a very valuable product to our portfolio."
The product, SomatoKine, is a recombinant complex of insulin-like growth factor-1 and its binding protein, BP3. It is an anabolic agent that prevents tissue breakdown, and it has shown benefit in several indications, including osteoporosis, diabetes and wasting from traumatic burns.
"We've been in the process of developing a company that focuses on metabolic and endocrine disorders. We've been looking for opportunities where there's clear evidence of clinical data in those areas," Allan told BioWorld Today. "We think SomatoKine being a Phase II product offers a very unique opportunity, and that's exactly what we were looking for."
The shareholders of both companies must approve the merger before it becomes final. At closing, each Celtrix share will be exchanged for one share of the new company, while each Insmed share will be exchanged for three-and-a-half shares of the new company. Celtrix has about 37 million shares outstanding. Insmed has about 15.2 million shares outstanding.
The exchange will be tax-free for both companies' shareholders. Insmed also expects to complete a private placement of equity securities before the acquisition closes.
Beginning in September 1998, Celtrix discontinued its manufacturing operation and laid off most of its staff. Since then, it reduced staff from more than 80 employees to only seven. Celtrix made the cuts in staff and facilities because it had accumulated sufficient drug inventory to see SomatoKine through Phase II trials. The company also expected the move would reduce its annual burn rate by $11 million. (See BioWorld Today, Sept. 21, 1998, p. 1.)
But with Phase II trials nearing completion, the company began looking for alternatives to advance the product.
"Celtrix was exploring numerous avenues and we felt the best strategy was actually to join forces with another company, therefore expanding our product pipeline," said Malcolm McKay, vice president of regulatory affairs at Celtrix, based in San Jose, Calif.
"This was a very useful transaction because Celtrix has been working as a virtual company now for several months," Allan said.
SomatoKine is moving into a Phase II study in osteoporosis in the U.S. and Europe through a joint venture between Celtrix and Elan Corp. plc, of Dublin, Ireland. The two companies formed the joint venture in April. (See BioWorld Today, April 14, 1999, p. 1.)
The compound also recently completed a Phase II diabetes study and a Phase II study in patients with severe burns. Celtrix had intended to move SomatoKine forward into advanced studies for each of those indications, McKay said.
Aside from trials of SomatoKine, Celtrix's transforming growth factor (TGF)-beta-2, a product licensed to Genzyme Corp., of Cambridge, Mass., completed a Phase II trial in dermal ulcers.
Both SomatoKine and TGF-beta-2 will be added to Insmed's product portfolio, which includes INS-1, a carbohydrate-based small molecule being developed for Type II diabetes and polycystic ovary syndrome. INS-1 is in ongoing Phase II trials.
Allan said he will serve as president and CEO of the new company, which will retain the name Insmed. Andreas Sommer, president and CEO of Celtrix, will serve as a consultant for the new company. And Insmed's directors will be directors of the new company.
As for Celtrix's six other employees, McKay said it is unclear what will happen. "We'll be here through a transition period," he said, adding that "ultimately, yes," he expected they would be laid off.
The new company will be based at Insmed's headquarters in Richmond.
"Celtrix will continue to trade under CTRX until closing," said Insmed's chief financial officer Michael Baer. "At closing, we will form a new publicly held company with a new ticker symbol."