By Mary Welch
Cypros Pharmaceutical Corp. and RiboGene Inc. will merge to form a yet-to-be-named company that will become a fully integrated specialty pharmaceutical products company focusing on the acute-care hospital market.
Cypros stockholders will control about 55 percent of the fully diluted equity of the combined company, with RiboGene's stockholders, option holders and warrant holders owning about 45 percent. RiboGene, of Hayward, Calif., will become a wholly owned subsidiary of Carlsbad, Calif.-based Cypros.
As a result of the merger, each outstanding share of RiboGene common stock will be converted into 1.49 shares of Cypros common stock.
Cypros' stock (AMEX:CYP) closed unchanged Thursday at $2.062; RiboGene's stock (AMEX:RBO) closed at $2.187, down 56.25 cents, or 20 percent. RiboGene shares had gained $1 Wednesday in advance of the news, however, before trading was halted in the afternoon.
"It's a real formula for success," declared Charles Casamento, chairman, president and chief executive officer of RiboGene. "It's a fabulous opportunity to build value because we'll be a bigger, better company."
The merger makes sense, said Alan Auerbach, vice president and research analyst with First Security Van Kasper in Los Angeles. "You have to look at what each lacked," he said. "Cypros lacked cash and corporate partners. And while they had products on the market, their sales and marketing needed to be stimulated."
On the other hand, RiboGene "didn't have a lot of late-stage products, which meant it couldn't get a lot of interest from the investment community," he said.
Casamento said the merger's virtues are "the capital resources and the savvy management team of RiboGene, combined with Cypros' later-stage products, its marketed products and its sales and marketing force."
The new company, whose eventual headquarters has not been determined, will have four products on the market in the U.S., and another in Italy. In addition, there are several product candidates in Phase II and Phase III trials.
Casamento will become chairman and CEO, while Paul Marangos, chairman, president and CEO of Cypros, will remain as a board member and will become a consultant to the company. All other board members from both companies will remain.
On a pro forma basis (based on April 30 and June 30 financial data from Cypros and RiboGene, respectively) the combined companies have cash, cash equivalents and investments of about $45 million and long-term debt of $6 million. RiboGene has a compensating balance arrangement with its bank, which also holds $5 million of the $6 million of long-term debt.
"We will be consolidating operations and combining our burn rates, which we intend to reduce," Casamento said. "On the other hand, we will build a larger sales staff and pursue our goal to be involved in all phases of the bringing a product from development through commercialization. We will be doing this by continuing to develop our own products but also through opportunistic and strategic acquisitions."
Auerbach expected the new company to control its burn rate and cash so it has two to three years of operating funds. "Some people are looking at this merger and seeing that one and one doesn't add up to two. But I think they will combine their burn rates and look to cut it. Plus, they'll have the opportunity to divest certain assets, which will get them additional capital," he said.
Marangos said the tangible value of the combined companies will be seen over the next 18 months. "We have products in Phase III as well as late-stage Phase II," he said. "We'll be able to create critical mass and resources to bring very important programs to the launch stage. It's an exciting opportunity."
Products currently on the market include Ethamolin, for the treatment of esophageal ulcers; Glofil-125 and Inulin, for diagnosis and monitoring of patients with kidney disease; and NeoFlo, for wound care.
Emitasol, an intranasal spray for the treatment of diabetic gastroparesis and chemotherapy-induced delayed-onset nausea and vomiting, is marketed in Italy under the brand name Pramidin by Crinos Industria Farmacobiologica S.p.A., of Como, Italy. Emitasol is entering its final Phase III clinical trial in the U.S. Emitasol is being developed by RiboGene, and will be marketed by its North American partner, Roberts Pharmaceutical Corp., of Eatonton, N.J.
Cypros develops cytoprotective drugs to treat ischemic disorders and markets acute-care hospital-based products. It currently has Cordox in a Phase III program for sickle cell anemia and a Phase II trial for bypass surgery. Ceresine is in Phase II studies in head injury and ischemic stroke.
Ceresine received orphan drug status from the FDA in June and received expedited review status in August 1998. Ceresine is a small-molecule drug that reduces the accumulation of lactic acid in the brain that occurs after a stroke or head injury. Cordox, a naturally occurring intermediate of energy metabolism, helps red blood cells maintain their normal shape and improves blood flow. (See BioWorld Today, Feb. 19, 1999, p. 1.)
"Cordox is in Phase III for sickle cell anemia," said Casamento. "I like this product. I think there are good commercialization opportunities and it allows us to bring to the table a direct treatment for a group of people who need therapy."
What the new company will do is "partner or license out where it makes sense," Marangos said. "In some of our pipeline, we'll want collaborations so that the research could be funded by another company, and we might look to partner out what isn't funded."
The new company plans to be aggressive, Casamento added. "There's been a lot of discussions in the biotech field about consolidation, but really few have taken advantage of the opportunities presented. Instead of talking about it, we're proactive. We've increased value for all the shareholders. We have significant opportunity to build value and the potential for success. We have well-defined marketing objectives and clear goals. That's how we're going to build this business, by being proactive."