By Lisa Seachrist

Washington Editor

Sibia Neurosciences Inc.'s stock shot up 60 percent on news that Merck & Co. Inc. had agreed to purchase the La Jolla, Calif.-based biotech company for $87 million in cash.

Sibia's stock (NASDAQ: SIBI) closed Monday at $8.343 a share, up $3.093. The close easily beat Sibia's 52-week high of $6.75 a share. The stock had closed as low as $2.50 a share in the past year.

"Basically, the reason we chose Sibia is because they have a high-quality staff doing excellent work in central nervous system [CNS] disorders," said Gwen Fisher, manager of corporate communications for Whitehouse Station, N.J.-based Merck. "It will give us a U.S. presence in CNS research."

Under the terms of the agreement, Merck will purchase Sibia for $8.50 a share - a 62 percent premium to Friday's closing price of $5.25 a share. Merck will commence a tender offer for Sibia shares by Aug. 6.

Once Merck completes the purchase of Sibia shares, Sibia employees will become Merck employees. Merck also intends to keep Sibia's La Jolla facilities. The purchase is still subject to regulatory approval, though the companies expect the acquisition to be completed in September.

Sibia, which suffered a setback in July on its lead product, SIB-1508Y, for Parkinson's disease, has a $20 million deal with Eli Lilly and Co. to develop compounds that selectively act on certain subtypes of nicotinic acetylcholine receptors as potential therapies for a wide variety of CNS disorders. Lilly also has rights to Sibia's lead compounds, SIB-1508Y and SIB-1553A.

"We intend to honor all of Sibia's contractual obligations," Fisher said. "We didn't do this deal in the hopes of getting any products. We see the value in their staff and technology. This deal will open a lot of opportunities for Merck to produce more medicines for CNS disorders."

Sibia officials could not be reached for comment.

Ethan Lovell, an analyst with Bear Stearns Co. in New York, considers the purchase of Sibia a good deal for Merck, which will receive not only the CNS drug-discovery platform but patents on drug-discovery technology.

"This deal is very different from product-oriented mergers," Lovell said. "This deal demonstrates that there is value to technology."

Viren Mehta, an analyst with Mehta Partners LLC in New York, said, "Value in these technology deals are in the eye of the beholder. Nevertheless, Merck's CNS efforts have been faltering of late and they may use this to jump-start [the program]."

As for Merck paying a premium price, Mehta noted that just three years ago Sibia went public at $11.00 a share. Both Mehta and Lovell viewed the acquisition as part of a continuing trend in consolidation in the biotech industry.

"I think you are going to see a lot more consolidation," Lovell told BioWorld Today. "And, I think it's healthy. There aren't enough investors to support 350 publicly traded biotechnology companies."

While the Merck acquisition of Sibia represents a big pharma entity picking up a technology-based biotechnology company, Lovell said he anticipates more biotech-biotech mergers, noting that Cambridge, Mass.-based genomics firm Millennium Pharmaceuticals Inc., in a recent conference call, indicated it was considering acquiring a pipeline.

"I would expect cash-rich biotechs to start looking at companies that are trading near or at their 52-week lows," Lovell said. "All biotech small caps got oversold last year and there is a big disparity between the large caps and the small caps in the industry."