By Jim Shrine
LeukoSite Inc. signed a definitive agreement to purchase privately held CytoMed Inc. for stock currently worth $16.4 million, which would represent nearly 12 percent of the combined company.
The deal, expected to close in February, will give LeukoSite about $9 million in cash immediately and another $6 million in October that is owed to CytoMed from UCB Pharma. CytoMed also brings two compounds in early-stage human trials and a preclinical program in complement inhibition.
"This was an opportunity to acquire a company with significant cash assets and two attractive clinical programs," Gus Lawlor, LeukoSite's vice president of corporate development and chief financial officer, told BioWorld Today. "There will be a period where we integrate the programs into the LeukoSite portfolio and begin clinical development of them."
The pipeline and development staff were all that remained when UCB Pharma, of Brussels, Belgium, purchased CytoMed's research and development assets in October for $12 million, half of which will be paid in October 1999.
That purchase also involved 37 employees, leaving CytoMed with 12 to 14 people, "essentially a virtual development company," said Dick Woodrich, CytoMed's executive vice president and chief operating officer. "Now, LeukoSite will buy the rest of us."
Deal Includes $23.5M In Potential Milestones
The deal between Cambridge, Mass., neighbors CytoMed and LeukoSite calls for the issuance of 1.6 million preferred LeukoSite shares to CytoMed, most of them at closing and the rest upon receipt of the $6 million payment in October. Each preferred share will convert to one common share, perhaps as early as the shareholders meeting in May.
The initial price attached to the deal was $19 million, since the stock was trading at $11.88 when the deal was being negotiated. But LeukoSite's stock (NASDAQ:LKST) closed down 25 cents per share Tuesday at $10.25, making the deal's current value $16.4 million.
CytoMed shareholders, primarily institutional investors, can realize another $23.5 million in cash and about 84,000 shares of stock from the deal, if certain milestones are reached.
Milestone payments will be triggered upon completion of Phase III for a CytoMed product, filing of a new drug application and approval, Lawlor said. The milestones are the same for all three products, so they would be paid regardless of which one reached them first. But they would be paid only on a single product, he said.
Woodrich said his company viewed the acquisition as a $40 million-plus deal.
"It offers an opportunity for our shareholders to gain access to broader technology by being part of a larger company and provides continuity for our existing programs," Woodrich told BioWorld Today. "Part of that is a continued need to find funding for these programs."
CytoMed's two lead compounds are small molecules that block the 5-lipoxygenase enzyme (5-LO), the platelet-activating factor (PAF), or both. The intent is to stop symptoms of certain inflammatory diseases.
CMI-977 is an orally active compound that selectively inhibits production of leukotrienes, which have a role in bronchial asthma. LeukoSite expects to start a Phase IIa trial of CMI-977 this year. CMI-392 is a topical product designed to block 5-LO and PAF activities. It is in initial Phase II studies in adults with psoriasis and children with atopic dermatitis.
Those small molecules join three LeukoSite monoclonal antibodies already in the clinic: Campath, in pivotal studies for refractory chronic lymphocytic leukemia; LDP-02, in Phase II for inflammatory bowel disease; and LDP-01, in Phase I/IIa trials in kidney transplant and stroke patients.
CytoMed's preclinical program in complement inhibition is partnered with Chiron Corp., of Emeryville, Calif., which has worldwide marketing rights.
On Sept. 30 LeukoSite had $26.5 million in cash and reported a net loss of $11.8 million for the first nine months of the year. It will have about 13.5 million shares outstanding after issuance of the 1.6 million to CytoMed. *