By Mary Welch

Cortech Inc. and BioStar Inc. called off their proposed $15 million merger, which had been expected to close in the second quarter of this year.

It was a matter of time — too little time, said Teresa Ayers, president and CEO of Boulder, Colo.-based BioStar.

"Things were just taking longer than either side had hoped for," Ayers told BioWorld Today. "It started with the SEC [Securities and Exchange Commission] review. Things became uncertain, and both companies realized that it had taken up all the time each of us could afford. I'm disappointed, because it was a good deal for both companies and we both worked hard on it."

As part of the original December 1997 agreement, either party could call off the merger if it failed to occur on or before May 31 of this year. Because it was becoming obvious the deal would not take place by then, the parties mutually elected to end the agreement.

For Cortech, of Denver, the break is the latest in a series of bad ones, said Kenneth Lynn, chairman and CEO.

"We're just going to go down the road and start looking at our alternatives," he said. "There's a broad range of possibilities — mergers or acquisitions. Liquidation is another strategic alternative and we're not focusing on it."

One snag in the merger deal was NASDAQ's notification of Cortech that the dwindling company would be delisted. Cortech is appealing the decision. "That made things more uncertain and we knew then we wouldn't make the May 31 timetable," he said. "We decided to terminate and look at other alternatives."

Cortech's stock (NASDAQ:CRTQ) closed Friday at $0.468, down $0.031.

Both companies have been under a "no-shop" provision, meaning neither could investigate other potential mergers while dealing with each other. Now that the marriage is off, both companies will be seeking suitors.

"We had companies interested in us and we were interested in other companies prior to the BioStar deal, and we would expect other interested parties would still be out there," Lynn said.

BioStar is also actively on the market.

"We had alternatives at the time, but we felt Cortech was the best candidate," said Ayers. "And we have alternatives today. There is a possibility of something opening up with another company. Or we might do an IPO [initial public offering] of our stock."

Cortech is focused on developing therapeutics for inflammatory disorders, specifically directed at protease inhibitors and bradykinin antagonists. In December 1996, a Phase II pilot study of CE-1037, a parenteral human neutrophil elastase inhibitor for acute respiratory distress syndrome, was suspended when partner Hoechst Marion Roussel, voiced safety concerns about the drug in animal testing. The Frankfurt, Germany-based company ended its collaboration and returned the rights to CE-1037 to Cortech. (See BioWorld Today, Dec. 20, 1996, p. 1.)

Two months earlier, SmithKline Beecham plc of London suspended a Phase II trial of Bradycor, Cortech's lead bradykinin antagonist, after tests showed no significant effect on intracranial pressure. The study of Bradycor was aimed at the prevention of brain damage from head injuries. After the failure of the clinical trials, Cortech cut its work force from 75 to 30. The staff is down to 12 members. (See BioWorld Today, April 25, 1997.)

Lynn declined to speculate about further cuts. "That's another matter for evaluation," he said.

Cortech Not Disclosing Current Cash

Cortech had about $16.1 million in cash as of Sept. 30, 1997, when the merger plan was disclosed, and $15.4 million at the end of 1997. Lynn declined to provide the company's current cash reserves. "All I can say is that we've suspended our research and development efforts and are engaged in business development efforts," he said.

BioStar could use Cortech's money, Ayers said.

"We're in a growth phase, which means we have cash constraints," she said. "We need cash to fund growth, not to run operations."

BioStar develops, manufactures and markets point-of-care diagnostic tests using highly sensitive, thin-film technologies. The company sells a test for Strep A, which causes strep throat; Strep B, which causes neonatal septicemia; and chlamydia. It is also developing tests for influenza, pneumonia and gonorrhea. *