By Lisa Seachrist
WASHINGTON — With the impending launch of CardiaRISK, a genetic test for susceptibility to salt-dependent hypertension, Myriad Genetics Inc. has entered into an arrangement with a financial institution that could net the company a total of $22 million.
The sophisticated deal calls for the simultaneous purchase and sale of call options on Myriad common stock with no net expense to the company and resembles deals that Cephalon Inc., of West Chester, Pa., and IDEC Pharmaceuticals Corp., of San Diego, entered into this year.
"We believe our stock is undervalued and have a lot of confidence in the ability of the company," said Peter Meldrum, president and CEO of Myriad. "We are very excited about the potential of genomics to help move medicine from where it is today, treating illnesses, to the prevention of illnesses."
Meldrum noted the company could launch CardiaRISK by the end of the year, and its nine discovered genes are in development for diagnostic tests as well as for drug discovery in collaborations with pharmaceutical companies.
The financial institution, which wishes to remain unnamed, seems to have the same enthusiasm for Myriad's potential because ITcontacted the company and proposed the financing. It is also betting that Myriad's stock (NASDAQ:MYGN), which closed Monday at $29, will jump approximately $20 over the next year.
The arrangement calls for Myriad to buy and sell call options for 400,000 shares of the company's common stock. The first part of the transaction requires Myriad to purchase call options giving the company the right to purchase stock at a strike price, which has yet to be determined, but will likely fall in the mid-$30s.
Instead of purchasing stock at that price, the company expects to elect cash settlement, which would be determined by the difference between the price of the stock and the option strike price. The cash settlement can be triggered any time after the stock reaches the strike price, but before the option expires. The cash settlement is capped at $3 million. Should the stock fail to reach the strike price before the option expires in 14 months, Myriad will receive nothing.
"We won't be buying stock or diluting the value of our stock with this arrangement," Meldrum said. "It just allows us to benefit from the appreciation of the stock."
The second call option, to be sold by Myriad, will entitle the financial institution to purchase from Myriad up to 400,000 shares of newly issued stock at a strike price of $48.50. Upon completion of that purchase, Myriad will receive $19.4 million. This option also expires in 14 months.
Adding $3 million from the cash settlement to the $19.4 million brings the total amount of the financing to $22.4 million.
Meldrum noted that in the simultaneous purchase of call options, the financial institution paid Myriad $52,000, which offsets the cost of legal fees needed to structure the deal.
"There is no risk to Myriad in this deal," Meldrum said. "And there is minimal risk to the financial institution. It could lose $3 million, but presumably it will be buying and selling stock to generate a return."
Over the next year, the financial institution may engage in transactions, including market purchases and sales of Myriad securities, to offset any risks.
"Because we forgo underwriting costs and the like, we are looking at a deal that would be similar to a secondary offering valued at $55 a share," Meldrum said. "This is a very good deal for Myriad." *