By Charles Craig
Despite two deals worth $100 million, another $42 million for the high-profile discovery of an obesity-linked gene and acquisition of a genomics company whose Stanford University founder is a recognized leader in the field, Progenitor Inc. has experienced a detour-filled road on its 14-month journey to complete an initial public offering (IPO).
In the latest move, the company Tuesday cut the projected price to $7 to $8, more than 35 percent below the original anticipated price. And in July, it offered potential investors units consisting of a share and a warrant for another share.
Progenitor expected to price the IPO this week.
The Columbus, Ohio, company, which is a subsidiary of Interneuron Pharmaceuticals Inc., of Lexington, Mass., registered for an IPO in June 1996 to sell 2.5 million shares in a projected price range of $11 to $13. It was postponed in August 1996 due to a precipitous drop during the summer in biotechnology stocks industry-wide.
Progenitor, discovering genes useful in developing drugs, did not rush into the capital markets. It was founded in 1992 and three years later it attracted Chiron Corp., of Emeryville, Calif., and Novo Nordisk A/S, of Bagsvaerd, Denmark, as partners in drug development collaborations valued at up to a combined $100 million if all milestones are met.
Then, before reviving the IPO earlier this year, Progenitor in December 1996 licensed its leptin receptor gene to Amgen Inc., of Thousand Oaks, Calif., which agreed to pay a potential $42 million for rights to the discovery. The purchase gave Amgen both the leptin hormone and receptor for its development of drugs to treat obesity and diabetes.
In February 1997, Progenitor also moved to acquire Mercator Genetics Inc., of Menlo Park, Calif., a disease gene discovery company co-founded by Stanford's David Cox, who is co-director of the university's Human Genome Center. Cox plans to remain a scientific advisor to the merged companies.
Mercator in 1996 reported finding a gene for hereditary hemochromatosis, an iron overload disease. It also is searching for asthma, schizophrenia and cancer genes. The takeover by Progenitor is tied to the IPO. (See BioWorld Today, Feb. 19, 1997, p. 1, and March 18, 1997, p. 1.)
Armed with the Amgen deal and new technology from Mercator, the company reactivated the offering in March 1997. The number of shares was the same at 2.75 million, but the price was scaled back to between $10 and $12.
Still, the company could not complete the IPO. Before Tuesday's price cut, on July 3, 1997, Progenitor added the warrant to each share and proposed selling 2.75 million units between $10 and $12. Underwriters are Lehman Brothers, of New York, and Genesis Merchant Group Securities, of San Francisco.
For the first offering in June 1996, underwriters were Genesis Merchant, Vector Securities International Inc., of Deerfield, Ill., and Tucker Anthony Inc., of New York.
Progenitor's work has focused on discovery of genes associated with development of blood cells, the immune system, blood vessels and bone. It found the leptin receptor while searching for genes that influence formation of hematopoietic cells, such as stem cells. Leptin, it turns out, plays a role in formation of blood and immune cells in addition to its function as a regulator of fat content.
Despite the corporate collaborations and addition of Mercator, Progenitor apparently lacks what many investors consider key in the current roller coaster market for biotechnology stocks — the prospect of substantial near-term revenues.
Progenitor's pay-offs in deals with Chiron, Novo Nordisk and Amgen are tied to drug development milestones, which may be years away.
Then again, Progenitor just may have missed out on the rush of investors, drawn more by fascination than potential earnings, to any company practicing genomics.
During the bull market from July 1995 to June 1996 — when 48 biotech and biotech-related IPOs were completed — Sequana Therapeutics Inc., of La Jolla, Calif., Ribozyme Pharmaceuticals Inc., of Boulder, Colo., Myriad Genetics Inc., of Salt Lake City, and Millennium Pharmaceuticals Inc., of Cambridge, Mass., were some of the genomics firms that cashed in on the enthusiasm.
In the past year, however, interest has waxed and waned for biotechnology offerings. (For more information on the IPO market, see BioWorld Financial Watch, Aug. 4, 1997.)
Progenitor's funding primarily has come from majority-owner Interneuron through loans and equity investments. Interneuron also is expected to participate in the IPO, buying $3 million in units. It would own about 37 percent of Progenitor's outstanding shares following the offering.
London-based SmithKline Beecham plc's venture capital affiliate, SR One Ltd., also is expected to purchase $1.5 million of the IPO units. Amgen has agreed to buy Progenitor shares worth $5.5 million directly from the company at the IPO price.
At $7.50 per unit, midway in the projected range, Progenitor's IPO would generate $20.625 million. Following the offering the company would have 11.738 million shares outstanding, excluding the 2.75 million shares represented by the warrants.
As of March 31, 1997, Progenitor had $8,000 in cash and Mercator, $124,000. For the fiscal year ending Sept. 30, 1996, Progenitor reported a net loss of $5.484 million. Mercator reported a net loss of $7.208 million for calendar year 1996. *