By Charles Craig
Millennium Pharmaceuticals Inc. added drug discovery technology to its gene identification capabilities by taking over privately held ChemGenics Pharmaceuticals Inc. in an exchange of stock valued at nearly $90 million.
The merger cancels ChemGenics planned initial public offering (IPO), proposed in December 1996 for the sale of 2.5 million shares at a projected range of $11 to $13.
ChemGenics, of Cambridge, Mass., was formed in May 1996 through a combination of Myco Pharmaceuticals Inc., a Cambridge microbial genomics firm, and the drug discovery group of PerSeptive Biosystems Inc., also of Cambridge.
Millennium, in its takeover of ChemGenics, exchanged 4.8 million shares for all outstanding shares of ChemGenics. Based on the $18.50 closing price of Millennium's stock (NASDAQ:MLNM) Monday when the merger was made public, the acquisition is worth $89 million to ChemGenics shareholders.
Millennium ended Tuesday up $1.25 to $19.75.
Noubar Afeyan, chairman and CEO of PerSeptive, said for his company's stake in ChemGenics, PerSeptive received 1.6 million Millennium shares. In addition, PerSeptive was paid $4 million in cash to retire a loan and warrants that were part of ChemGenics' founding agreement between Myco and PerSeptive.
Afeyan, who is chairman of ChemGenics, said PerSeptive will own about 6 percent of Millennium.
Prior to the IPO, ChemGenics had 7.61 million shares outstanding. Based on the $89 million value of the takeover by Millennium, Afeyan noted ChemGenics shareholders received about $12 per share, which is mid-range in the projected IPO price.
The ChemGenics IPO also was to include a reverse stock split, boosting the outstanding shares held by investors from 7.1 million to more than 20 million. Based on 20.16 million ChemGenics shares outstanding, Millennium will exchange .24 shares for each ChemGenics share.
The merger is expected to be complete in February, but Millennium will not register the 4.8 million shares with the Securities and Exchange Commission until June.
Although ChemGenics officials expected their IPO to be successful, Afeyan said, "this [merger opportunity] showed up late. The value created [in combining ChemGenics with Millennium] is greater and more certain than ChemGenics by itself."
Alan Crane, ChemGenics' vice president of business development, said the merger agreement evolved from discussions between his company's president and CEO, Barry Berkowitz, and Millennium's CEO, Mark Levin, who are long-time friends and were discussing potential collaborations.
Formation of ChemGenics combined Myco's microbial genomics program with PerSeptive's technologies for selecting drug candidates from compound libraries based on genetic targets and for analyzing the small molecules' influence on gene expression patterns.
ChemGenics, which focused on antifungal and antibacterial drug discovery, has two pharmaceutical collaborations with American Home Products Corp., of Madison, N.J., and Pfizer Inc., of New York. Both drug makers have equity interests in ChemGenics.
The deal with American Home Products focuses on new classes of antibiotics and the partnership with Pfizer targets antifungal drugs.
When ChemGenics filed for its IPO in December 1996, it said it had $9.35 million in cash as of Sept. 30 and a net loss of $10.4 million for the first nine months of last year.
ChemGenics, in its microbial genomics research, has collected more than 40,000 organisms. In addition to analyzing the microbes' genomes for drug targets, the organisms themselves are sources of natural product compounds and can serve as disease model systems for screening therapeutic small molecules.
Millennium, whose genomics program focuses on human disease gene discovery, has collaborations with American Home Products for genes involved in central nervous system disorders; with Eli Lilly and Co., of Indianapolis, for atherosclerosis and cancer; with Roche Holding Ltd., of Basel, Switzerland, for obesity and Type II diabetes; and with Astra AB, of Sodertlje, Sweden, for inflammatory disorders of the respiratory system.
Together the Millennium and ChemGenics pharmaceutical company alliances are worth more than $300 million in committed funds, Crane said, plus another $100 million in additional funding and milestone payments.
Moving On -- To Development
Steven Holtzman, Millennium's chief business officer, said the ChemGenics merger allows his company to move from gene discovery to development of lead drug candidates based on targets derived from genes.
In addition, he noted ChemGenics broadens Millennium's basic human disease gene research to include genetic targets in pathogenic organisms for anti-infective drugs.
In Millennium's gene identification collaborations, Holtzman said, the company has retained rights to the genes for diagnostics and for biologic products * such as proteins, gene therapy, antisense molecules and antibodies.
It also can use the genetic targets discovered with pharmaceutical partners for drug development outside the specific area of the alliances. For example, Holtzman said, the same genes being used by Roche for obesity drugs could be used by Millennium to develop a different therapeutic compound to treat anorexia.
Holtzman said Millennium intends to remain a drug discovery company, partnering with pharmaceutical companies for development of marketed products.
Now, he added, Millennium can provide potential collaborators not only the genetic targets for drugs, but also lead candidates for clinical trials.
ChemGenics' senior management team will join Millennium. However, Afeyan will not be a member of Millennium's board of directors. The combined company will have 345 employees. *