Gensia Inc. proposed a buyout of its 1991 research spin-off, AramedInc., that is worth an estimated $37 million in cash and stock to thelatter's shareholders.

In return, San Diego-based Gensia would reacquire rights tocompounds based on its adenosine regulating agent (ARA)technology. Three drug candidates owned by Aramed are in clinicaldevelopment.

Gensia and Aramed have signed a definitive agreement on theacquisition. The deal, which is subject to approval by Aramedshareholders, is expected to close in September or October.

Expectations were high among Aramed investors four years ago forthe success of ARA-based drugs for cardiovascular and neurologicaldiseases. But subsequent failure of the lead product, Protara, inclinical trials for preventing heart attacks during coronary bypasssurgery ended investors' hopes of substantial gains from their initialstock purchases.

Although Protara was not included in the products licensed toAramed, the drug's success was key to Gensia's development and toestablishing confidence in the technology.

Gensia's spokeswoman, Martha Hough, said the company is seekingcorporate partners to develop the ARA-based compounds reacquiredfrom Aramed. Those include three in clinical development _ two foracute cardiovascular disease and another for epilepsy. Pendingnegotiation of a strategic alliance, Gensia said it intends to reducespending on the three product candidates.

Kevin Tang, of Alex. Brown & Sons Inc., in New York, said all threepotential drugs are attractive. "These compounds are more potent andmore efficacious than Protara," Tang said.

The estimated $12.50 to $13 per share Gensia has agreed to pay forAramed is below the $20 that Aramed investors paid in 1991. Forthat $20, Aramed investors also got a five-year warrant to purchase ashare of Gensia stock for about $27, which was expected to be aconsiderable discount to market value by 1996. As another incentive,Gensia had agreed to repurchase Aramed stock by the end of thisyear for $55 a share, or Aramed was free to negotiate partnershipswith other companies.

Prior to Protara's initial late-stage clinical trial disappointment in1992, Gensia's stock was trading at $35.50 and Aramed was at $41.Gensia finally discontinued development of the drug in late 1994.

After announcing the acquisition Friday, Gensia's stock(NASDAQ:GNSA) closed at $4, unchanged. Aramed(NASDAQ:ARAM) ended the day at $10.25, up $1.25.

Tang said Aramed shareholders "clearly hoped for a larger return,closer to the $20 issuance price [in 1991]." But because part of thedeal includes Gensia stock, if it paid more cash it would negativelyimpact Gensia's shares, he said.

As proposed, the acquisition is cash-neutral for Gensia, Tangobserved. Aramed shareholders will get $8 per share, making thetotal cash portion of the buyout $23 million for approximately 2.9million outstanding shares. As of March 31, Aramed had $29 millionin cash and was expected to have $19 million by the end of the year.

In addition to the $8 per share, Aramed stockholders will receiveanother $3 in Gensia stock and a contingent value right that is worth$1 in cash or Gensia stock on March 31, 1996, plus up to anadditional .75 Gensia shares Dec. 31, 1996.

Combining cash and stock, Hough estimated the buyout is worthbetween $12.50 to $13 per share for Aramed stockholders. Totalvalue of the acquisition is between $36 million and $37.3 million.

Gensia has 32.2 million shares outstanding. The number of newshares issued for Aramed, Hough said, could range between 2.4million and 5.5 million. As of March 31, Gensia had $42.2 million incash. The company posted a net loss for the quarter of $14.5 million,which included a charge of $4 million to settle a class actionshareholder lawsuit and a $1.1 million restructuring charge. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.