Atlanta-based Scherer Healthcare Inc. made an unsolicited offer forthe acquisition of ProCyte Corp., a Kirkland, Wash., development-stage company focused on copper compounds.
The three-way merger proposal also includes Derma Sciences Inc.,of Old Forge, Pa. The consolidation, into Scherer, would be achievedthrough an exchange of stock for shares of Scherer(NASDAQ:SCHR).
ProCyte officials responded to the offer by adopting a shareholderrights plan, and retaining Wertheim Schroder & Co. Inc., of NewYork, to help evaluate the proposal. Scherer and Derma wantProCyte to respond by Dec. 15.
The proposal offers one share of Scherer stock for 3.4 shares ofProCyte (NASDAQ:PRCY) and 4.1 shares of Derma(NASDAQ:DSCI).
Chuck Noland, who follows ProCyte for San Francisco-based DakinSecurities Corp., said of Scherer: "Who are these guys? This appearsto be a proposal that should not have even a modest attraction forProCyte shareholders. Why would they accept paper from acompany that is selling for $23 per share but is a consistent moneyloser, which has a tangible book value of around $3 per share?"
Noland made those comments in an update to investors. He toldBioWorld the offer might "look attractive to an unsophisticatedshareholder."
That look would take into account the share prices of the respectivecompanies. ProCyte has been trading around and under $3 per sharesince Oct. 17, when the trial of its lead product Iamin gel, failed toshow statistical significance against placebo in the healing ofdiabetic plantar ulcers. (See BioWorld Today, Oct. 18, 1994, p. 1.)
Scherer, thinly traded and closely held (60 percent of the company isheld by director Robert Scherer, Jr.), is selling at $20.50 per share.Scherer has 4.23 million shares outstanding; ProCyte has 12.92million shares. On paper, at those prices, 3.4 ProCyte shares wouldbe worth $10.20, compared to $20.50 for one share of Scherer.
But fewer than 10,000 Scherer shares usually trade per week. Sostockholders and the stock might run into difficulty if a largeshareholder or shareholders put their shares on the market at once,because of the illiquidity of the stock.
Scherer stock closed unchanged Thursday at $20.50 in trading ofonly 5,100 shares. ProCyte closed up 31 cents at $3.06, afterreaching as high as $3.62 in trading of 809,000 shares. DermalSciences, which had no activity, closed at $5.
Scherer had fiscal year 1994 sales of $43 million and $4.56 millionin cash, Noland said, although it lost $1.27 per share in the year thatended in March 1994. ProCyte reported cash and equivalents of$46.3 million on Sept. 30. Derma Sciences, a company focused onwound-healing products, is approaching $5 million per year in sales.
Scherer's vice chairman, James Brands, told BioWorld that ProCytewould fit nicely with Scherer subsidiary, Biofor Inc., of Waverly,Pa., which has artificial intelligence-based drug design capabilitieslicensed from Case Western University in Cleveland.
"The combination of Biofor and ProCyte can lead to effective andefficient moving forward of research and development, particularlydevelopment," Brands said. "In effect, we'd have all the upsidepotential of a pharmaceutical development company, and yet wouldhave the more solid underpinnings of a group of health careproducts."
Scherer's revenues come predominantly from the sale of disposabledevices and the disposal of sharp-edged medical instruments, such asneedles, Brands said. The company also is involved in other areas ofthe medical device business.
ProCyte officials declined to comment except to say that they areevaluating the offer, their options and "are interested in broadeningour technology in addition to expanding our studies," said KarenHedine, ProCyte's vice president, business development.
Hedine told BioWorld the cutback from 83 to 54 full-time employeeswill reduce the company's burn rate from about $20 million per yearto $9 million or $10 million. Also figuring into that reduction is thatthe company no longer has a drug in Phase III trials, and that it builta manufacturing plant in 1994.
ProCyte's Japanese partner for Iamin, Kissei Pharmaceuticals Co.Ltd., plans to take the drug into wound-healing trials in 1995. AndProCyte is planning a multicenter, dose-ranging Phase I/II study ofthe compound early next year in inflammatory bowel disease. n
-- Jim Shrine
(c) 1997 American Health Consultants. All rights reserved.