IGI Inc. said it plans to split out its biotechnology operations as aseparate public company if the Internal Revenue Service (IRS)agrees to recognize the new entity as a tax-free spinoff.The plan was approved by IGI's (ASE:IG) board of directors.The arrangement would allow IGI of Buena, N.J., to separate itsloss-producing biotechnical divisions and subsidiaries from itsprofitable commercial operations. In the product areas the companyplans to keep, it reported 1993 revenues of $28 million, a 15 percentincrease over 1992. However, the operations to be discontinuedresulted in an operating loss of about $2.6 million. The companyalso took a one-time charge for 1993 of $3.3 million for costs relatedto the discontinuation of its biotechnology segment. The aggregateloss from biotechnology operations was $5.9 million for 1993,compared with $1.3 million in 1992.According to a company spokesman, IGI plans to raise $8 million to$12 million to finance the spinoff through a private placement ofshares in the new company. How these shares will be allocated hasnot yet been decided. The placement and disposition of the shareswill be handled by Janney, Montgomery, Scott.IGI entered into an agreement with SmithKline Beecham in August1993 under which SmithKline would test IGI's patented Novasomertechnology as a vehicle to formulate various SmithKline humanvaccines. In return, SmithKline agreed to pay some of IGI'sdevelopment expenses and to invest $1 million in IGI's commonstock. SmithKline also obtained an exclusive option to license IGI'sNovasome technology for certain SmithKline vaccines.According to the company spokesman, IGI hopes to allow theprofitable part of the company to realize its true value while givingthe company's investors the opportunity to acquire shares in the newbiopharmaceutical company. He said the breakup would allow bothcompanies enhanced access to the capital markets.The spokesman said the animal vaccine group, Vineland Labs, itsEVSCO pharmaceutical division, and Ultrasponge line wouldremain in IGI. The Novavax subsidiary would be spun off and thenew company would likely take Novavax as its name.IGI has already applied to the IRS to allow the plan favorable taxstatus and hopes for a ruling within the next six months. If the planis not allowed, the spokesman said that IGI would have to considerother options, including the possible sale of the biotechnologysection, which he said the company hopes to avoid.According to Frank Gerardi, a consultant to IGI, all profits over 1cent a share have gone to support the biotechnology research anddevelopment of IGI investors. Without that drain, he said investorswould have earned 11 cents a share in 1991, 15 cents in 1992, and20 cents in 1993.The patents and technology now owned by IGI will be transferred tothe new company, which will license the rights to its liposomal-based technology, Novasome, to IGI. The IGI spokesman said allIGI activity that is regulated by the FDA will be transferred to thenew company. Topical applications and consumer products wouldremain with IGI.Novasome lipid vesicles are microscopic spheres that serve as adelivery system for drugs and other products. They are used inapplications such as a dermatologic cream for psoriasis, cosmetics,and the flavoring of fat-free foods.
-- Philippa Maister
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