Eli Lilly and Co. has signed a letter of intent to acquire SphinxPharmaceutical Co., the companies announced Tuesday. Underthe current terms of the agreement, the Indianapolis-basedpharmaceutical giant will acquire all outstanding shares ofSphinx for $6 per share, after which Sphinx will become part ofLilly Research Laboratories.
Accounting for various stock options, the total value of theacquisition comes to almost $80 million, Sphinx's director ofinvestor relations, W. Bennett Love, told BioWorld. Lilly willpay closer to $75 million, however, because it already owns a 5percent stake in the company. Sphinx currently has about 12.6million shares outstanding.
The relationship between Sphinx and Lilly dates back toNovember 1991, when Lilly purchased 680,000 shares of theDurham, N.C., company's stock and acquired rights to its proteinkinase C. (PKC) regulating enzymes for a variety of indications.Sphinx later reacquired most of these rights, and since May1993, Lilly's interest in the company has consisted of itsmarketing rights for PKC regulators to treat diabetes. Sphinx iscurrently in preclinical development of a PKC inhibitor for thatindication.
According to Love, it was during the collaborative developmentof the PKC regulators that Lilly became interested in Sphinx'shigh-throughput drug-screening capabilities. In the past year,Love continued, Sphinx has developed a technology to rapidlygenerate thousands of small organic molecules in what it callscombinatorial chemistry libraries. These two technologies werethe impetus behind Lilly's decision to purchase Sphinx.
Sphinx gained its combinatorial chemistry technology throughits acquisiton of Genesis Pharmaceuticals Inc. of Cambridge,Mass., in March 1993 for 650,000 shares of stock (then tradingat $4.75 per share) and about $550,000 in cash and warrants topurchase 250,000 additional share of Sphinx stock. Theacquisition, now called Sphinx Pharmaceuticals-Cambridge Inc.,appears to be paying off handsomely for the company'sshareholders. Sphinx's stock (NASDAQ:SPHX) closed at $2.88 pershare on Monday before the deal was announced. With 12.6million shares outstanding, the face value of the company'sstock was $36.3 million. That amount almost doubled followingthe announcement of the company's deal with Lilly, climbing$2.56 a share to close at $5.43 in heavy trading of 1.2 millionshares on Tuesday .
Sphinx's Durham site will remain intact and become LillyResearch Laboratories' center for high-volume drug screening,Lilly spokesman David Pomfret told BioWorld. The companywill also maintain Sphinx's Cambridge site.
Lilly's acquisition of Sphinx is its first investment inbiotechnology this year. The announcement comes less thantwo months after the pharmaceutical company announced thatit would divest itself of its wholly owned biotechnologysubsidiaries, Hybritech and Pacific Biotech (see BioWorld, Jan.19). At the time, Lilly announced that it was following astrategy of concentrating on its core pharmaceutical business --a strategy that the company said is bolstered by its acquisitionof Sphinx.
Lilly also recently decided to terminate its researchcollaboration with Zynaxis Inc. (see BioWorld, Feb. 25). Thatcollaboration focused on the development of drugs to reducethe rate of restenosis following angioplasty and combinedZynaxis' Zyn-Linker drug-delivery technology with Lilly'scatheter device systems.
Sphinx has had its own troubles recently. The company cut itsstaff by 29 percent last July in an attempt to streamline itsoperations. The cutbacks were quickly followed by thedepartures of its then-president and chief executive officer,Clayton Duncan, and its executive vice president of researchand development, Jeff Leighton. The streamlining effortfollowed an announcement by the company in May that it waspulling its topical psoriasis treatment Kynac out of Phase IItrials. The company is still in Phase II development of Kynacfor eczema and in Phase I development of Kynacyte, anotherPKC drug, as an adjunct to increase the efficacy of certainchemotherapeutics in treating solid tumor cancers.
As of Dec. 31, Sphinx had $22.4 million in cash and a burn ratefor the previous six months of $10 million. Sphinx had beenactively pursuing collaborators for its combinatorial chemistrytechnology when Lilly expressed interest in buying thecompany outright, Love said.
-- Karl A. Thiel Business Editor
(c) 1997 American Health Consultants. All rights reserved.