Bio-Technology General Corp. (BTG) and Gynex PharmaceuticalsInc. announced Wednesday their intent to merge in a stockswap transaction valued at $48 million.

Under the agreement, BTG of New York will exchange newlyissued shares of its common stock (NASDAQ:BTGC) for alloutstanding shares of Gynex common stock (NASDAQ:GYNX) at afixed ratio of 0.61 shares of BTG stock for one share of Gynexstock. Gynex has 19.7 million shares outstanding, fully diluted,while BTG has 34 million fully diluted shares outstanding.

BTG's stock closed Wednesday at $5.63 a share, off 38 cents,and Gynex's stock was up 13 cents a share to $2.94.

"On a fully diluted basis, we will be exchanging 12 millionshares," said Sim Fass, president and chief executive officer ofBTG. "The Gynex shareholders will end up owning 25 percent ofBTG."

The two companies expect to get shareholder approval of themerger early this summer, probably in June, Fass said.

Following the merger Gynex will relocate its operations to theNew York metropolitan area. BTG intends to move its executiveoffices from Manhattan to Metro Park, N.J., in the next three tofour months, Fass told BioWorld. This will be the beginning ofestablishing a U.S. presence for BTG, which has a research anddevelopment facility in Rehovet, Israel.

The merger should capitalize on the synergy that already existsbetween the companies' respective product portfolios.

Gynex brings to the merger a plethora of hormones and otherpharmaceuticals for use in endocrinology, urology, metabolism,AIDS and gynecology. BTG contributes its geneticallyengineered hormones, growth factors and enzymes.

"There actually should be some synergy," said Jim McCamant,editor of The Medical Technology Stock Letter. "Gynex'sproducts are mainly orally active" whereas BTG's areinjectables. "In some ways these are complementary markets.Even when there are two products for the same indication,they're not directly competitive," McCamant told BioWorld.

Richard Bock, senior vice president for investments at Sutro &Co. of Los Angeles, also sees the merger as positive for BTG."Their pipeline is getting bigger. Now the company should beworth more," he said.

But Robert Friedman, an analyst with Kidder, Peabody in NewYork, said that it's critical to BTG's success to "hit on its ownproducts. (The merger with) Gynex doesn't help them towardthat goal." People still want to see whether the research turnsinto revenues, he said.

"The synergies of our product portfolios are readily apparent,especially in developing products for pediatric growthdisorders and AIDS," said Fass. "Gynex's lead product, Oxandrin(oxandrolone), and BTG's human growth hormone both havebeen shown to be safe and effective in treating various growthdisorders. In addition, both drugs currently are being tested todetermine their safety and efficacy in reversing the negativeeffects of HIV wasting syndrome (cachexia) and muscleweakness associated with AIDS. Both products have receivedorphan drug designation for this indication."

In the area of AIDS cachexia, Oxandrin may solve a pricingproblem that hGH couldn't. Both companies have orphan drugdesignation for this indication, and treatment with either drugallows the AIDS patients to gain weight. But with hGH priced atabout $20,000 annually for treating short stature, it farexceeded the generally agreed on limit of $5,000 per year foran AIDS treatment (the sum charged for AZT), Fass explained.

"The beauty of Oxandrin is that it's orally active instead ofinjectable," said Fass. "It's likely to cost $2,000 to $4,000 peryear for AIDS patients. That's the right ballpark foracceptability."

For BTG, the merger limits risk and increases the chances forgrowth and success. "In view of recent market events --especially those over the past year -- we are more than everconvinced that only a varied pipeline of near- as well as long-term product opportunities can ensure future success," Fasssaid. "We believe that no single product development reversalcould at this time seriously jeopardize BTG's projected success."

Fass is speaking from BTG's negative experience with itsproduct superoxide dismutase (SOD) in the mid-'80s, whichcreated a financial nightmare. "We allowed ourselves to bedefined as an SOD (superoxide dismutase) company," said Fass."When the clinical results on SOD in myocardial infarct andkidney transplants came out, we almost went down the tubes.... Bristol-Myers decided to sever our relationship andterminate its option on SOD."

The lesson learned was to "never let that happen again," saidFass.

By the fall of 1989, BTG had a debt load of $30 million andalmost went bankrupt. The stock was delisted for eight months.

BTG used a debt-for-equity swap that reduced that load toabout $8 million by the end of the year. Soon after, in February1990, investor David Blech took on BTG as one of his "fallenangels," acquiring a 17.7 percent stake in the company for $3.1million. Blech also owns part of Gynex, having purchased $3million worth of common stock and warrants in April 1992,giving him 10 percent equity.

After Blech took an interest, BTG was able to raise $35 millionin four different private placements in 1990 and 1991. Todayit is almost debt-free.

"We have less than $1 million in debt remaining," Fass toldBioWorld. As well, the company has $19.7 million in the bank.Gynex has $3.3 million in cash.

"We have sufficient cash in the bank to get us through ourprojected break-even point, which is in 1994," Fass said.

-- Jennifer Van Brunt Senior Editor

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

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