Scios Inc. and Nova Pharmaceutical Corp. announced onWednesday that they will merge in an exchange of stockvalued at $180 million.

The company, to be called Scios-Nova Inc., will combine Scios'expertise in biotechnology with Nova's strength in smallmolecules, receptor technology and rational drug design, saidRichard Casey, president and chief executive of Scios.

The companies also hope that the merger will solve two verydifferent long-standing problems. Scios of Mountain View,Calif., has been perceived as a research boutique unable tobring products to market.

"Getting products out has clearly been a problem," Casey toldBioWorld. "Our whole effort over the last four years has been toshow we can get things through the clinic. We were perceivedas a research boutique -- and that was true in the first fiveyears. Then we shifted strategy and have been moving thingsthrough development." Scios (formerly California BiotechnologyInc.) was founded in 1982.

Baltimore-based Nova's problem has been lack of cash. "Whilewe have a respectable cash position, the combined company isin a much stronger cash position to finance the development ofprojects for longer than Nova has been able to do," said HansMueller, Nova president and CEO. Mueller will become vicechairman of the merged company.

Nova raised $40 million in February and has $43 million incash, with a burn rate of $13 million a year. Scios raised $102million in two secondary offerings last year. With $122 millionin cash, it has a burn rate of $10 million. After managerialconsolidation and the termination of some projects, the burnrate will be less than the combined rate of the two companies,Casey said.

Scios was also looking to bring in a broader portfolio ofproducts in advanced stages of testing and already on themarket. Nova had 1991 sales of $40 million for four psychiatricproducts acquired from SmithKline and expects $45 million insales this year.

Under the deal, holders of Nova common stock will receive 0.39Scios shares for each Nova share. After the transaction, holdersof Scios common stock will own about 60 percent of the newcompany and holders of Nova shares will own about 40percent.

The companies estimated that the combined entity will have amarket capitalization of about $420 million, based on the May12 closing of the two common stocks.

The transaction will be accounted for as a purchase, and Scios-Nova will take certain charges at the closing and additionalcharges in the fourth quarter. The size of the charges hasn'tbeen determined.

Both stocks lost ground Wednesday, with Scios (NASDAQ:SCIO)off $1.63 to $11.63 and Nova (NASDAQ:NOVX) down 63 cents to$4.50.

Scios is focused on cardiopulmonary disorders, tissue repairand metabolic disorders. The company has three products inclinical trials: Auriculin, fibroblast growth factor andinsulinotropin. Auriculin atrial natriuretic peptide hascompleted Phase II trials to prevent kidney impairmentfollowing radiocontrast diagnostic procedures. It will enterPhase III trials in the fall.

FGF is in Phase II trials for bedsores and diabetic foot ulcers.Insulinotropin, which Scios is developing with Pfizer Inc., is inPhase II trials for type II diabetes.

Nova is focusing on inflammation and psychiatric disorders. Itsleumedins are small peptides that block the ability of whitecells to get through endothelial walls and cause inflammation.An intravenous leumedin formulation for shock and an enemaformulation for inflammatory bowel disease will enter Phase Itrials in the next few weeks.

Nova is also developing bradykinin antagonists for septic shock.

The company has three products finishing development. Novafiled in April for marketing approval of Pergamid, a bonemarrow purging agent.

Gliadel, a bioerodible polymer incorporating achemotherapeutic for implantation in the brain following tumorsurgery, is completing Phase III trials, and the company willfile for marketing approval in the next few months.

Septacin, which incorporates gentamycin in polymer beads andis implanted in bone to treat osteomyelitis, is in mid-Phase IIItrials.

Discussing which projects the new company will focus on, Caseysaid: "Nova's leumedins and bradykinin antagonists are veryattractive to us. And we are unlikely to kill our products inPhase II."

The combined company will be headquartered in MountainView, with an R&D facility in Baltimore.

Special stockholder meetings will be scheduled for mid- to lateAugust.

-- Karen Bernstein BioWorld Staff

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