Biotech companies mix and match

Merger of Eureka and Nanobac to provide a creative way to infuse cash into bioinformatics work and more

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HERCULES, Calif.—In a pairing that isn't the usual fare, privately held Eureka Genomics, headquartered here but also with operations in Houston, Texas, has entered into a definitive agreement with Tampa, Fla.-based Nanobac Pharmaceuticals Inc. under which Nanobac proposes to merge with Eureka in a stock and cash transaction.

Eureka Genomics has developed a broadly applicable, revenue-producing platform genomics technology capable of rapidly deciphering complex biological systems, with target markets in the areas of bioinformatics, pathology, biology, molecular and cell biology and drug discovery laboratories, among others. Eureka offers customer capabilities for analysis in such applications as mapping, analysis of genetic variations, design of probes and primers, methylation analysis and discovery of non-host nucleic acids with complex diseases or that are present in samples suspected of carrying an unknown microorganism.

Nanobac, on the other hand, is focused on calcifying nanoparticles (CNPs). To that end, the company has a pharmaceutical discovery and development efforts based around new and existing compounds that effectively inhibit, destroy or neutralize CNPs. The company has tended to be narrowly focused on new combinations of well-known drugs that have been shown to eradicate CNPs, and its business strategy is to develop and license compounds to address unmet needs of patients in the cardiovascular and urological disease markets. The company also has diagnostic products in this realm, reagents, clinical lab services and bioanalytical services.

"We're always looking for capital, and we have decided not to rely on the venture capital route," notes Didier G. Perez, the chief financial officer, chief operating officer and co-founder of Eureka. "One of our board members pointed us toward Nanobac because that company had tried to work with a company like ours before. We have a bioinformatics platform that does what no one else can do, and while we are not certain it will directly meet Nanobac's needs, the merger would bring in cash, which we always need, and give access to capital markets."

He admits that the match-up doesn't seem obvious, noting, "There aren't many offers out there these days, so companies, including our own, need to look outside of what makes perfect 100 percent rational sense and be creative with what is available. And that's where the idea to combine the two companies came from, with Eureka to be the final entity."

Under the terms of the agreement, Nanobac would issue new shares of its common stock to Eureka stockholders based on an exchange ratio to be determined prior to the closing of the transaction. Under the exchange ratio formula defined in the merger agreement, the former Eureka stockholders are expected to own 85 percent of the combined company, and the former Nanobac shareholders are expected to own 15 percent of the combined company, each on a fully diluted basis. This ratio is subject to potential adjustments as described in the merger agreement.

The proposed merger would involve, among other things, a reverse stock split of shares in Nanobac Pharmaceuticals. When the merger is consummated, the Nanobac Pharmaceuticals name will be changed to Eureka Genomics Corp. The combined company intends to apply to change its ticker symbol on the OTC-Pink Sheets exchange. Subject to regulatory approvals and customary closing conditions, this merger is currently expected to close during the second quarter of 2009.

"We are excited about the opportunity to merge with a revenue-producing company that is well-positioned to play a defining role in the evolution of high-value diagnostic tests and medicines, as well as cleantech products such as bioenergy feedstocks and bio-based industrial catalysts," says Dr. Benedict Maniscalco, co-chairman of Nanobac's board. "We firmly believe that this merger is the best step forward for Nanobac shareholders because it offers the potential to increase shareholder value."

"We, too, are confident that this merger will help build shareholder value," adds Perez. "Likewise, we are confident that this merger will help us accelerate our efforts to develop and partner our next-generation bioinformatics and pursue the development of highly valuable, cost-effective diagnostics, therapeutics, vaccines and cleantech products such as bioenergy feedstocks."

The merger agreement is subject to significant contingencies, including conversion of substantially all of Nanobac's debt to equity, by its securities holders; Nanobac raising $2.35 million of new equity; Nanobac providing to Eureka its audited financial statements for the year ended Dec. 31, 2008 and unaudited financial statements through at least March 31, 2009, satisfactory to Eureka's management; Nanobac bringing all of its SEC filings current; and various other customary closing requirements.

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