RESEARCH TRIANGLE PARK, N.C. & EXTON, Pa.—BioCryst Pharmaceuticals Inc. and Idera Pharmaceuticals Inc. kicked off the week with an announcement early Monday morning of a definitive merger agreement, a combination they said would create “a new enterprise focused on the development and commercialization of medicines to serve more patients suffering from rare diseases.”
Per the agreement, each share of BioCryst common stock will be exchanged for 0.50 shares of the new company stock, with each share of Idera's common stock being exchanged for 0.20 shares of the new company stock, reflecting an “at market” combination based on the approximate 30-day average volume weighted trading prices for each company. On a proforma, fully diluted basis, BioCryst stockholders will own 51.6 percent of the combined company, with Idera stockholders holding 48.4 percent. Both companies' boards of directors unanimously approved the transaction.
The deal is subject to shareholder approval, regulatory approval and other customary closing conditions. A significant stockholder of each company, holding roughly 9 percent of outstanding Idera shares and roughly 14 percent of outstanding BioCryst shares, agreed to a voting and support agreement and will vote in favor of the transaction. The merger is expected to be completed by the end of Q2 2018.
“Both of our companies have aspired to become successful providers of therapeutics for patients suffering from rare life-threatening diseases. Both share a culture that puts patients first and keeps their interests at the very core of what we do, and how we do it,” said Idera CEO Vincent Milano. “By merging our unique talents, experiences and assets, we instantly strengthen our ability to become a significant force for patients suffering from a broad range of rare diseases. We will also gain operational synergies and strengthen our financial position.”
On the topic of financial positions, the combined entity reportedly will have a net cash balance (unaudited pro-forma cash balance as of Dec. 31, 2017) of approximately $243 million, per a BioCryst press release, “with opportunities to add further non-dilutive capital to fund internal clinical development efforts, commercial launch efforts and continued business development activities.” A company slide presentation issued alongside a conference call regarding the merger reported an “Additional $20+ million (non-dilutive) procurement contract anticipated in 2018.”
This new company will have a pipeline with four late-stage programs “that provide near-term commercial and partnering opportunities,” including BCX7353, a Phase 3 program for the prophylactic treatment of hereditary angioedema (HAE) in a capsule form; IMO-2125, a Phase 3 program for PD1-refractory melanoma in combination with ipilimumab; IMO-8400, a Phase 2 program for dermatomyositis; and BCX7353, a Phase 2 program for the acute treatment of HAE in a liquid formulation. The first two programs both have Orphan Drug Designation from the FDA. Assets in the preclinical phase include IDRA-008 against a liver target, BCX9250 and BCX9499 against fibrodysplasia ossificans progressiva and second-generation kallikrein inhibitors against HAE and other indications. The slide presentation reported supporting assets consisting of RAPIVAB (peramivir injection), which is approved and licensed to Seqirus, Shionogi and Green Cross; IMO-9200, a Phase 1 compound in autoimmune disease licensed to Vivelix; and a preclinical 3GA candidate against a renal target that is licensed to GlaxoSmithKline.
“Bringing these two companies together accelerates the strategic initiatives of both organizations and immediately forms a substantial and differentiated biotech company serving patients in the rare disease community,” Jon P. Stonehouse, president and CEO of BioCryst, commented in a press release. “Combining our respective pipelines, infrastructures and financial resources should enable the new company to grow faster, deliver for patients more rapidly and ultimately create sustainable shareholder value well beyond what either would achieve separately.”
The combined entity will be renamed once the deal closes. Milano will lead the new company, as well as serving as a member of the board of directors. Stonehouse will also join the board, as will BioCryst Chairman Robert Ingram, who will serve as chairman of the board of the new firm. Idera's Exton, Pa., headquarters will serve as headquarters for the new company, with a consolidated research center to be located in Birmingham, Ala.
Though the companies' management teams and boards of directors are positive about the deal, that optimism doesn't seem to extend to the market. Seeking Alpha's Douglas W. House wrote that “Investors don't appear to have much enthusiasm for the deal. Idera is down 22 percent on triple normal volume and BioCryst is down 8 percent on more than double normal volume.”
By 4:05 p.m. Monday, Sean Williams of The Motley Fool reported that the companies' stocks had dropped 28 percent and 12 percent, respectively, noting that “The move lower would appear to indicate that Wall Street views this as a merger out of weakness and necessity rather than one of strategic initiative and strength.” Williams pointed out that the drop in share prices implies it might be difficult to get the needed shareholder support for the deal. He also wrote of the combined unit's pipeline that “Two of the four top compounds (both from BioCryst) target HAE, which has an increasing amount of competition. It would also appear that even with the cost-cutting derived from synergies, this combined entity isn't going to be profitable. Neither company was expected to be anywhere near profitability over the next five years, per Wall Street estimates.”