Survive to thrive

CombinatoRx, Neuromed to merge in all-stock transaction

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Survive to thrive
CAMBRIDGE, Mass.—In a move targeted toward creating one sustainable drug development company, financially-strapped biotech CombinatoRx and Neuromed Pharmaceuticals Inc., a privately held biopharmaceutical headquartered in Vancouver, stand poised to merge in an all-stock transaction.

Under the terms of the merger agreement, announced June 30, Cambridge, Mass.-based CombinatoRx will issue approximately 36 million new shares of its common stock to Neuromed stockholders, with each party owning approximately 50 percent of the voting power of the merged organization upon closing. Relative ownership of CombinatoRx will then be adjusted based upon the outcome of the FDA's review of product candidate, Exalgo. The combined company will have the CombinatoRx name and is expected to trade under the stock symbol CRXX on the NASDAQ global market.

Robert Forrester, CombinatoRx interim president and CEO, tells Drug Discovery News that the impetus to merge was the need to "survive to thrive." In December 2008, the Boston Globe reported that CombinatoRx was planning to cut 80 jobs, or two-thirds of its workforce, as a way to enable the company to operate for at least four more years without raising additional cash.

Forrester says the merger with Neuromed "will leverage the operational efficiencies created by CombinatoRx`s recent restructuring—including workforce reductions—and divestiture of our Singapore subsidiary, to focus on our core technology, simplification of our balance sheet and reduced cash burn going forward. As a result, we expect to have sufficient cash to continue operations into 2012."

The opportunity to forge a merger "germinated in late 2008 at a biotech conference in San Francisco when I met with an investment banker friend who mentioned Neuromed to me," Forrester says. "The idea resonated immediately and grew from that chance meeting."

The partnership brings major benefits to CombinatoRx, Forrester says. This includes the potential for significant non-diluted capital when Neuromed's drug, Exalgo, is approved by the FDA; Neuromed's experienced drug development expertise, its ion channel discovery engine; and the product candidates Neuromed has generated in pain and epilepsy. The combined company will serve the markets for pain, inflammation, Parkinsons, diabetes and epilepsy.

The merger, expected to close in the fourth quarter, is an all-stock merger of equals, Forrester says. However, if Exalgo is approved before the end of 2009, CombinatoRx shareholders will own 30 percent of the combined company. If the approval occurs during the first three quarters of 2010, CombinatoRx shareholders will own 40 percent; if approval comes in the fourth quarter of 2010, CombinatoRx shareholders will own 60 percent. And if there is no approval before the end of 2010, CombinatoRx shareholders will own 70 percent of the combined company.

Christopher Gallen, Neuromed president and CEO, says CombinatoRx`s unique discovery approach and the multiple mid- and early-stage product candidates in the CombinatoRx pipeline, combined with Neuromed`s clinical development experience, project management driven culture and ion channel inhibitor programs, will enable the potential creation of new therapeutics. Gallen says the current global economic crisis prompted the merger.

"The global capital crunch has made it very difficult to raise significant amounts of money," Gallen says. "With closed IPO markets, royalty finance markets and a general decrease of available investment capital, Neuromed needed a significant amount of capital in order to carry Exalgo through registration and commercialization to the point of profitability.

"This capital was simply not available," Gallen continues. "As a consequence, Neuromed had to divest the Exalgo product to an excellent partner, Covidien Ltd. This created a situation where we no longer had a late stage pipeline, only pre-clinical assets. The obvious solution was to find a merger partner with a later stage pipeline for our clinical group to continue advancing while our discovery group advanced their compounds into the clinic."

Gallen calls the merger "an excellent match. The new combined company will have a strong Phase I, Phase II and clinical pipeline, an enhanced discovery capacity and a significant amount of cash ... This cash will be important in advancing the current CombinatoRx Phase I and II pipeline."

Neuromed's clinical expertise is very broad and encompasses multiple therapeutic areas, but is particularly deep in central nervous systems (CNS) development, Gallen says. The Neuromed pipeline is currently oriented toward acute and chronic pain, hypertension, epilepsy, addiction and oncology.

"CombinatoRx's discovery capacity has very broad implications touching on many therapeutic areas," Gallen says. "The most advanced compounds appear relevant to inflammation, diabetes, and Parkinson's disease. We are very excited as well about their oncology screening capacity."

Neuromed had looked at a wide variety of merger partners, "and CombinatoRx stood out head and shoulders as the best overall match," Gallen says. "The combined company will have stronger financial resources, a discovery platform and a better pipeline than either company has separately. In these trying times for biotech, we believe such strength is essential to survive and to thrive," he says.

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