avexa and progen

http://www.theaustralian.news.com.au/story/0,25197,24833011-23634,00.html

Avexa and Progen

CRITERION: Tim Boreham | December 22, 2008
Article from: The Australian

THIS convoluted proposed deal looks like a marriage for the times: the union of a cash-rich cancer play which has pulled its main drug trial with an advanced HIV drug developer urgently in need of cash to bring its remedy to market.
We'll be seeing more of these deals as the swollen biotech sector rationalises down to far fewer, but better capitalised, players.

At its late November AGM, Progen promised a transaction within 45 days, so hurrah for that rare commodity in corporate Australia: truth in advertising.

In the unconventionally-structured deal, Progen plans to take over Avexa using scrip, resulting in an entity 56 per cent owned by Progen holders. But the merged company will be named Avexa, with Avexa holding board control.

Thus, Avexa holders are sacrificing a takeover premium in return for accessing this dough elsewhere. “Without this merger Avexa holders would have needed to consider its options such as a capital raising,” says Avexa chief Julian Chick. “The slight discount is better than when we would have needed to do to raise capital.”

The merger terms - one Progen share for every 12.857 Avexa shares - implies a 50 per cent premium for Progen holders, but a slight discount for holders in the target, Avexa.

Progen holders had been promised a cash return of Progen's entire $70 million of capital in lieu of a deal, the idea being they could then choose themselves whether to reinvest in another biotech, such as … Avexa.

As a sop, Progen will still return $20 million ahead of the deal, by way of a voluntary buyback at $1.10 a share.

The parties this morning hyped up the deal as a “true merger of mutual interests” of the companies' work in oncology and anti-infectives. In essence, though, the merged entity's main game will be Avexa's HIV drug ATC, with Progen's stash of cash funding ATC at least until the next trial results due in the fourth quarter of 2010.

ATC, which has fast-track status from the Food and Drug Administration, is only one of only two HIV drugs in phase-three trial process globally. ATC is aimed at those resistant to current treatments.

In July, Progen abandoned its phase-three liver cancer trial PI-88, citing slow regulatory processes, the difficulty coming up with clinical sites and the appearance of a competitor trialling the same indications.

Since then, every biotech has been eyeing Progen like a beach babe in a bikini, while former Progen directors also tried to mount a coup to get hold of the cash.

Investors this morning appeared underwhelmed by the deal, which falls into the “things you gotta do” category, rather than being a true visionary gambit.

We'll hold our judgement pending closer scrutiny.

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