an article from biotechnology news

Hi all,

Here's an article that I've only just come across for the first time ... pretty sure it hasn't been posted or linked to yet. I did have to sign up for a 30 day trial to get at it, but didn't have to agree to any disclaimers etc., so hopefully it's fair game to post here (with full details of where it's from, who it's by and not changing anything).

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Fermiscan, Polartechnics merger “not about cash”
Nick Evans
Tuesday, 21 April 2009

DESPITE speculation the merger between Polartechnics and Fermiscan is being driven more by Polartechnics’ need for cash than any true synergies between the two, both companies are maintaining the line that the merger is a marriage of equals.

Fermiscan managing director David Young

The merger, announced last Friday, is structured as a Polartechnics takeover and will see the company issue three of its shares for every two Fermiscan shares on offer. That values Fermiscan at around $28 million, based on Polartechnics’ Friday closing price of 13c, and will see Fermiscan shareholders control just under half of the merged entity’s total ordinary shares currently issued.

BTN spoke to both Polartechnics’ Ben Dillon and Fermiscan’s David Young this week, and both were very clear the merger deal isn’t a raid on Fermiscan’s cash kitty, with Polartechnics having recently completed several smaller capital raisings, and the merger putting options currently on issue for both companies in the money.

Young said that, while the technologies under development by the two companies were very different, there were strong synergies in the regulatory and marketing pathways for both, and the relationships Polartechnics has built up on the way to getting its products to market would be invaluable as Fermiscan’s breast cancer diagnostic moved closer to market.

“The people that [Polartechnics] have been dealing with – in government and the health systems – have an overlap for us. Not necessarily just from distribution models, but from a relationship perspective, most certainly.

“Clinical trials, regulatory approvals, quality assurance – the parallels are remarkable,” he said.

Dillon said the merger would help to de-risk both companies, by broadening the product base for both.

“One of the issues we have is that the Polartechnics story has been around for a long time – we’ve got TruScreen into market and we’re making quite a lot of units of it at the moment. We have also been able to get an entirely new product into market for minimal money and open up a position in the self-sampling area.

“But those events alone have done very little in the current climate to capture the attention of the market,” he said.

Dillon said the merger would also allow Polartechnics to get a stronger foothold in the Australian and other Western markets, an area that has been problematic for the company to date. Polartechnics has had greater success in penetrating the Chinese and other Asian markets than many Australian companies, but has little presence in Australia and Europe.

“They’re looking to commercialise into a lot of the markets we’re already in, and we would benefit from the positioning they’ve done.

“We need to get an operational presence in Australia. Their positioning with the Sydney Breast Clinic allows us to approach what has up until now been a dedicated breast screening operation and consider how that might be restructured or re-energised into a more relevant service for women’s screening – which would include a broader base of screening services.”

And Dillon hinted the two companies might pursue a strategy of rolling up similar services across Australia, saying he thinks there is room in the market for specialised women’s screening services that concentrate on more novel techniques not generally available in GP services.

Capital requirements

Dillon denied the merger move is a play for Fermiscan’s $7.5 million cash reserves. While Polartechnics has had some trouble raising capital this year, issuing convertible notes and extending a share purchase plan several times, Dillon said the company had raised the cash necessary to fund Polartechnics’ operations for the near term, and was in no immediate need of a short-term cash injection.

But he pointed to the options that both companies currently have on issue as a potential way of recapitalising the merged entity.

“[Fermiscan] has a lot of options out there at the moment. With the rerating of the stock [after a merger] you could expect their trigger price to be restructured to bring their exercise price down to around 20c.

“What that means is that potentially this group will come into spring with the opportunity to have a large chunk of fresh capital coming into it which has already been placed with option holders. So the reality is that this company is now effectively off the market for capital raisings in the near future,” Dillon said.

Target and bidders statements from both companies are due in mid-May. While Polartechnics has set an acceptance rate of 90% as the target for the takeover, 85% of Fermiscan’s shares are held by its top 20 shareholders and Dillon said he was confident of success if that group could be convinced the merger would benefit both companies.

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Cheers.