Pharmaceutical love triangle
Biotech firm Avexa has firmly rejected a claim by rival Cytopia that the former's proposed merger with Progen Pharmaceuticals faces a $95 million funding shortfall.
Things are heating up in the Botanicca Corporate Park, located in Richmond on the fringe of Melbourne's CBD, where a pharmaceutical industry stoush continues to unfold.
The development is home to biotech firms Avexa and Cytopia, with the former today hitting out at the latter over a statement in which Cytopia said a merged entity of Avexa and Progen Pharmaceuticals would have a $95 million funding shortfall. Cytopia, along with 14 other Progen shareholders, has been seeking to derail a proposed merger between Avexa and Progen, after Cytopia's advances to Progen were rebuffed last year.
Living uncomfortably in the same building as its rival, Cytopia has been trying to arrange a meeting of Progen shareholders, which Progen has question the validity of. Cytopia says that a combined Progen and Avexa would be left with a $95 million shortfall due to the costs of a four-year HIV drug development program. It says this program would be "high risk" and that Progen shareholders should vote against the merger.
Avexa disputes this, and has said that Cytopia's statement is inaccurate. "This statement is not consistent with any of the documents or commentary released by Avexa and Progen," Avexa said in a statement. While Cytopia says the Phase III HIV drug trial program would cost $155 million, Avexa puts the figure at $45 million – a significant difference if the merged entity will only have $60 million in cash to spend.
But it all comes down to how long the trial will take. "There is no shortfall. We are steadfast in the belief that the 24-week data milestone is the key value driver for both Avexa and Progen shareholders," Avexa's chief executive Julian Chick said.
Cytopia wants Progen shareholders to vote between a merger with Avexa or a full share buyback and a change of Progen's board. Cytopia and its allied shareholders hold more than the 5 per cent of capital necessary to requisition a meeting, but Progen's board says that this isn't possible, because the company's constitution requires 35 business days' notice for director nominations.
"We share a building with Avexa and our relationship with them is cordial,” Cytopia chief executive Andrew Macdonald tells Business Spectator. "Our concern is with how Progen has been handling the situation."
"Progen shareholders have been consistently saying for some time now – we want to have the choice. But they're not going to get the choice in the proposed Avexa merger. And this isn't just us, there's a large number of shareholders that have been asking for choice for a long time. Let the owners of the business decide which way they go.”
But besides the issues of shareholder choice and of whether Progen should get into the development of HIV drugs, under the terms of the proposed merger Progen would be getting Avexa on the cheap.
Independent expert Lonergan Edwards says that although the valuation is "reasonable", the offer of one Progen share for every 12.85 Avexa shares values Avexa at between 9.2 and 9.7 cents a share. This is against Avexa's portfolio value of between 16 and 31 cents a share, let alone its fully diluted value of between 21 and 41 cents per share.
Still, credit is tight in this market, especially for drug development companies, and Avexa is just as keen on Progen as Progen is on it.
In the proposed merger, Progen is receiving advice from PricewaterhouseCoopers and legal counsel from Clayton Utz. Avexa is being advised by Gresham Partners and lawyers Mallesons Stephen Jaques. Hall & Wilcox Lawyers are advising Cytopia.
The development is home to biotech firms Avexa and Cytopia, with the former today hitting out at the latter over a statement in which Cytopia said a merged entity of Avexa and Progen Pharmaceuticals would have a $95 million funding shortfall. Cytopia, along with 14 other Progen shareholders, has been seeking to derail a proposed merger between Avexa and Progen, after Cytopia's advances to Progen were rebuffed last year.
Living uncomfortably in the same building as its rival, Cytopia has been trying to arrange a meeting of Progen shareholders, which Progen has question the validity of. Cytopia says that a combined Progen and Avexa would be left with a $95 million shortfall due to the costs of a four-year HIV drug development program. It says this program would be "high risk" and that Progen shareholders should vote against the merger.
Avexa disputes this, and has said that Cytopia's statement is inaccurate. "This statement is not consistent with any of the documents or commentary released by Avexa and Progen," Avexa said in a statement. While Cytopia says the Phase III HIV drug trial program would cost $155 million, Avexa puts the figure at $45 million – a significant difference if the merged entity will only have $60 million in cash to spend.
But it all comes down to how long the trial will take. "There is no shortfall. We are steadfast in the belief that the 24-week data milestone is the key value driver for both Avexa and Progen shareholders," Avexa's chief executive Julian Chick said.
Cytopia wants Progen shareholders to vote between a merger with Avexa or a full share buyback and a change of Progen's board. Cytopia and its allied shareholders hold more than the 5 per cent of capital necessary to requisition a meeting, but Progen's board says that this isn't possible, because the company's constitution requires 35 business days' notice for director nominations.
"We share a building with Avexa and our relationship with them is cordial,” Cytopia chief executive Andrew Macdonald tells Business Spectator. "Our concern is with how Progen has been handling the situation."
"Progen shareholders have been consistently saying for some time now – we want to have the choice. But they're not going to get the choice in the proposed Avexa merger. And this isn't just us, there's a large number of shareholders that have been asking for choice for a long time. Let the owners of the business decide which way they go.”
But besides the issues of shareholder choice and of whether Progen should get into the development of HIV drugs, under the terms of the proposed merger Progen would be getting Avexa on the cheap.
Independent expert Lonergan Edwards says that although the valuation is "reasonable", the offer of one Progen share for every 12.85 Avexa shares values Avexa at between 9.2 and 9.7 cents a share. This is against Avexa's portfolio value of between 16 and 31 cents a share, let alone its fully diluted value of between 21 and 41 cents per share.
Still, credit is tight in this market, especially for drug development companies, and Avexa is just as keen on Progen as Progen is on it.
In the proposed merger, Progen is receiving advice from PricewaterhouseCoopers and legal counsel from Clayton Utz. Avexa is being advised by Gresham Partners and lawyers Mallesons Stephen Jaques. Hall & Wilcox Lawyers are advising Cytopia.
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