GenVec to buy biotech Diacrin

Stock deal gains it cash, manufacturing capacity

April 16, 2003|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

GenVec Inc. will acquire a Massachusetts biotechnology firm in a stock deal that will increase its manufacturing capacity and more than double the cash it has to test and develop drugs, the Gaithersburg company announced yesterday.

GenVec, a developer of gene therapies, has signed an agreement with Diacrin Inc., of Charlestown to exchange 1.5292 shares of GenVec stock for each Diacrin share. The companies valued the deal at about $40.4 million, or $2.23 per Diacrin diluted share, based on GenVec's Monday close of $1.46.

But after the announcement yesterday, GenVec's shares fell 29 cents, closing at $1.17 and slicing the value of the deal by nearly 20 percent. Shares of Diacrin closed up 40 cents at $1.55.

The deal, expected to close in the third quarter, will garner the combined company about $50 million in cash and investments by the end of the year. GenVec now has about $22 million in cash and investments.

The additional money should last GenVec through 2006, the company said.

GenVec executives said the cash would allow the company to continue developing its lead drug TNFerade, a gene therapy designed to enhance the anti-tumor effects of radiation.

The company said it also could expand its vaccine business. GenVec is collaborating with the National Institutes of Health in developing an AIDS vaccine. It also has a partnership with the U.S. Navy Medical Research Center to create a malaria vaccine candidate.

"We just see the whole thing as a big plus all the way around," said Paul H. Fischer, GenVec chief executive officer.

With the Diacrim acquisition, GenVec will also gain two clinical trials testing the use of muscle cell transplants to treat damaged hearts.

Fischer will remain CEO of the combined companies and Diacrin's current CEO, Thomas H. Fraser, will become chairman of the board. GenVec's existing shareholders will own about 45.5 percent of the stock and Diacrin shareholders will own 54.5. "Essentially it's a merger of equals," Fisher said. "There's an attempt to have balance and synergy.

GenVec will keep the headquarters of the company in Gaithersburg and perform its manufacturing in Massachusetts.

Analysts said the manufacturing space is important as GenVec's drugs move along in the development stage.

"You don't want early-stage companies to spend a lot of money on hard assets," said Craig West, an analyst with A.G. Edwards & Sons. "They can usually get by with a small amount of capacity or contract out. GenVec is now getting to the point where they need to do larger Phase I and Phase II testing. You need real manufacturing space to do that."

GenVec employs about 95 and Diacrin about 20. Fisher said the company would keep about 95 employees on the payroll.

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