BioSante's Acquisition of Cell Genesys, Actual Beauty in Biotech Zombies (BPAX, CEGE)

July 2, 2009 · Filed Under M&A 

Buying up troubled and dead biotechs is a tricky business. But this week’s news that BioSante Pharmaceuticals, Inc. (NASDAQ: BPAX) was acquiring Cell Genesys (NASDAQ: CEGE) actually makes more than a lot of sense.  Cell Genesys had already done a debt tender and had already engaged Lazard Freres & Co. to explore strategic alternatives.

Upon settlement of the exchange offer, the Cell Genesys’ cash balance is expected to be (or was) close to $36 million and 109.6 million shares of stock are outstanding.  The merged company will focus on LibiGel® in Phase III clinical studies for female sexual dysfunction and will look for future opportunities for GVAX immunotherapies.  What makes this deal so interesting is that BioSante Pharmaceuticals, Inc. is actually raising cash by making this acquisition because it is an all-stock deal.  In fact, at the last quarter-end, BioSante had less than $11 million in cash and short-term securities before taking into effect any financing and operational flows from this last quarter.

Cell Genesys stockholders will receive 0.1615 of a share of BioSante common stock for each share of Cell Genesys common stock they own, or approximately $0.347 per share before any dilution.  The total consideration is considered approximately $38 million.  BioSante stockholders will own approximately 60.4% of the outstanding shares of the combined company and the former Cell Genesys stockholders are expected to own 39.6% prior to share price adjustments in the market.

The merged company will focus primarily on LibiGel, BioSante’s testosterone gel in Phase III clinical development under an FDA study for the treatment of female sexual dysfunction. The company also will seek future development opportunities for GVAX Immunotherapies, which are listed as including potential combination with BioVant, BioSante’s vaccine adjuvant, as well as possible external collaborations, and also will seek to outlicense other Cell Genesys technologies.  The merged company will acquire a 16% equity stake in Ceregene, Inc., a former unit of Cell Genesys which is developing gene therapies for neurodegenerative disorders.

BioSante believes that LibiGel remains the only pharmaceutical product in the U.S. in active development for the treatment of hypoactive sexual desire disorder in menopausal women, and it believes it can be the first product approved by the FDA for the common and unmet medical need of FSD with the completion of Phase III studies targeted for mid-to-late 2010.

Here is what the new company gets to absorb.  Cell Genesys’ most recent cash balance was approximately $36 million and BioSante’s cash and cash equivalents balance was approximately $6.2 million. As a result of Cell Genesys’ recently completed exchange offer, Cell Genesys has outstanding approximately $20.8 million of new 3.125% Convertible Senior Notes due in 2013 and $1 million of the original 3.125% Convertible Senior Notes due in 2011.

The merger was approved unanimously by the boards of directors of both BioSante and Cell Genesys, but of course is still subject to shareholder approval of both companies.  It goes without saying, but BioSante just grew its balance sheet and gave itself more funding.  Had the company gone out and raised capital in a privae placement there would have almost certainly been a much larger penalty against its share price.  Many mergers make little sense, but BioSante’s management team deserves a solid pat on the back here by shareholders for handling this merger and net increase of capital.

Jon C. Ogg
July 2, 2009

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