BioSante appears to see something in Cell Genesys beyond its cash

Cell Genesys has been rescued from what looked like a certain slow death by BioSante Pharmaceuticals, which has agreed to buy the developer of one of last year’s failed cancer vaccine projects for $38m in an all-stock transaction (Cell Genesys' prostate cancer vaccine heads for the dustbin, October 16, 2008).

The press release announcing the deal highlighted a 12% premium to Cell Genesys’ share price, but considering the stock has been trading at a fraction of its value prior to the initial failure of its GVAX Immunotherapies, this measure is largely irrelevant. A clearer picture can be gained by looking at the premium over cash; with $36m in the bank as of last week, BioSante has actually paid very little for a company which was valued at $275m this time last year.

BioSante, on the other hand, has only $6m in the bank, and ongoing pivotal trials to pay for. The company, which specialises in hormone therapy products for female sexual health, has three phase III trials of LibiGel underway, its product to treat hypoactive sexual desire disorder in menopausal women.

The group believes LibiGel is the only product under development for this indication, also referred to as female sexual dysfunction, with no treatments currently available. A filing with the FDA is targeted by the end of 2010 or 2011.

Out-licensing opportunity?

The new company, and its new cash, will focus mainly on LibiGel. However, it will also explore further development of GVAX Immunotherapies in combination with BioSante’s vaccine adjuvant, called BioVant, including out-licensing opportunities for the products. This could attract some interest, as many have speculated that cancer vaccines struggling to generate clinical responses could work if their effects are somehow enhanced.

Although on the surface this deal looks less like a merger, as described in the press release, and more like a rescue bid, Cell Genesys shareholders will retain 40% of the new company, which will retain the name BioSante. Stephen Sherwin, Cell Genesys’ chief executive, and board member, John Potts, will also join the new board.

This suggests that although the GVAX platform failed its first real clinical test, there is still a certain amount of faith in the technology. Plus, Cell Genesys comes with a sting in the tail in the shape of debt to be repaid. In 2011, $1m is due but in 2013 the holders of convertible notes will be expecting $20.8m.

These are not huge sums, but for BioSante, which has only just launched its first product, they are not insignificant. This suggests that it has seen something in Cell Genesys beyond its cash pile.

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