Archemix, the privately held aptamer-focused biotech, is merging with NitroMed, essentially exchanging the latter firm's Nasdaq listing and estimated $35 million to $40 million in cash for a 30 percent stake in the combined company.

Archemix's current backers will retain 70 percent ownership in the new firm, which plans to apply for listing on Nasdaq under the symbol ARCH and to carry the Archemix name.

The deal is subject to approval by the SEC and both biotechs' stockholders as well as to the previously announced disposal of Nitromed's combination heart failure product Bidil (isosorbide dinitrate/hydralazine hydrochloride).

Bidil, approved by FDA in June 2005, was a commercial disappointment (¹ Also see "NitroMed Aims To Revive BiDil With CEO Change, Managed Care Push" - Pink Sheet, 27 March, 2006., p. 14). In late October, Nitromed announced it had sold the BiDil business to JHP Pharmaceuticals for $24.5 million in cash and additional payments for product inventory. That deal is expected to close in early 2009 and will essentially create a Nasdaq-traded cash shell in Nitromed.

It was this simplicity that made NitroMed an attractive reverse merger partner, according to Michael Ross, managing partner of SV Life Sciences, one of the venture fund investors in Archemix. "It was a straightforward reverse merger," he said in an interview, and Archemix won't have to deal with disposals of buildings, employees or additional products - all the unwinding of the NitroMed assets "has been done extremely well by the original NitroMed investors. Basically all we get is cash, some intellectual property and Ken."

NitroMed's current President and CEO Kenneth M. Bate will hold those same titles in the newly formed firm, which will operate out of the current Archemix's facilities in Cambridge, Mass.

Archemix's President and CEO Errol DeSouza will remain on the company's board with four additional Archemix representatives including Ross. NitroMed's Bate and two other members of the current Nitromed board will join them.

Reversal for fortune

The newly public Archemix is estimated to have approximately $55 million to $60 million in cash and equivalents when the deal closes some time in the second quarter of 2009. That cash cushion may have to last awhile, considering the broad financial gloom and the underperformance of most reverse merger entities.

An analysis by FDC-Windhover's START-UP, which looked at 20 reverse mergers within the biotech industry between January 2005 and the end of August 2008 for which share prices could be determined at six months out, found that most of the stocks declined, with an average share price decline at six months of 18.8 percent (² Also see "Shell Game: Difficult Time For Reverse Mergers" - Pink Sheet, 6 October, 2008.).

"If you believe that stock price immediately post-merger is important, then a reverse merger is the last thing you want to do," said Ross. "Instead, we are focused on building long-term value with the cash, so, more importantly," he said, was the question of dilution. "How much dilution did it cost us to raise the money?"

Archemix was able to secure at least $35 million without giving up too large a chunk of the firm. If the money allows Archemix to get on or even close to the market with its first product, the near term hit the firm's valuation will take on the public markets will have been worth it.

Archemix filed its S-1 in July 2007 but withdrew the offering in February 2008 without even hitting the road to present to investors. The valuation the company could have received from the public markets would not have been acceptable to the firm's venture investors. n April 2008, Archemix's backers told IN VIVO that it was open to looking at any significant source of capital to help drive growth ( ³ Also see "Archemix Reduces Aperture to Pursue Orphan Diseases" - In Vivo, 1 April, 2008.).

Not that Archemix has been particularly short of cash. It has raised $105 million to support its aptamer platform through two large private financings since its foundation in 2001. Besides SV Life Sciences, the firm's lead backers include Atlas Venture and Prospect Venture Partners. In addition, as part of a June 2007 strategic alliance, Merck-Serono invested nearly $30 million in Archemix, and other Archemix partners have contributed at least $17 million in non-dilutive upfront payments since mid-2006.

Advancing aptamers

Aptamers are single-stranded oligonucleotides that behave like monoclonal antibodies in terms of targeting and mechanism. Archemix's DeSouza has described them as "chemical antibodies," in the sense that they mimic mAbs and are best suited to binding cell-surface targets, yet are more closely related to smaller chemicals in terms of manufacturing.

In addition to Merck-Serono, Archemix has struck deals with Lilly (October 2008), Takeda Pharmaceutical Co. (June 2007), Pfizer (January 2007), and several biotech companies.

Archemix has put five aptamers into clinical development either itself or with partners. Currently the firm focuses on orphan hematological conditions in-house, while partnering in other areas like acute cardiovascular disease and oncology. Its lead project, the anti-platelet aptamer ARC1779, is in Phase II studies for the rare and deadly blood disorder thrombotic thrombocytopenic purpura (TTP) as well as other so-called microangiopathies.

Despite the difficulties associated with reverse mergers, shell companies are in high demand. Biotech shell Replidyne, for example, allegedly received interest from 120 different private firms before deciding to accept the overtures of Cardiovascular Systems, a revenue-generating device play. (⁴ Also see "Stuck In Reverse: Another Start-up Takes Reverse Merger Route To Public Markets" - Pink Sheet, 6 November, 2008.)

-Chris Morrison (c.morrison@elsevier.com)

Nitromed Reverse Merger Is Quickest Way To Cash For Archemix

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