Merck buys cardiac biotech start-up NovaCardia

31 July 2007

Merck is to acquire venture-backed NovaCardia Inc for $350 million, adding a promising new cardiovascular drug to its inventory. In an all-stock deal, San Diego-based NovaCardia''s venture backers will get Merck shares, rather than having to take NovaCardia public in an uncertain biotech initial public offering (IPO) market.

The number of shares NovaCardia investors get will be based on the average closing price for the five days leading to the closing of the deal, expected within 45 days. Merck shares closed up $1.66 or 3.2 per cent to $53.38, after the deal was announced on 25 July.

NovaCardia CEO Randy Woods joked that he was responsible for the rise in Merck''s share price, but that: "I''d rather see it go down at this point." NovaCardia''s backers preferred a stock swap because of better tax treatment if the stock is held for a year.

While Woods owns 3.9 per cent of the company, its largest shareholder — with 25 per cent — is Domain Associates LLC of Princeton, New Jersey, whose partner Eckard Weber founded NovaCardia around the molecule KW-3902, which was sitting idle at Japanese firm Kyowa Hakko Kogyo. NovaCardia developed it as a treatment for kidney dysfunction associated with congestive heart failure.

KW-3902, is in Phase 3 clinical trials. Woods said that NovaCardia was prepared to take the drug to market by late 2009, and build a small sales force to target acute care and hospital settings. The company plans to spin off a new corporate entity for clinical development of its second compound, K201 (JTV-519), for atrial fibrillation and arrhythmia. Woods believes NovaCardia''s investors will "most likely" back the spin-off, adding that his participation will be decided in the next few weeks.Once labelled as a blue-blooded chip, Merck — not unlike other big drug companies - is under pressure as generics threaten profits and R&D costs spiral. The present deal allows it to add a potential money-spinner to its stable.

Merck said that for the second quarter of 2007 it had sales of $6.1 billion, up 6 per cent over the previous Q2 period and a 12 per cent jump in income, at $1.67 billion, compared with $1.5 billion a year earlier.