Insys Therapeutics, a Phoenix-based drug development company focused on pain and oncology, will swallow Chicago-area biopharmaceutical developer NeoPharm Inc. (OTC:NEOL.PK) through a reverse merger worth an initial $135 million in stock.
Shareholders of privately owned Insys will end up with 95 percent of NeoPharm’s stock through the deal expected to close Nov. 8, Lake Bluff, Illinois-based NeoPharm said in a press release.
Insys will become a wholly owned subsidiary of NeoPharm, but Insys executives and directors will replace those of NeoPharm when they resign at the completion of the merger. So Insys will be the surviving organization, even if its name is NeoPharm.
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Insys is connected to NeoPharm by John N. Kapoor, a pharmaceutical industry veteran and investor who founded Insys in 2002 and also is chairman of NeoPharm’s board. Kapoor, who is majority owner of Insys, owns 21 percent of NeoPharm’s shares, which closed at 25 cents Friday on the Pink Sheets quotation service.
To avoid conflict of interest claims, NeoPharm said it formed a special committee of independent directors to evaluate the reverse merger. Their company has struggled for years to get money to develop its drugs, as well as meet stock market listing and public company compliance requirements — highlighting some of the hazards of publicly traded drug development companies.
In February 2009, NeoPharm shares were delisted by the NASDAQ Stock Market because the company failed to meet minimum listing requirements. Laurence P. Birch, then NeoPharm’s president and CEO, said the company would de-register its stock so it could save the money that it would otherwise spend on meeting post-Sarbanes Oxley compliance requirements.
The company’s stock, which once traded as high as $12 a share, now trades for less than 30 cents. Its share price has declined steadily since 2006, when the firm announced disappointing results from a clinical trial of a once-promising brain cancer drug.
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From 2005 to 2007, NeoPharm posted a combined operating loss of about $90 million. It did not file a year-end financial report for 2008 and has stopped filing financial statements since its stock delisting. In 2007, the company began a reorganization that included hiring a new management team, reducing its cash consumption and streamlining its organization.
Birch departed NeoPharm a year ago to pursue other opportunities after helping the company reorganize. By then, Birch already was in the thick of a massive reorganization as chairman of DATATRAK International, the Mayfield Heights, Ohio, company that develops software and services for clinical researchers.
Insys also shares with NeoPharm a common development goal: fighting cancer. The Arizona company discovers, develops and commercializes products to address cancer chemotherapy-induced nausea and vomiting, pain management and other central nervous system disorders. Meanwhile, NeoPharm is dedicated to the research, development and commercialization of cancer and other therapies.
In January, NeoPharm filed an investigational new drug application with the Food and Drug Administration for a drug that could treat idiopathic pulmonary fibrosis, a deadly lung disease. Founded in 1990 as OncoMed Inc., NeoPharm has multiple drugs in various stages of clinical development, though it has yet to bring a drug to market. It’s also working on drugs to treat breast and ovarian cancer and brain disease.
When its merger with Insys is completed, NeoPharm plans to distribute rights to existing shareholders for contingent payments of up to $20 million if the Food and Drug Administration approves a New Drug Application for any one of its three leading therapies in the next five years.
