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SCIOS-NOVA COMBINED CASH RESOURCES WILL EXCEED $150 MIL.

Executive Summary

SCIOS-NOVA COMBINED CASH RESOURCES WILL EXCEED $150 MIL. if the proposed merger of the two biopharmaceutical firms is approved by stockholders at a Sept. 3 meeting, according to a joint proxy statement mailed to Scios and Nova shareholders July 29. The $150 mil. in cash, cash equivalents and marketable securities will be used to fund ongoing drug development programs in the areas of cardiopulmonary diseases, CNS disorders, inflammation, metabolic disorders and tissue repair, the proxy reports. In a section of the proxy outlining the factors involved in the Scios board's approval of the merger, the proxy cites the increased financial resources of the combined company as a primary factor in approving the merger. The proxy predicts that after the merger Scios will have "greater flexibility and negotiating strength" in pursuing licensing agreements and strategic alliances. Scios' most significant corporate partner, Pfizer has "agreed to continue funding through December 31, 1992" for the diabetes drug insulinotropin, "although at a monthly level lower than" that paid in 1991, when Pfizer payments accounted for 60% (approximately $4.4 mil.) of Scios' total revenue, the proxy statement notes. A burn rate analysis contained in the proxy statement indicates that Scios' projected $80 mil.-plus negative cash flow through 1996 could be funded without the merger from the firm's $122.3 in cash and cash equivalents (as of March 31, 1992). In contrast, Nova's estimated cash need through 1996 exceeds $130 mil., more than double the $46.8 mil. in cash and cash equivalents Nova had at the end of March. Scios-Nova expects the merger to result in an estimated $84.3 mil. one-time, non-cash charge against income. As of March 31, Scios and Nova had accumulated deficits of $69.9 mil. and $77.9 mil., respectively. At the time of the merger, the combined company will have 440 employees, including 74 part-time sales representatives employed by Nova to market a line of psychiatric products licensed from SmithKline Beecham. The proxy explains that Nova's licensing arrangement with SmithKline Beecham will provide a revenue base for the combined company as well as a "commercial platform" on which to build "a marketing force to launch both near-term and longer-term products." The psychiatric product line of Thorazine, Stelazine, Eskalith, and Parnate, licensed from SmithKline in 1990, generated sales of $39 mil. in 1991. The proxy points out, however, that SmithKline Beecham "has a right to repurchase rights from the combined company in connection with the merger." The proxy adds that SmithKline "has indicated...that it does not intend to exercise its right" and that Scios-Nova expects to review with SmithKline "certain aspects of the relationship relating to the parties' joint-marketing efforts." SmithKline Beecham is one of three corporations holding a sizable equity stake in Nova with 8.4% of the biotech firm's stock. Marion Merrell Dow holds 9% of Nova stock and Hoechst Celanese holds 7.2%. American Home Products is a major stockholder in Scios with an equity position of 8.6% prior to the merger; AHP will hold a 5.1% stake in the combined company. Scios-Nova expects to eliminate employee overlap in the finance, legal and administration divisions, the proxy statement noted. The proxy states that both Scios and Nova boards "recognize that the merger will require an aggressive program to rationalize and strategically focus the combine company and reduce costs and that this process will be inherently difficult to manage." The new company intends to remain bicoastal by maintaining Scios' Mountain View, Calif. headquarters and Nova's Baltimore, Md. facilities. If the merger goes through, Nova President and CEO Hans Mueller, PhD, will leave the firm, receive aggregate payments of $830,500, serve as a consultant for a three-year period, and join the Scios-Nova board as vice chairman. Mueller initiated the discussions that led to the merger agreement when he contacted Scios in mid-March, the proxy statement notes. Other proposed changes include the dismissal of three Nova executives: Exec VP Salvatore Enna, VP-Development Robert Griffith, and VP Norman Oksman, who served as president of the Nova subsidiary Product Resources International. The Scios-Nova board will consist of five current Scios directors and three current Nova directors. The merger agreement calls for Nova shareholders to receive .39 shares of Scios stock for each share of Nova ("The Pink Sheet" May 18, T&G-10).
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