A power struggle at Cypress Bioscience Inc. (Nasdaq: CYPB) is jeopardizing the deal with BiolineRX Ltd. (TASE:BLRX), signed a month ago.
In late June, BiolineRX granted Cypress an out-license to complete clinical trials and regulatory procedures of BiolineRX schizophrenia treatment BL-1020. The agreement included an up-front payment of $30 million to BiolineRX, and payments could reach $365 million, subject to milestones.
Investors in both BiolineRX and Cypress are unhappy about the deal. BiolineRX's share price has fallen 21% since it was signed, and Cypress' share price has fallen 42%.
Last week, Cypress shareholder Ramius Value and Opportunity Advisors LLC made a hostile offer to purchase for the company. Ramius, which owns 10% of Cypress, offered $4 per share, a 60% premium on the market price at the time. The share rose 34% in response, and continued to climb today, adding 2.8% to $3.44 in morning trading on Nasdaq today, giving a market cap of $131 million.
BiolineRX closed yesterday at NIS 3.51, giving a market cap of NIS 440 million. The company has not responded to developments at Tepper, possibly because the TASE is closed today for the Tisha B'Av fast.
In the offer to purchase, Ramius explicitly cited the BiolineRX deal, warning that if Cypress' management continued development of BL-1020 only on the condition that the company obtained additional financing on its own. Ramius proposed that Cypress' managers own 50% of the venture with BiolineRX, and that Cypress' current shareholders would own the rest. This would enable the shareholders to benefit if BL-1020 succeeds, without taking full risk.
In a letter to Cypress's board Ramius managing director Jeffrey Smith said that the management team has made "increasingly risky investments with shareholder money… The correct conclusion at this juncture is to stop, hire a reputable banker, and maximize value for all shareholders." He called on Cypress's board to "cease and desist from approving any further acquisitions and any other further material transactions"
Harel Finance analyst Steven Tepper said, "I believe that Ramius' will tempt Cypress' other shareholders, and there are reasonable grounds for believing that it will be accepted, although it's not certain. Even if the offer is not accepted, Ramius is threatening to sue the board of directors, which could put pressure and result in cancellation of the deal. If the offer succeeds, the deal will probably explode or melt away."
Tepper added, "The deal was very good for BiolineRX, but it is now entering a period of uncertainty, and it's not clear when it will get back the rights to the project."
Published by Globes [online], Israel business news - www.globes-online.com - on July 20, 2010
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