Inovio Biomedical Corporation, a developer of electroporation-based DNA vaccine delivery technology, and VGX Pharmaceuticals, Inc., a privately held DNA vaccine developer, announced the signing of a definitive merger agreement, which provides for the issuance of Inovio Biomedical securities in exchange for all of the outstanding securities of VGX Pharmaceuticals.
Each company's board of directors has approved the merger agreement and the all-stock transaction it contemplates. The transaction is subject to completion of the registration of the Inovio Biomedical securities to be issued with the US Securities and Exchange Commission (SEC), receipt of approval from both companies' stockholders of the transaction, and other customary closing conditions.
The parties expect to complete the merger in the fourth quarter of 2008, however, the actual timing of the transaction will depend on a number of factors, some of which are beyond either company's control. Upon closing, Inovio Biomedical will change its name to VGX Pharmaceuticals, Inc.
Avtar Dhillon, MD, president and CEO of Inovio Biomedical, said: "Inovio Biomedical, in collaboration with our research partners, has successfully demonstrated safety, tolerability, and immunological and clinical responses from electroporation-delivered DNA vaccines in humans. While we are pleased with our accomplishments and opportunities, we also believe the best path to maximizing value for our stockholders requires us to develop proprietary DNA vaccines. To that end, merging with VGX Pharmaceuticals immediately adds a broad pipeline of DNA vaccine candidates and a team of internationally-recognized scientists with strong DNA vaccine expertise, which we believe will provide the combined company with the capability to rapidly advance DNA vaccine candidates into the clinic. We are pleased to join forces with the VGX team led by Dr. J. Joseph Kim and to become closely associated with Dr. David Weiner, a VGX co-founder known around the world as a pioneer of DNA vaccines.
"We are highly confident that the combined company will advance the potential of developing and delivering new DNA vaccines that could play a significant role in treating or even preventing diseases. Leadership of both companies could not forego this medical and market opportunity," said Dr. Dhillon.
J. Joseph Kim, Ph.D., co-founder, president and CEO of VGX Pharmaceuticals, said: "Significant, growing evidence indicates that electroporation has a pivotal role to play in enabling the potency of this promising new generation of vaccines and VGX has already made a strong commitment to this DNA delivery technology. Inovio has made tremendous strides in validating electroporation-based DNA vaccine delivery with human data in the last year, and we believe that Inovio's patents and technology platform, partnerships, and clinical programs will provide synergy with VGX's vaccine development focus and asset base. We look forward to the integration process, working cooperatively with Inovio's management, research and engineering teams, and combining our intellectual property to aggressively pursue the compelling concept of harnessing the body's immune system to tackle cancers and poorly treated infectious diseases."
The combined company is expected to be led by Dr. J. Joseph Kim as president, CEO and a director, with Dr. Avtar Dhillon serving as a consultant and a director. The remainder of the combined company's board is expected to consist of two directors from each of Inovio's and VGX's current board of directors. Dr. David B. Weiner is expected to be chairman of the scientific advisory board, drawing from the wide array of scientific resources currently available to both companies. The merger agreement provides for a post-combination management team integrated from both parties' current management.
The combined company's headquarters are anticipated to be located in Blue Bell, Pennsylvania, along with its DNA vaccine research and development efforts, while maintaining a San Diego, California operation focused on electroporation R&D and engineering. In addition, the combined company would continue existing research operations in The Woodlands, Texas, and Oslo, Norway.
VGX Pharmaceuticals is a privately held company, predominantly owned by founders, current and former members of management and other private investors and institutions. Inovio is a publicly traded company. At the time of closing of the merger, a wholly-owned acquisition subsidiary of Inovio Biomedical will merge into VGX Pharmaceuticals, with VGX Pharmaceuticals surviving as a wholly-owned subsidiary of Inovio Biomedical. Concurrently, Inovio Biomedical will issue shares of Inovio common stock in exchange for all of the outstanding shares of VGX common stock based on an exchange ratio derived from the comparative fully diluted share capitalization of the companies, excluding the shares of VGX common stock underlying $5.5 million of VGX convertible debt. Inovio will also assume all outstanding VGX options and warrants and a portion of VGX convertible debt, which will be adjusted based on the exchange ratio and become exercisable or convertible, as applicable, for Inovio common stock. The $5.5 million of VGX convertible debt excluded from calculation of the exchange ratio will be assumed at closing and the principal outstanding at closing immediately converted into shares of Inovio common stock at $1.05 per share.
Due to the structure of the exchange ratio calculation, it is not possible for the parties to state with certainty at this time the total number of shares of Inovio common stock, options, and warrants to be issued at closing of the merger. However, the exchange ratio is designed to result in the legacy holders of Inovio and VGX securities each holding on an aggregate basis 50% of the combined company's fully-diluted equity interests, excluding the $5.5 million of VGX convertible debt. Inovio anticipates that post-closing, the combined company would continue to have some other outstanding convertible debt, which it expects would be fully retired by April 2009 from deferred proceeds relating to the sale of VGX Pharmaceuticals' plasmid production facility in Texas in June 2008. Based on current capitalization information, the parties anticipate that legacy Inovio equity interest holders and legacy VGX equity interest holders will share voting power over the combined company 49% and 51%, respectively. However, the exact percentage split of the equity interests in and voting power over the combined company will depend on a number of factors, including Inovio's pre-closing capitalization and VGX's pre-closing capitalization, thus these projected percentages may change prior to closing.
Inovio is required to use commercially reasonable efforts to register the securities to be issued in the merger under the Securities Act of 1933, as amended, on a registration statement on Form S-4 to be filed with the Securities and Exchange Commission. Registered shares of Inovio common stock received in the transaction by certain significant holders of VGX common stock and certain affiliates and all employees of VGX and shares of Inovio common stock held by all affiliates and employees of Inovio at the time of consummation of the transaction will be subject to lock-up arrangements that will provide for 25% of the shares initially subject to the lock-up per individual to be released from such restrictions upon each six-month anniversary of the closing date of the transaction, such that all shares will be released from the lock-up arrangements upon the two-year anniversary of the closing date of the transaction. The lock-up restrictions will also apply to the shares of Inovio common stock issued upon assumption and conversion of VGX convertible debt for six-months after the closing date of the transaction, and will provide for 50% of the shares initially subject to the lock-up to be released upon the three-month anniversary of the closing date of the transaction. Inovio anticipates listing the securities to be issued in the merger with the American Stock Exchange.
The merger requires approval of the stockholders of both Inovio Biomedical and VGX Pharmaceuticals. Inovio expects to file a proxy statement and supporting materials as part of its Form S-4, and will hold a special meeting of stockholders to seek approval of the merger and related stockholder proposals.