Pharmos to acquire Vela Pharmaceuticals in deal worth up to $48.3 million

By Angela McDaniels

Seattle, March 15 - Pharmos Corp. has agreed to acquire Vela Pharmaceuticals Inc. in an up to $48.3 million stock and cash deal, according to a company news release.

Under terms of the transaction, Pharmos will pay $5 million in cash and will issue 11.5 million shares of its common stock at the closing in exchange for all outstanding Vela securities. As of Dec. 31, Pharmos had 19.1 million shares outstanding.

Vela shareholders are also eligible to receive 4 million Pharmos shares upon the completion of a phase 2b clinical trial of R-tofisopam and 4 million additional shares upon the filing of a New Drug Application for the drug with the Food and Drug Administration.

Based on Pharmos' $2.22 closing share price on Wednesday, the deal could reach $48.3 million.

The acquisition is subject to various closing conditions and requires Pharmos shareholder approval. The company expects it to close no later than the third quarter of 2006.

"[A]fter reviewing numerous candidates, we believe that Vela is an excellent strategic and scientific fit for Pharmos," Pharmos chairman and chief executive officer Haim Aviv said in the release.

"Specifically, the Vela pipeline extends our presence in the specialty nervous system arena and expands our central nervous system focus with additional disease targets."

The combined company will focus primarily on diseases of the nervous system and autoimmune disorders.

The most advanced drug in clinical development in the combined company's pipeline will be Vela's R-tofisopam, a drug candidate that has demonstrated positive data during phase 2 clinical trials for the treatment of diarrhea-predominant and alternating-type irritable bowel syndrome, the company said.

Following the closing of the acquisition, three members of the Vela board of directors will join the Pharmos board: Tony Evnin of Venrock Associates, Chuck Newhall III of New Enterprise Associates Inc. and Srini Akkaraju of J.P. Morgan Partners LLC. One existing Pharmos director will step down from the board.

Steven M. Leventer, head of research and development for Vela, will join Pharmos along with a team of three scientific professionals who are members of the project team dedicated to the R-tofisopam clinical development program.

Pharmos is a biotechnology company based in Iselin, N.J., that discovers and develops novel therapeutics to treat a range of indications including neurological and inflammatory disorders. RBC Capital Markets Corp. and its Israeli affiliate, Tamir Fishman & Co., were financial advisers to Pharmos, and Eilenberg & Krause LLP was legal adviser.

Vela Pharmaceuticals is a privately owned company based in Ewing, N.J., that develops medicines related to diseases of the nervous system including disorders of the "brain-gut axis." Cowen & Co. LLC was its financial adviser and Drinker Biddle & Reath LLP was its legal adviser.

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