EPIX Pharmaceuticals begins exchange offer for 3% convertibles in attempt to avoid bankruptcy

By Angela McDaniels

Tacoma, Wash., April 7 - EPIX Pharmaceuticals, Inc. is offering to exchange stock and cash for its $100 million principal amount of 3% convertible senior notes due 2024, according to a company news release.

The company warned that it may be forced to file for bankruptcy if it is unable to restructure its obligations under the convertibles.

For each $1,000 principal amount of convertibles, holders who tender will receive $180 in cash, 339 shares of common stock and one contingent value right.

Subject to some exceptions, each contingent value right represents a contractual right to receive additional payments if, within nine months after the exchange offer or earlier under some circumstances, the company repurchases convertibles not tendered in the offer at a greater value than that being offered now.

If all convertibles are tendered in the offer, holders will receive $18 million in cash and 33.9 million shares, representing 44.7% of EPIX's stock immediately following the offer.

The company is also soliciting consents to amend the indenture governing the convertibles in order to eliminate some restrictive covenants and events of default.

Holders who tender will be deemed to have delivered consents.

EPIX said that holders of about 83% of the convertibles have committed to tender their holdings and consent to the proposed amendments.

The exchange offer will expire at 5 p.m. ET on May 4 unless extended by EPIX with the consent of holders of 75% of the convertibles.

The exchange offer is conditioned on the tender of at least 93% of the outstanding convertibles. This condition may be modified with the consent of holders of 75% of the convertibles.

The company plans to use the proceeds from the sale of its U.S., Canadian and Australian rights for MS-325, its novel blood pool magnetic resonance angiography agent, to Lantheus Medical Imaging, Inc.

The gross proceeds are expected to be $28 million, and EPIX will pay $10.5 million of this to Bayer Schering Pharma AG to satisfy its obligations related to U.S., Canadian and Australian MS-325 development costs.

EPIX and Bayer Schering Pharma had a collaboration and commercialization agreement for MS-325 that ended on Feb. 28. MS-325 was formerly marketed as Vasovist, gadofosveset trisodium, by Bayer Schering Pharma.

The exchange agent is U.S. Bank NA (800 934-6802).

EPIX is a Lexington, Mass.-based biopharmaceutical company.

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