Ownership of new company will be split dependent on pain drug approval timeframe.

CombinatoRx’ share price shot up nearly 17% on the news that it is merging with Neuromed Pharmaceuticals in a share-based transaction. Each party will initially have some 50% voting power in the merged entity, but this will change dependent on FDA’s review of Neuromed’s hydromorphone pain drug, Exalgo™; it has a November 22 PDUFA date.

If Exalgo is sanctioned by December 31, CombinatoRx’ premerger stockholders’ overall ownership of the combined company will drop to 30%. If approval is achieved between January 1 and September 30, 2010, CombinatoRx shareholders will own 60% of the merged entity. If approval is not received by the end of 2010, CombinatoRx stockholders will own 70%.

On June 17 Neuromed announced that it had sold U.S. rights to Exalgo to Covidien’s subsidiary, Mallinckrodt, in a deal worth $15 million up front, $16 million in additional development funding, and a potential approval milestone of $30 to $40 million. Neuromed initially acquired U.S. rights to Exalgo from ALZA.

During May 2009 CombinatoRx and Novartis signed a strategic alliance focused on the discovery of novel anticancer combinations worth $4 million up front to CombinatoRx plus up to $58 million in clinical, regulatory, and commercial milestones for each drug combination that reaches the market. The deal with Novartis was followed within a few days by a notification from NASDAQ that it no longer complied with the minimum $10.0 million stockholders’ equity requirement for continued listing. NASDAQ since granted an extension of the time the company has to regain this compliance.

The merger will initially be made by the issuance of an expected 36 million new shares of CombinatoRx common stock to Neuromed shareholders. Adjustment of the percentage ownership will be made by issuing shares out of escrow to former Neuromed holders or returning shares from escrow back to CombinatoRx.

The transaction demonstrates a unique structure that will create a sustainable company with significant product assets, unique discovery capabilities, and substantial financial resources, according to CombinatoRx interim president and CEO, Robert Forrester.

“This merger with Neuromed will leverage the operational efficiencies created by CombinatoRx’ recent restructuring including workforce reductions and divestiture of our Singapore subsidiary,” adds Christopher Gallen, M.D., Ph.D., president and CEO of Neuromed. “As a result, we expect to have sufficient cash to continue operations into 2012.

“CombiantoRx’ unique discovery approach and the multiple mid- and early-stage product candidates in the CombiantoRx pipeline combined with Neuromed’s clinical development expertise, project management driven culture, and ion channel inhibitor programs will enable the potential creation of new therapeutics,” Dr. Gallen continues.

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