Progen shareholders have the option to participate in a A$20 million buyback.

Progen Pharmaceuticals and Avexa have inked a merger agreement to combine the former’s cancer pipeline with the latter’s focus on infectious diseases. Progen shareholders are likely to own approximately 56% of the new company to be called Avexa Pharmaceuticals with headquarters in Melbourne and offices in both Brisbane and the San Francisco Bay Area.

Progen will propose a A$20 million, or almost $13.7 million, share buyback option at A$1.10 per share. The company opened trading today at $0.88, or about A$1.28.

Under the current terms of the merger implementation agreement, Progen will issue one share for every 12.857 Avexa shares. Based on Avexa’s current share price of A$0.105 per share, this ratio implies a value of A$1.35 per Progen share, a 49.6% premium.

The combined entity will have over A$60 million in cash at transaction closing, assuming the A$20 million Progen share buyback is fully subscribed. Shareholders from both companies will vote on the proposed merger in the first quarter of 2009.

A key focus for the new company will be the continued development of Phase III drug apricitabine (ATC), an antiretroviral for HIV-infected patients. The merger will reportedly provide sufficient cash to fund the first pivotal late-stage trial of ATC through to its week 24 milestone.

Additionally, the companies note that they will continue to progress selected programs in oncology and infectious disease based on likelihood of success to maximize shareholder value. Besides two oncology programs, Progen also has a gastroenterology program, which is partnered with Wyeth, as well as a Phase HIV candidate and a preclinical HCV compound. Avexa has a discovery-stage HCV program and is selecting lead molecules for preclinical development in vancomycin-resistant infections as well as HIV.

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