BioWorld International Correspondent

The IPO window for biotechnology companies may be firmly shut at present, but Swiss firm Cytos Biotechnologie AG has slipped in through the back door and plans to take up a full listing on the Swiss Stock Exchange Oct. 29. The company, which was spun out of the Swiss Federal Institute of Technology (ETH) in Zurich in 1995, has agreed to a reverse takeover of a quoted, but dormant, entity, Asklia Holding AG, of Bern, Switzerland.

The transaction is essentially a cashless one for Schlieren-based Cytos, which would retain its own name and would not take on any new employees as a result of the merger. It is offering Asklia shareholders a stock swap comprising four Cytos shares for each Asklia share. In return, Cytos would not only gain a listing, but also assets comprising cash and real estate, with a net value of more than CHF40 million (US$26.9 million). Bank Sarasin, Lombard Odier Darier Hentsch and Ernst & Young advised the companies on the transaction.

The deal is subject to the approval of both sets of shareholders. Should it gain acceptance, 20 percent of Cytos' equity would be in free float. Its existing shareholders have agreed to a 12-month lock-in. To comply with Swiss Stock Exchange rules, which require a minimum free float of 25 percent, the enlarged entity would offer an additional 5 percent of its stock to European investors. Cytos CEO Wolfgang Renner told BioWorld International he expects this transaction to yield an additional CHF12.5 million to CHF15 million.

The deal, he said, was inspired by an innovative U.S. transaction, in which Exelixis Inc., of South San Francisco, used its stock to purchase the cash balance of Boulder, Colo.-based Genomica Corp.

Cytos decided to follow a similar course because of the impossibility of undergoing an initial public offering in the near term. "We had to conclude that we just could not sit and wait for the world to move," he said. The proposed deal is attractive to Asklia shareholders, he said, because of the lengthy time scales associated with company liquidations in Switzerland, combined with the fact that the resulting proceeds are subject to income tax of about 30 percent.

For Cytos, a listing would help raise its profile and broaden the range of funding instruments available to it. Renner said it also would leave the company better prepared for an upturn. "We think the markets come back earlier for listed companies than for private ones," he said. The transaction would give Cytos a CHF95 million cash pile, enough to fund the company for almost four years based on its current monthly burn rate of CHF2 million. However, the latter figure is likely to climb soon, as the company begins to bring its first projects into the clinic.

Cytos' primary drug development platform, Immunodrugs, is based on an active immunization concept. It has found that epitopes from disease-related targets induce a neutralizing antibody response when presented to the immune system in highly repetitive arrays on viral capsid vectors. It has further refined the technology by including DNA sequences within the phage vector that harbor the CPG motif found in bacterial genomes. That triggers a cytotoxic T-cell response to the epitope of interest.

Its first product, which is designed to combat allergy associated with house dust mites, is about to enter a Phase I trial at Zurich University Hospital. "We are now recruiting people," Renner said. Immunodrug candidates for nicotine addiction, allergy, HIV infection and cancer are slated to enter the clinic next year.

Cytos will have additional sources of income shortly that it will be able to factor into its financial forecasts. It has out-licensed three Immunodrugs projects to Basel, Switzerland-based Novartis AG, from which it expects to draw down milestones and, eventually, royalty payments. (See BioWorld International, Oct. 31, 2001.)

In addition, a biogeneric drug production platform, around which the company was originally formed, will start shortly to deliver a revenue stream. Cytos and partner company Solidago AG, of Bern, have developed generic versions of erythropoietin, human growth hormone, G-CSF and beta interferon. A European pharmaceutical firm is planning to launch one of those in Europe next year, Renner said.