Dive Brief:
- NewLink Genetics will combine with privately held Lumos Pharma, announcing Tuesday a reverse merger that fuses the two companies' management teams and give Lumos shareholders 50% ownership of the new business.
- The merged company will be renamed Lumos Pharma and trade on the Nasdaq under the ticker 'LUMO." Lumos' CEO and chief scientific officer, along with with NewLink's CFO and chief medical officer, will make up the new company's top leadership.
- As part of the dramatic restructuring, NewLink said it plans to lay off 28 workers, or about 60% of its remaining staff. Since reaching a 2015 high of 210 employees, the troubled cancer biotech has steadily shrunk its workforce through multiple rounds of layoffs — cuts that coincided with the company's market value nosediving from more than $1.5 billion then to about $50 million now.
Dive Insight:
Reverse mergers are an attractive option for distressed biotechs to capitalize on the value of their public listing, which appears to be the main benefit for Lumos in this deal.
But NewLink will not completely vanish in the merger, as its shareholders will retain approximately 50% of the combined company and some executives will join the new management team. Each business will designate three directors to the board, with one director mutually selected by both companies.
Lumos is developing an experimental oral drug, called ibutamoren or LUM-201, for pediatric growth hormone deficiency. The biotech hopes to begin in mid-2020 a Phase 2b clinical trial that pits LUM-201 against recombinant human growth hormone, which is standard treatment.
The companies did not make clear what will come of NewLink's oncology efforts. In a statement, Lumos said it "expects to continue to evaluate NewLink's oncology portfolio to determine value creation opportunities."
Last year, NewLink took a major hit to its pipeline, which has been focused on a type of immunotherapy called IDO inhibitors. Following a failed Phase 3 study in April 2018, competitor Incyte scaled back plans for its own IDO inhibitor, leading NewLink to pare back its own development as investors sold off shares.
NewLink said it expects the 28 employees who will be laid off to include several members of management. At least one employee that won't be around for the Lumos era is NewLink's co-founder and president Nicholas Vahanian, who retired from the company, effective Sept. 27.
In a statement, the co-founder highlighted the biotech's research progress on an Ebola vaccine that's now owned by Merck & Co.
The vaccine is under review by the Food and Drug Administration with a decision on approval expected by March 2020. If the drug's approved, the FDA would grant Merck a priority review voucher, for which NewLink would receive unspecified compensation through the companies' licensing deal.
Launched in 2000 and flipped public in 2011, NewLink is primarily based in Ames, Iowa. Beyond its Nasdaq listing, NewLink also brings a substantial amount of cash to the merger. The joint business anticipates it will have about $80 million in cash at the end of 2019, with a quarterly burn rate for 2020 of roughly $7 million.
The deal is expected to close in the first quarter of 2020. Both companies said their major shareholders have voiced support of the deal.