Progen Pharmaceuticals (ASX: PGL, OTC: PGLA) has formed Epi Pharmaceuticals as the means for the planned divestment of its epigenetic and cell proliferation assets.
Goals of the restructuring have been to place the CellGate assets and the directly related Progen assets into a separately funded vehicle to minimise existing and future obligations.
The formation of the new entity relieves Progen of all its obligations under the CellGate acquisition agreements and related academic institution licenses in exchange for contributing CellGate assets to Epi.
In February 2008, Progen acquired CellGate, an oncology company based in California.
Under the purchase agreement, milestone payments of up to US$19.5 million were payable to CellGate shareholders in shares and/or cash, with the company’s intention to issue shares to cover milestone payments.
At this point, Progen was a different company with a market capitalisation of $115 million, making share issues under the 15% rule ample to meet any milestone commitments.
Following the $40 million share buyback in April 2009, Progen’s market capitalisation was significantly reduced, limiting its ability to meet its milestone commitments in share issues without significantly diluting shareholders’ interests.
This significantly limited Progen’s ability to develop its other drug candidates as well as the CellGate assets and created a corporate risk for the organisation.