In the further consolidation of the struggling biotechnology industry, Crop Genetics International Corp. of Columbia has agreed to merge with biosys Inc. of Palo Alto, Calif., in a stock swap valued at $11.4 million.
The acquisition of Crop Genetics recalls the 1992 purchase of Nova Pharmaceutical Corp. of Baltimore by Scios Inc. of Mountain View, Calif. Since then, most of Nova's local operations have been shut down, although the merged Scios Nova Inc. spun off Baltimore-based Guilford Pharmaceuticals Inc.
But both Crop Genetics and state officials yesterday were emphatic that Crop Genetics' operations won't leave the state. The company's labs in Columbia are less expensive than biosys' California facilities, they say, and a Crop Genetics loan agreement with the state restricts moves.
"The only question is, are we going to move Palo Alto here or are we going to leave Palo Alto open," said Joseph W. Kelly, chairman and chief executive officer Crop Genetics, which specializes in viral insecticides and has 60 workers. "The third choice, of moving us to Palo Alto, is really, in my mind, not even on the table."
Dr. Venkatrao S. Sohoni, vice chairman and chief executive officer of biosys, which has 85 workers and also produces biological insecticides, was less committal, saying a final decision is expected early next month.
"There is a strong possibility that some operations will remain in Columbia, but the extent of that is not really determined just now," he said.
Mark L. Wasserman, secretary of the Maryland Department of Economic and Employment Development, said yesterday's announcement was good news because it strengthens the Columbia company.
"It provides for the ongoing growth of Crop Genetics in Maryland and leaves open the possibility of additional growth by virtue of its relationship with biosys," he said.
There are already negotiations with DEED about possible aid in relocating the company to Maryland, according to Joseph P. Fitzpatrick, controller of Crop Genetics.
DEED also granted a critical loan guaranty of $3.4 million Wednesday, providing crucially needed capital to the two cash-strapped companies.
Mr. Sohoni said the merger would have been "very unlikely" without the loan guaranty, which enabled Crop Genetics to raise its cash supply to $6 million.
This loan agreement also restricts Crop Genetics' ability to leave the state by requiring state approval for any sublet agreement on its 75,500-square-foot building on Old Columbia Road, and the loan guaranty is secured by a lien on equipment and leasehold improvements.
In the merger agreement, Crop Genetics shareholders will receive one share of biosys for every 5.2485 share of Crop Genetics. This is the equivalent of about 60 cents a share with biosys stock trading at $3.125 a share -- the closing price yesterday, down 12.5 cents.
Crop Genetics stock closed at 62.5 cents a share, down 6.25 cents.
In its 1987 initial public offering, Crop Genetics stock sold for $14 a share.
Crop Genetics' preferred stock, which sold for $10 a share at its initial public offering in 1990, will be redeemed at one share of biosys for 1.4875 preferred shares, or $2.10 a share.
The merger, which still must be approved by the Security and Exchange Commission and shareholders for the two companies, expected to be completed by early March.
Crop Genetics has not had a profitable year since it was founded in 1981. Similarly, biosys has not shown a profit in its 11-year existence.
"Did [Crop Genetics] fail? That's really too early to say," said George Dahlmann, an analyst at Piper, Jaffray & Hopwood Inc. of Minneapolis, explaining that the new company may yet commercialize Crop Genetics products. "We think there's some promising technology there."
He said biosys has promising products at a late stage of development, but had even less cash than Crop Genetics. He said the combined company has a better chance of surviving until it becomes profitable than either company would have on its own.
One of the casualties of the merger will be Mr. Kelly's job, along with those of other Crop Genetic officers. Mr. Kelly, who may serve as a consultant to the new company, will receive a severance of $400,000, to be paid over two years, along with health insurance until he finds another job, he said.
Whether other employees will lose their jobs has not been determined, company officials said.
In November 1993, the company announced that its longest and most-awaited pesticide, a product called InCide that was supposed to increase corn yields by wiping out common pests called corn borers, didn't work.
Formed in 1981, Crop Genetics was the brainchild of John B. Henry, then a New York lawyer, and Peter S. Carlson, a former Michigan State University molecular biologist. Mr. Carlson is still with the company as a vice president and chief scientific officer. Mr. Henry stepped down as chief executive officer in 1990 and has since left the company.
The small number of products Crop Genetics had on the market was never enough to make the company profitable. Its first insecticidal virus product, Spod-X, was registered with the Environmental Protection Agency in May 1993, but the product has been sold only in the Netherlands for use in growing flowers in greenhouses, Mr. Kelly said.
The only product the company has on the domestic market is Kleentek, a sugar cane seed cane.