NeoStem reported the SEC accepted its registration proposal to acquire China Biopharmaceutical Holdings (CHBP.OB) in an all-stock transaction. China Biopharmas only asset is a 51% interest in Suzhou Erye Pharmaceutical Co., a generic drug manufacturer that in 2008 produced $50 million in revenues and net income of $8 million. The next step is for stockholders in both companies to vote on the merger, which is scheduled for later this month.
NeoStem claims a nominal business in US-based adult stem cell storage. However, that business generated just $630,000 of revenue last year, while the companyâ€™s expenses were close to $12 million. NeoStem has put together a number of different stem cell programs, which it plans to advance in China. These include:
* A worldwide license from the University of Louisville for VSEL (very small embryonic-like) cells that share traits with embryonic stem cells (ESCs), including the ability to differentiate into a wide variety of cells (pluripotency);
* Commercialisation of stem cell technology for cosmetic use, restoring tissue that is lost due to age;
* The use of stem cells to aid wound healing;
* A China license to supply Regenexx to aid orthopedic recovery.
NeoStem will pay for the transaction with 7,150,000 shares of its common stock. Warrants to purchase China Biopharma shares will be replaced with warrants to buy NeoStem stock. In addition, the investment firm RimAsia, a principal stockholder of NeoStem, will receive for its China Biopharma Series B Convertible Preferred Stock (i) a total of 6,458,009 common shares of NeoStem and (ii) 8,177,512 shares of Series C Convertible Preferred Stock of NeoStem, each with a liquidation preference of $1.125 per share and initially convertible into 9,086,124 shares of NeoStem common stock at a price of $0.90 per share.
Currently, NeoStem says it has 8.5 million shares outstanding. The acquisition will take that up to 23.8 million immediately and then to 32.9 million if RimAsiaâ€™s convertible shares are redeemed.
Following the announcement, NeoStemâ€™s shares moved 10% higher, rising 20 cents to $2.10. At this price, and assuming that the company is issuing 25.7 million shares to pay for China Biopharma, it is assigning a value of $54 million for the company, an amount that is only slightly more than last yearâ€™s revenues.