UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Sec. 240.14a-12
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SGX Pharmaceuticals, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was
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Proposed maximum aggregate value of transaction:
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Filed by SGX Pharmaceuticals, Inc. pursuant to Rule 14a-12 under the Securities Exchange Act of
1934, as amended.
On
July 8, 2008, at 2:00 p.m. PST, the registrant held a conference call to discuss its
pending merger transaction, which is subject to stockholder approval. A transcript of the
conference call is included below.
C O R P O R A T E P A R T I C I P A N T S
Bonnie Feldman
SGX Pharmaceuticals Senior Director, IR
Mike Grey
SGX Pharmaceuticals President and CEO
Todd Myers
SGX Pharmaceuticals CFO
C O N F E R E N C E C A L L P A R T I C I P A N T S
Glen Gechlik
Needham & Company Analyst
George Zavoico
Cantor Fitzgerald Analyst
Nathan Fischel
Dafna Capital Analyst
P R E S E N T A T I O N
Operator
Good day, ladies and gentlemen and welcome to SGX Pharmaceuticals Conference Call to discuss
todays press release. At this time, all participants are in listen-only mode. Later, we will hold
a question-and-answer session, and Ill give you more instructions at that time. (OPERATOR
INSTRUCTIONS).
As a reminder, ladies and gentlemen, this conference call is being recorded. An audio replay of
this call will be available for seven days. Access numbers for the replay can be found in the press
release issued by the Company earlier this afternoon. I would like to introduce your host for
todays call, Bonnie Feldman, Senior Director of Investor Relations and Corporate Communications.
Please go ahead, Bonnie.
Bonnie Feldman
- SGX Pharmaceuticals Senior Director, IR
Good afternoon. Thank you for joining us today. I am Bonnie Feldman, Senior Director of Investor
Relations at SGX Pharmaceuticals.
Today, SGX Pharmaceuticals issued a press release announcing the proposed sale of the Company to
Eli Lilly in an all-cash
merger transaction. And we have posted this release on our website at www.sgxpharma.com.
Before getting started, I must remind you that the news release and the conference call contain
certain statements that are
forward-looking statements within the meaning of the federal securities laws. These forward-looking
statements, including
statements about the expected closing and potential results of the merger are only predictions
based on current information
and expectations and involve a number of risks and uncertainties.
Actual events or results may differ materially from those projected in any of these statements due
to various factors, including
risk that the conditions of the merger will not be satisfied or the merger will otherwise not be
completed and the risks and
uncertainties inherent in drug discovery, development, and commercialization, collaborations with
others, competition, and
litigation. These and other risk factors are discussed in SGX Pharmaceuticals annual and quarterly
reports as well as other filings
with the Securities and Exchange Commission.
You are cautioned not to place undo reliance on these forward-looking statements, which speak only
as of the date hereof. This
caution is made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking
statements are qualified in their entirety by this cautionary statement and SGX undertakes no
obligation to revise or update
the news release or the matters discussed on this conference call to reflect events or
circumstances after the date hereof.
You should be aware that SGX intends to file with the SEC a preliminary proxy statement and a
definitive proxy statement and
other materials in connection with the merger. The definitive proxy statement will be sent to SGX
stockholders. Before making
any voting or investment decision with respect to the merger, investors and stockholders of SGX are
urged to read the proxy
statement and the other relevant materials carefully in their entirety when they become available
because they will contain
important information about the merger.
The proxy statement and other relevant materials and other documents filed by SGX with the SEC may
be obtained when they
are available free of charge at the SECs website at www.sec.gov or by going to SGXs Investor
Relations page or on its corporate
website at www.sgxpharma.com or directing a written request to SGX at 10505 Roselle Street, San
Diego, CA 92121, Attention
Todd Myers.
SGX Pharmaceuticals and its directors and executive officers may be deemed to be participants in
the solicitation of proxies
from SGX stockholders in connection with the merger. These directors and executive officers may
have interests in the merger
which are different from the interests of SGX stockholders generally. Additional information
regarding the merger, including
the interests of the directors and executive officers of SGX Pharmaceuticals will be contained in
the proxy statements that SGX Pharmaceuticals intends to file with the SEC.
Participating in todays call are Mike Grey, the Chief Executive Officer, and Todd Myers, the CFO.
Mike Grey
- SGX Pharmaceuticals President and CEO
Thanks, Bonnie. Good afternoon, and thanks for joining us. Ill make a brief statement and then
open it up to questions from
you. Today, SGX Pharmaceuticals and Eli Lilly announced the signing of a definitive merger
agreement providing for the
acquisition of SGX in an all-cash transaction for $3 per share. The total purchase price is
approximately $64 million.
The transaction has been unanimously approved by the Board of Directors of both companies. The
management and Board of SGX strongly support the combination with Eli Lilly, a global leader in healthcare. We believe that
this strategic alternative
provides an excellent opportunity to realize the full potential of our pipeline and platform.
Importantly, the combination provides
our stockholders with attractive financial terms.
Those of you listening to this conference call who are invested in SGX or have followed the
Companys progress over the years
know that SGX has evolved from a platform-technology organization to a drug discovery and
development company. Were
all aware that drug discovery and development is a high-risk business and the rate of attrition is
high.
Following the setback we encountered in our MET program earlier this year, SGX considered a number
of strategic alternatives,
including intensive partnering activities, standalone financing alternatives, and pursuing
potential M&A opportunities. Over
the last several months, as weve publicly discussed, weve been pursuing partner activities to
support the future development
of our program. In parallel, we also have had a number of M&A discussions. And the proposed
transaction with Lilly resulted
from these activities.
We had M&A discussions with a number of companies in addition to Lilly. And the SGX Board of
Directors evaluated a number
of alternatives to a transaction with Lilly. Overall, our Board of Directors determined that the
Lilly offer was superior to other
potential transactions for a number of reasons, including price, form of consideration, and the
certainty of closing a transaction,
among other things.
Taking into account a number of factors, including the terms of the offer from Lilly, the
experience we have from working with
Lilly, risks and challenges inherent in a drug discovery and development process, and the very
unfavorable external financing
environment, as well as other uncertainties, the SGX Board determined that a combination with Lilly
would be in the best
interest of our stockholders.
Over the past five years, weve worked together with Eli Lilly on research and technology
collaborations, which we understand
have had a significant impact on Lillys drug discovery programs. One important aspect of our work
with Lilly since April 2003
has been to apply our targeted-structure technology to key Lilly drug discovery targets to
determine their three-dimensional
structure. In addition, SGX researchers generate data on Lilly compounds that bind to drug targets,
providing insights into their
lead generation and optimization efforts.
In another aspect of our collaborative work, SGX has provided Lilly with access to the capabilities
of our SGX synchrotron
beamline facility at the Advanced Photon Source located at the Department of Energys Argonne
National Laboratory in Chicago.
Through this arrangement, we have generated crystal structure data for many Lilly drug targets and
compounds.
We have periodically over the years discussed with Lilly how we might expand our collaboration to a
more strategic relationship
in both our fragment-based drug discovery platform, which we call FAST, and a number of the targets
in our drug discovery
pipeline, including our MET program. A culmination of this relationship over the past five years is
the realization of the potential
for strategic combination that would meet Lillys goals and provide value for the stockholders of
SGX.
Id like to acknowledge the achievements of SGX Pharmaceuticals employees past and present. We
appreciate their dedication
efforts towards our mission of turning innovative discoveries into life-changing therapies. We can
think of no better partner
than Eli Lilly. With the resources and dedication of the Lilly team, there will be patients who
will be beneficiaries of all our efforts.
In closing, wed like to take a moment to summarize our current expectations regarding the next
steps in the transaction. Well
file a preliminary proxy with the SEC. Were planning to do this in the following week. We will
look to clear the preliminary proxy
and commence mailing to stockholders and then hold a special stockholders meeting sometime in the
third quarter of 2008.
So in closing, in light of the strategic rationale for this transaction and the attractive price
offer to SGX stockholders, such price
representing approximately 116% premium to the market based on todays closing sales price, both of
our companies look
forward to a timely and efficient stockholder vote and closing process.
Ill now open the call up for questions.
Q U E S T I O N S A N D A N S W E R S
Operator
(OPERATOR INSTRUCTIONS).
And your first question comes from the line of Glen Gechlik with Needham & Company. Please proceed.
Glen Gechlik
- Needham & Company Analyst
Mike, Todd, and Bonnie, congratulations on the merger.
Mike Grey
- SGX Pharmaceuticals President and CEO
Thank you, Glen.
Todd Myers
- SGX Pharmaceuticals CFO
Thanks, Glen.
Glen Gechlik
- Needham & Company Analyst
How do you think the merger will change your advance of priorities and development of the current
clinical programs and
those drugs in pre-clinical development?
Mike Grey
- SGX Pharmaceuticals President and CEO
Well, those are obviously discussions that were going to have with Lilly over the next several
weeks between the signing of
the merger agreement and closing. We know from the discussions weve had to date that a number of
the programs or a number
of the targets are of significant interest to Lilly, for example, our MET program, and a number of
other of our the targets in
our pipeline are also of interest. I think scientists here have done a good job in selecting
high-potential oncology targets. And
naturally, a number of those will be of interest to Lilly.
Glen Gechlik
- Needham & Company Analyst
Thank you.
Operator
Your next question comes from the line of George Zavoico with Cantor Fitzgerald. Please proceed.
George Zavoico
- Cantor Fitzgerald Analyst
Hi, Mike, Todd, congratulations.
Mike Grey
- SGX Pharmaceuticals President and CEO
Thank you, George.
Todd Myers
- SGX Pharmaceuticals CFO
Thank you, George.
George Zavoico
- Cantor Fitzgerald Analyst
A couple of questions whats going to happen to the San Diego site? Is that going to close down?
Are you going to integrate
over in Indiana?
Mike Grey
- SGX Pharmaceuticals President and CEO
Were not in a position to answer that at this point in time, George. I think, as you may know,
Lilly has an existing presence in
San Diego through the acquisition of AME, which took place in 2004. And as youll see in Lillys
press release, they commented
that if I just get the quote accurately enables them to expand their presence in the San
Diego area.
So, I think that clearly in these types of transactions that there will be detailed discussions
take place about a variety of matters.
But I think Lillys made their intentions clear in the press release.
George Zavoico
- Cantor Fitzgerald Analyst
Okay. And is SGX going to next question then about you as a subsidiary are you going to be
maintained as a subsidiary in
sort of like the J&J model of having a number of subsidiaries? Or are you going to be folded in and
SGX will in essence cease to
exist?
Mike Grey
- SGX Pharmaceuticals President and CEO
Well, I think that it probably will exist as a subsidiary of Lilly. But we had really believed that
our programs and technologies
and platform can have it will continue to have a profound impact across a number of Lilly
interests. And obviously, one of the
objectives of this combination is to maximize the impact that our activities can have on the Lilly
pipeline. And so, I think in large
measure we will be integrated into their activities.
George Zavoico
- Cantor Fitzgerald Analyst
And part
of the benefit, obviously, of SGXP I suppose there might be a
better word than benefit but is the human resources of SGXP.
You guys are experts at structural biology. So, I presume that Lilly
would like to retain as many of you as they can. Could you comment on that?
Mike Grey
- SGX Pharmaceuticals President and CEO
Well, clearly, I think that, as you recognize and so [does] Lilly, that whilst machines and robots
and protocols are obviously
valuable tools in a drug discovery process, the real benefit here is the human capital. And I think
that we look forward to the
incredibly skilled scientists within SGX being able to benefit from the broader and deeper range of
resources and capabilities
that Lilly will be able to bring to our programs and that the broader range of programs that we can
apply our platform to.
George Zavoico
- Cantor Fitzgerald Analyst
Okay. And then, regarding the Novartis partnership, you basically handed over the initial group of
BCR-ABL inhibitors to Novartis.
And theyre pretty much its up to them what they do with it. Theres no real entanglement as it
were of Novartis in interfering
with this deal, is there?
Mike Grey
- SGX Pharmaceuticals President and CEO
There is no entanglement of Novartis that interferes with this deal. We have the existing agreement
with Novartis that provides
for a range of eventualities, including one such as this. And there will be the appropriate
discussions with Novartis and with
Lilly as to the orderly progression of the BCR-ABL program.
George Zavoico
- Cantor Fitzgerald Analyst
Okay. And finally, regarding the Argonne site, how I mean, thats the Department of Energy. You
guys dont own it. You own
you have a space there that you use. And there are grants that youre subject to in terms of
fulfilling certain obligations and
getting funded. How does this affect the relationship with the Department of Energy and Argonne?
Mike Grey
- SGX Pharmaceuticals President and CEO
We dont believe it has an impact on that. We have an agreement with the Advanced Photon Source
regarding our use of the
beamline there. And that will continue.
George Zavoico
- Cantor Fitzgerald Analyst
All right, so its just basically a change of ownership. Everything it sounds like everything
else is pretty much going to stay
stable.
Mike Grey
- SGX Pharmaceuticals President and CEO
Yes, its certainly business as usual in terms for us and in a number of respects.
George Zavoico
- Cantor Fitzgerald Analyst
Okay. Great. Thanks and congratulations again.
Operator
Your next question comes from the line of Nathan Fischel with Dafna Capital. Please proceed.
Nathan Fischel
- Dafna Capital Analyst
Yes, good afternoon. I guess I wondered about the comment that while the premium sounds fairly high
in percentage terms,
recently we have seen higher premiums, particularly for companies with such depressed stock price.
Second,
you have an accumulative loss of $180 million. And so again, buyout price of $64 million does not appear so
favorable in that view. Could
you perhaps describe the other strategic options you had, particularly partnership for the CMET
program and why those would
not have been more favorable in the longer term than this buyout?
Mike Grey
- SGX Pharmaceuticals President and CEO
So, Nathan, thanks for the question. We considered a number of different alternatives here, as I
indicated in my prepared remarks.
And obviously, weve looked at our partnering discussions. We took into account our cash position,
the stage of our drug
discovery and development programs, and also the financing environment.
And whilst you accurately quote from historical parameters there, the task that faced the officers
and Board of this Company
was to look at where the Company stood today looking forward and make the assessment as to what was
in our [business] was
in the best interest of SGX stockholders overall, and taking those various parameters into account
and also the fact that this
was a competitive process, believe that on balance this is the optimal outcome for SGX
stockholders.
Nathan Fischel
- Dafna Capital Analyst
Again, just as an example, I mean, [Cozen], for example, recently was bought for 250% premium,
which is still I mean, you at
106% premium, youre still far below the stock price that you had prior to the toxicity issue that
occurred in your first CMET
inhibitor. And that should not be a surprise. I mean, you have built an infrastructure in the drug
discovery process. That kind of
evaluation of it does not appear to be very high. And so kind of, Im just still struggling with
the fact that there were no other
options or better options out there than a sellout at this stage.
Mike Grey
- SGX Pharmaceuticals President and CEO
I think one additional comment to make, Nathan again, I understand your comment is that it is
typical in these situations.
We were we had a financial advisor who carried out quite a thorough analysis using a number of
different metrics. And whilst
you refer to the DMS-Cozen deal, obviously looked at a wide range of different deals.
One could point to many deals where the premium was significantly lower than that which we
described there. And I think that
its always they ought to make direct comparisons in stage of development, risk going forward.
Other factors in MET and other
programs obviously contribute. And having engaged in the competitive process and identified what we
believe is the optimal
terms here, thats the basis for our Boards recommendation.
Nathan Fischel
- Dafna Capital Analyst
If I may ask, who represented you from the as a financial advisor?
Mike Grey
- SGX Pharmaceuticals President and CEO
Thats Lazard.
Nathan Fischel
- Dafna Capital Analyst
Who? Lazard?
Mike Grey
- SGX Pharmaceuticals President and CEO
Lazard, yes. And as youll know from your experience that we will be filing a proxy in the near
future. And there will be additional
details regarding the very things weve been discussing disclosed in the proxy. And I think that
that will provide a more detailed
description of the various factors that Ive outlined for you.
Nathan Fischel
- Dafna Capital Analyst
Yes, thank you very much. Thank you.
Mike Grey
- SGX Pharmaceuticals President and CEO
Thank you, Nathan.
Operator
(OPERATOR INSTRUCTIONS).
And you have no further questions at this time.
Mike Grey
- SGX Pharmaceuticals President and CEO
Okay. Well, thank you. Id like to thank all those who have listened to our call and look forward
to the ongoing interactions with
our stockholders leading up to the stockholder meeting, which as I say we hope to hold between now
and the end of the third
quarter. So, thank you for your attention today. And thank you for your support of SGX over the
years.
Operator
Thank you for your participation in todays conference. This concludes the presentation. You may
now disconnect. Good day.
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