Biotech reverse merger: Fair to shareholders?

Biotech ethics isn't all science ethics. This story is about fair treatment of shareholders.

From the San Jose Mercury News: A biotech firm taking a chance on a reverse merger

It is called a reverse merger. And for a failing public biotechnology company, it can represent one last roll of the dice.

The gamble is to merge with a privately held company with better prospects.

The private company takes over the public stock listing and management of the business. The money that the public company had left is then plowed into developing the formerly private company's products. If those products succeed, the shareholders in the old public company can eventually benefit.

Reverse mergers can be used in other ways, as well. The deal that Merck and Schering-Plough announced last Monday, is being done that way to let Schering sidestep a change-of-control clause in a separate drug partnership it has with Johnson & Johnson.

The reverse mergers in biotechnology are meant to help private companies go public at a time when market conditions have made it virtually impossible for them to pursue conventional initial public offerings....