CombinatoRx has signed an all-stock merger agreement with Neuromed, a privately held Canadian biopharmaceutical company. Under the new agreement, CombinatoRx will issue approximately 36 million new shares of its stock to Neuromed stockholders. Each company will initially hold 50 percent of the merged organization. That number will be adjusted depending upon the outcome of the FDA's review of Exalgo, an opioid drug to treat chronic pain. Neuromed recently sold U.S. rights to Exalgo to Covidien subsidary Mallinckrodt. If Exalgo is approved by December 31, CombinatoRx shareholders will own 30 percent of the combined company. Their ownership stake will jump to 70 percent if Exalgo is not approved by the end of 2010. Exalgo is poised to become the first long-acting form of hydromorphone available in the U.S. The merger could potentially improve circumstances for CombinatoRx. The Cambridge, Mass., company's stock dropped after its lead drug candidate, Synavive, failed to meet its goal in a Phase II trial earlier this year. In an attempt to cut costs, the company laid off half its staff and slashed its R&D budget. The merger with Neuromed marks the second deal CombinatoRx has struck in recent months. In May, the company agreed to collaborate with Novartis to discover novel anti-cancer compounds.