Local lifesciences firms Liponex Inc. and ImaSight Inc. are considering a merger, while the TSX is reviewing whether the former still meets continued listing requirements as a public company.

The two companies announced after the market close Wednesday that they have entered into a non-binding letter of intent for a business combination that would see current ImaSight shareholders own about 65 per cent of the combined company.

"As previously announced, our board of directors and management have been pursuing strategic options to leverage Liponex's assets and resources," Liponex chairman David Evans said in a statement.

"That process has led our board of directors to believe that this proposed business combination with ImaSight is the best opportunity available to the company to maximize value for our shareholders."

Financial terms of the deal were not disclosed, though Liponex said it would acquire all of the issued and outstanding shares of ImaSight through some kind of share purchase arrangement. The combined company would still list on the TSX.

However, only, moments before this possible business combination was announced, the TSX said that it is reviewing Liponex because its trading price and volumes have fallen below minimum listing requirements. The TSX has granted Liponex 120 days to regain compliance. Liponex closed Wednesday's trading session higher at 10.5 cents. Its stock took a big fall last March from a high above $3, following poor trial results for its leading cholesterol drug candidate.

Both companies were among the OBJ's Startups to Watch for 2007, though the fickle winds of fate certainly treated one better than the other.

ImaSight is a six-year-old company that is commercializing a digital X-ray technology designed to replace traditional film-based X-rays and targeted at smaller medical operations and the veterinary market that normally cannot afford full-blown digital systems. ImaSight's technology combines optics, digital signal processing and software.

The product won a warm reception in late 2006 at a major veterinary conference in Florida and a key U.S. patent was obtained last year. By the end of 2007, a surge in demand had made the company cash-flow positive, but also created a bit of a headache.

"Orders are coming in faster than the company's production capacity," CEO John Brooks told the OBJ last month. "Initial sales started in November and the product has received rave reviews regarding its picture quality. Significant industry players, AFP Imaging and Apexx, have switched to the ImaSight sensor and have promoted it in at least five trade shows."

Liponex, however, suffered significant setbacks with its efforts to prove the efficacy of its key product, CRD5 – a drug that increases the amount of high-density lipoprotein (HDL), or "good cholesterol," in patients.

It's a drug with a lot of market potential at a time when poor diet and exercise are driving up rates of heart disease. However, CRD5 took a huge hit last March after the first human trials did not deliver any statistically significant results. Then last month, Liponex discontinued animal trials for a coated version of its drug after no significant effects were observed for CRD5. In other words, the drug doesn't deliver the goods.

The good news is that the problem may be related to the "mini-pig" animals used in the trials rather than a fault with the drug. It's apparently well-acknowledged that there aren't any good HDL animal models, chief executive Bill Dickie said.

However, both companies said Wednesday they remain committed to the CRD5 program and the potential for the drug.

"We are particularly pleased that the combined company will continue the development of the Liponex CRD5 program in dyslipidemia which we continue to believe has potential value in the natural health product arena," Mr. Evans said Wednesday.

"ImaSight is excited about the opportunities this merger brings," added Mr. Brooks. "This will bring additional resources to our marketing and production operations and we share the optimism around the CRD5 program."

The proposed combination of the two companies remains subject to a period of due diligence and still requires the necessary shareholder and regulatory approvals. A successful completion could come as early as April. If the two companies do merge, Mr. Brooks would become CEO of the combined company.