Novacea Inc and Transcept Pharmaceuticals Inc have signed a merger agreement in which the companies will form one specialty pharmaceutical company intended to develop new patient benefits from innovative applications of existing prescription sleep medicine and psychiatry drugs. Current Transcept stockholders will own 60% of the new company, while current Novacea stockholders are expected to own the remaining 40%.

Transcept’s development of Intermezzo, a middle-of-the-night prescription sleep aid for insomnia, made the company an alluring merger candidate to Novacea.

“Our priority has been to identify a merger candidate with a late-stage product opportunity that we believe has the potential to provide meaningful long-term value to our stockholders,” says John P. Walker, CEO of Novacea. “We believe that Transcept represents an attractive merger partner for Novacea as Transcept seeks to complete its regulatory approval process and utilizes our cash resources in their potential Intermezzo product to launch to address a large therapeutic market.”

Glenn A. Oclassen, current president and CEO of Transcept, will head the new company, which will be called Transcept Pharmaceuticals Inc. The merger is expected to be complete during the fourth quarter of 2008 or the first quarter of 2009.