Some detail on the offer for KS Biomedix:
4. Reasons for and benefits of the Offer
The Xenova Directors and Proposed Directors believe that the Enlarged Group will
deliver greater shareholder value than if the two companies remain apart. The
combined product pipeline will increase the chances of successfully bringing new
products to market and reduce the overall risk profile of the portfolio,
although further funding will be required by the Enlarged Group to develop
TransMIDTM, as discussed further in paragraph 7 below entitled 'Prospects of the
Enlarged Group'. The Acquisition will also create a wider shareholder base that
should stimulate greater liquidity and therefore promote a broader level of
interest in the equity of the Enlarged Group.
In particular the Xenova Directors and Proposed Directors consider that the
Enlarged Group will benefit from the following key factors:
• The combination of the Xenova Group and the KS Biomedix Group will create
a business with a focus on oncology, combining the product candidates and
development expertise of both groups in this therapeutic area. The Enlarged
Group will have a total of 8 oncology product candidates under clinical
development, comprising 1 at the Phase III development stage, 2 in Phase II
and 5 in Phase I, and a number of further oncology programmes in preclinical
development. The modes of action of these product candidates provide a range
of therapeutic approaches including tumour specific biological agents, DNA
targeting agents and drug resistance modulation. The Xenova Directors and
Proposed Directors consider that oncology presents a highly attractive area
of therapeutic focus due to the high level of unmet need in a large number
of different indications, and the rapid adoption of treatments due to the
poor outcomes with existing treatments.
• In addition to oncology, the Enlarged Group will also have a further 4
drug candidates at the clinical stage of development in the areas of
addiction and immunology giving it a broad pipeline of drug candidates.
Xenova will focus its development efforts on the commercially more
attractive and later stage drug candidates in the enlarged drug candidate
portfolio in order to extract the greatest value and near term benefits.
• The Enlarged Group will have a wider group of corporate partners including
Celltech, Genentech, Lilly, Millennium, Nycomed, Pfizer and QLT. The Xenova
management has demonstrated a strong track record of entering into
attractive licensing agreements for individual territories over the last 2
years while retaining valuable territorial rights within the business for
outlicensing at a later stage. Through licensing arrangements, four of
Xenova's clinical programmes, as well as some of its earlier stage
programmes, benefit from external funding. There are also expected to be
opportunities for Xenova management to enter into further attractive
licensing agreements with the product candidates in the Enlarged Group.
• There will be a significant opportunity for synergies and cost savings in
the Enlarged Group by rationalising and consolidating the development
functions, operational sites and central support costs of the two groups and
by selling off or closing non-core operations, which may also raise
additional funds to invest in key drug candidate development programmes. In
particular, following the Acquisition, there will be manufacturing
operations in both Edmonton, Canada and Cambridge, UK which may be
rationalised. One strategic option under review is the disposal of one of
the manufacturing sites whilst retaining long-term manufacturing supply
contracts with the acquirer of the site in order to maintain the supply of
clinical material for the Enlarged Group's own clinical trials. Non-core
operations include KS Biomedix's joint venture, Discerna. Following
completion of the planned rationalisation of the operations of the two
companies, and including the changes Xenova is currently implementing
following the announcement on 12 May 2003 of the termination of Phase III
trials of tariquidar, the Xenova Directors and Proposed Directors expect the
total number of employees on a combined basis to fall from approximately 185
to approximately 105; and estimate that annualised cost-savings of
approximately £10 million will have been achieved across both businesses,
based on reductions in headcount, facilities and research and development
costs. The one-off cost of achieving these cost savings is expected to be
approximately £2.7 million.
• The Xenova Directors and Proposed Directors also believe that the enlarged
pipeline with its strong focus on oncology will put the Enlarged Group in a
better position to take part in further consolidation opportunities in the
sector which, if such opportunities should arise and are in the best
interests of the Enlarged Group, the Xenova Directors and Proposed Directors
will pursue.
The Listing Particulars set out certain Risk Factors relating to the Enlarged
Group.
5. Information on Xenova
Xenova is an emerging bio-pharmaceutical company which was founded in the UK and
commenced operations in 1987. The Company merged with Cantab in April 2001, and
is currently focused on cancer therapy and immunotherapy. Xenova currently has
nine products in clinical development, including new chemical entities for the
treatment of cancer, and vaccines for the treatment of infectious disease,
addiction and cancer. Xenova has in its ownership, or licensed to it, a total of
more than 35 families of patent application and/or granted patents.
Based in Slough and Cambridge in the UK, Xenova currently employs approximately
78 people at its two locations, of whom approximately 50 are directly involved
in drug research and development. The Xenova Group's head office, housing its
small molecule research and development capability, is located in Slough while
the Xenova Group's immunotherapy activities are carried out at its Cambridge
site. The Company also has a biologicals manufacturing plant located at the
Cambridge site, which is used for the production of clinical grade materials for
its own clinical trials and for contract manufacturing on behalf of third party
clients.
Xenova seeks to commercialise its development products through partnering with
major pharmaceutical companies. It considers the optimal timing for partnering
on a project by project basis following an assessment of the scientific and
commercial risks and returns for each individual project. However, in general, a
licensing partner will be sought to assist with the Phase III trials and to take
on the marketing and distribution of the product.
The unaudited interim results of Xenova for the six months to 30 June 2003 were
announced today. These show that for the six months Xenova incurred a loss on
ordinary activities before taxation and R&D tax credits of £8.1 million (2002:
£5.5 million) and as at that date had net assets of £19.4 million (2002: £25.2
million) and cash, short-term deposits and investments of £10.1 million (2002:
£15.1 million).
On 12 May 2003, it was announced that the Phase III trials of tariquidar,
Xenova's lead product, would be stopped following a recommendation from the
DSMC, an independent committee, which had completed the un-blinded interim
review of data for the two ongoing trials. This recommendation was immediately
implemented and Phase III trials were terminated. Following the termination of
these Phase III trials, Xenova implemented an R&D reorganisation, which included
both headcount reduction and programme prioritisation. As a result, Xenova is
focussing on its key later stage clinical development programmes. These changes,
mainly affecting the research functions in Cambridge and Slough, will result in
a headcount of 66 (down from 107 at the time of the announcement by the Company
on 12 May 2003 of the termination of Phase III trials of tariquidar) by the end
of September 2003.
The Xenova Directors expect that losses and cash outflows will continue for a
number of years. However, the Xenova Directors believe that the Acquisition will
place the Company in a stronger position to continue the development of the
Company's business.
The Xenova Directors believe there are a number of reasons for and benefits of
acquiring KS Biomedix and these are set out under the heading 'Reasons for and
benefits of the Offer' in section 4 of this announcement. One of the benefits of
the Acquisition is the opportunity to save costs and to use the funds and assets
of both companies across a reduced cost base. Xenova Shareholders should be
aware that if the Acquisition does not proceed the Xenova Group would not have
sufficient working capital for at least the next 12 months from the date of this
announcement, to support its planned level of activities. However, there is no
immediate requirement for funds and the Xenova Directors believe that the Xenova
Group has sufficient working capital for a substantial part of the next 12
months based on its planned level of activities.
If the Acquisition does not proceed, the Xenova Group would seek additional
finance which might include some form of equity financing from institutional or
other investors. Should the Xenova Group be unable to secure additional finance,
Xenova would seek to take steps to reduce its activities in order to enable
Xenova, on a standalone basis, to remain a going concern for at least the next
12 months from the date of publication of this document. Such steps would
include a reduction in overheads and development expenditure on its drug
candidates which may delay, reduce or eliminate the development of product
candidates which are not externally funded by partners. In addition, Xenova may
also be forced to license the rights to some of its drug candidates and
technologies at an earlier stage than would otherwise be intended which would be
likely to be on less favourable terms.
6. Information on KS Biomedix
KS Biomedix is a drug research and development group focused on the development
of products for the treatment of cancer, particularly clinical indications where
survival prognosis is poor and there are few, if any, approved products. KS
Biomedix's product portfolio has three products in its clinical pipeline to
treat eight different indications, including four specific brain cancer patient
groups. Underpinning its drug development, KS Biomedix has patented technology
based on the principle of tumour targeting.
Headquartered in Guildford in the UK, KS Biomedix currently employs 76 people,
of whom approximately 63 are directly involved in drug research and development.
The company has facilities or offices in Guildford (UK), Farnham (UK), Edmonton
(Canada) and Philadelphia (USA).
Guildford houses the management and head office functions including project
management and regulatory and clinical development. Farnham houses research and
product development capabilities for the KS Biomedix Group. Edmonton houses KS
Biomedix's manufacturing facility, which is capable of manufacturing biologicals
and is used to produce its own products for clinical trials as well as
potentially generating revenues from third parties through contract
manufacturing. A small office in Philadelphia is responsible for the US clinical
trials of TransMIDTM, its lead product, as well as liasing with the FDA.
KS Biomedix has partnered TransMIDTM to Sosei (Japan), Nycomed (EU), Ranbaxy
(India) and Medison (Israel) but has retained the rights to TransMIDTM in the
Americas. KS Biomedix's other products are not yet licensed-out.
The preliminary results of KS Biomedix were announced today. The audited results
show that KS Biomedix incurred a loss on ordinary activities before taxation and
R&D tax credits of £33.9 million (2002: £15.3 million) and as at that date had
net assets of £16.1 million (2002: £49.2 million) and cash and liquid
investments of £7.4 million (2002: £17.6 million). The accounts include an
additional write-off of goodwill of £20.9 million following the completion of an
impairment review and in light of the terms of the Offer.
Since 31 May 2003, KS Biomedix has continued to incur losses, in line with the
KS Biomedix Directors' expectations, as it continues to incur expenditure to
progress the development of its drug candidates and early stage programmes.
7. Prospects of the Enlarged Group
The Enlarged Group will have a broad pipeline of products with a total of 12
products in clinical stage development with a strong focus on oncology,
including 3 later stage oncology products in Phase II and III development.
The most advanced product in the enlarged pipeline will be TransMIDTM, a
treatment for high-grade glioma, which has commenced Phase III development and
will shortly be ready to enter Phase III clinical trials. The KS Biomedix
Directors estimate the cost of the currently planned single Phase III pivotal
study, the protocol of which is in the process of being approved by the FDA, to
be in the region of £17 million. However, following the Acquisition Xenova
intends to pursue a longer but lower risk option, undertaking instead two
smaller Phase III studies, each costing approximately £9 million. Subject to FDA
and other regulatory approvals, and the raising of funds which will be required
to finance the Phase III trials, the first of these trials would commence
immediately. This would enable the Enlarged Group, if necessary, to select an
appropriate partner for the North American market to fund the second Phase III
trial if the review of clinical data of the first study shows positive results.
The second most advanced product is tariquidar, the revised clinical development
plans for which are currently being jointly developed by Xenova and QLT, its
North American development partner, following the unblinding of the data from
the Phase III studies which resulted in the termination of these trials.
The Enlarged Group intends to seek additional funds through equity financing
from institutional and other investors once the Offer becomes unconditional in
all respects in order to provide sufficient finance to carry out the initial
Phase III trial for TransMIDTM and to continue to fund the development of other
product candidates in the Enlarged Group's product portfolio.
The Enlarged Group provides significant opportunities for reducing the overall
costs by rationalisation of the operations of the two businesses, removing
duplicated central overhead costs, reducing the number of operational sites and
selling off or closing non-core activities. It is anticipated that reductions in
headcount, facilities and research and development costs will yield annualised
cost savings of up to £10 million across both businesses. The one-off costs of
achieving these cost savings is expected to be approximately £2.7 million.
The Xenova Directors and the Proposed Directors believe the Enlarged Group will
continue to make losses over the course of the current year as it continues to
develop its drug candidates, and it incurs the one-off cost of carrying out the
rationalisation. The rationalisation is expected to be largely complete by the
end of 2003 and as a result the operating losses for 2004 are expected to
benefit from this. The Enlarged Group will focus its development efforts on the
commercially more attractive and predominantly later stage drug candidates and
will benefit from the fact that five of its clinical programmes will benefit
from external funding.
Xenova has a plan for implementing the integration and rationalisation of KS
Biomedix and has shown it has the relevant experience to do this following the
merger with Cantab in 2001 which required rationalisation and integration of
that business.
The Xenova Directors and Proposed Directors believe that the expanded oncology
focused product pipeline and reduced and refocused cost base of the business
will provide a better opportunity for bringing new products to market within the
resources of the Enlarged Group and help to improve the prospects of the Xenova
Group.
8. Enlarged Group's products
The Enlarged Group will focus on oncology, with a secondary focus on addiction.
The Enlarged Group's drug candidates and early development programmes are
summarised in the table below:
Drug Candidates/Programmes Therapeutic area Stage of Development Partner
Clinical programmes
TransMIDTM (KSB311)* Glioma Phase III Sosei, Nycomed,
Medison, Ranbaxy
Tariquidar (XR9576)* Cancer Phase II QLT (North
America only)
TA-HPV / TA-CIN Cervical cancer Phase II -
TA-CD* Cocaine addiction Phase II NIDA1
KSB303* Cancer Phase I -
HumaRAD Cancer Phase I -
XR11576* Solid tumours Phase I Millennium (North
America only)
XR5944* Solid tumours Phase I As XR11576
DISC-PRO Genital and oro-labial Phase I -
herpes prophylaxis
TA-NIC* Nicotine addiction Phase I -
DISC-GMCSF Cancer Phase I -
DISC-VET Bovine Herpes Virus Phase I equivalent Pfizer
Early development programmes
Triomics Solid tumours Preclinical -
XR11612 Solid tumours Preclinical As XR11576
OX-40 Autoimmune Disorders Preclinical Celltech, Genentech
OX-40L Infectious diseases, Preclinical -
anti-cancer
PAI-1 Cardiovascular Preclinical Lilly
PAI-1 Cancer Preclinical Lilly (option)2
MRP Cancer and asthma Preclinical -
M3 Inflammatory disease and Preclinical -
cancer
VP22 (Phogen joint Intra-cellular delivery Preclinical Genencor
venture) system
HIF-1 alpha Cancer Preclinical -
MEN-B Meningitis Preclinical -
KSB 304 Ulcerative colitis Preclinical -
KSB 113 Cancer Preclinical -
Ribosome display Cancer targets Preclinical Babraham
(Discerna)
1 NIDA provides funding to independent investigators to conduct certain trials
of TA-CD, but has no rights for its commercialisation, nor is funding required
to be repaid by Xenova.
2 Lilly has an option to acquire development and commercialisation rights
relating to PAI-1 inhibitors in the cancer field.
Drug candidates indicated with an asterisk (*) will be prioritised for internal
development following the Acquisition.
Unless otherwise indicated, commercial rights to the programmes shown in the
above schedule are held
by Xenova or KS Biomedix.
Product Strategy
Following the Acquisition, the clinical portfolio will be prioritised. The
Directors believe that the increased focus on the seven key clinical development
programmes (see drug candidates indicated with an asterisk (*) in table above)
will provide a greater return to shareholders. Of these seven, five (TransMIDTM,
tariquidar, TA-CD, XR11576 and XR5944) benefit from external funding.
The Enlarged Group will de-prioritise the majority of the early development
programmes, except where externally funded, as is the case for the Genentech
collaboration on OX-40. The Directors intend to pursue licensing opportunities
for those programmes which have been de-prioritised...
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