Kosan's Cancer Pipeline Attracts $5.50 Per Share BMS Buyout Bid
By Jennifer Boggs
Assistant Managing Editor
[OK, it is almost over but there is some background to the deal in this article. Evidently, everything started as a license discussion for the epothilone program. The one Roche returned. So, maybe we should say "Thank you Roche" now. ]
Kosan Biosciences Inc. is being snatched up by Bristol-Myers Squibb Co. for $5.50 per share, becoming the latest acquisition as big pharma struggles to fill dwindling pipelines.
And it probably won't be the last, according to analyst Han Li, of Stanford Group Co., who wrote in a research note that the industry can "expect an active year of biotech deal-making."
In fact, last month, the Stanford Group named Kosan as a potential acquisition target, though the Hayward, Calif.-based firm had not put itself up for sale. The company, instead, was discussing the possibility of partnering its epothilone compounds with BMS when the pharma firm made an acquisition offer.
The $5.50-per-share bid marked a whopping premium over the company's Wednesday closing price of $1.65, though recently appointed President and CEO Helen Kim said Kosan "has had huge swings in terms of valuation" over the past year.
In May 2007, the company's stock was trading in the $6 range but has slipped over the last few months, most notably on disappointing - to investors, at least - Phase Ib data showing that tanespimycin, an Hsp90 inhibitor, produced a lower-than-expected response rate in multiple myeloma patients. (See BioWorld Today, Dec. 11, 2007.)
"We looked at comparables and tried to [determine] the value of the company's assets," Kim said. "Based on the combination of those valuations, we arrived at the $5.50-per-share" arrangement.
Kosan had about 42.7 million shares outstanding as of April 30, which puts the deal's overall value at about $234.6 million. Minus the company's projected June 30 net cash balance, the aggregate purchase price comes to about $190 million.
Shares of Kosan (NASDAQ:KOSN) skyrocketed $3.78 Thursday, or 229 percent, to close at $5.43.
The deal is expected to close shortly after BMS completes the tender offer for all of Kosan's outstanding shares. While company executives maintained that they expect no roadblocks to the acquisition deal, the agreement includes a clause that would guarantee BMS rights to Kosan's epothilone compounds even if the buyout falls through. Structured as a separate license agreement, BMS would gain exclusive worldwide rights to epothilone compounds and related intellectual property in exchange for $25 million up front, plus up to $400 million in milestones, as well as royalties on any product sales.
That's an "attractive deal that can stand on its own," Kim told BioWorld Today, though Kosan still considers the acquisition a more compelling offer.
As the company transitions from early stage research work to a firm with late-stage clinical programs, it faces "the many challenges of managing multiple late-stage programs," she added. "We looked at all our options," which included continuing as a separate entity, likely with near-term financing needs, but "felt this deal was attractive. The company's management and board "are enthusiastic, and we hope shareholders will be enthusiastic as well," Kim said, adding, "It's a fabulous opportunity" for both companies.
Stanford's Li said the deal was a "long time in the making," and wrote that Kosan's two lead drugs - tanespimycin, which is in Phase III trials in multiple myeloma in combination with Velcade (Millennium Pharmaceuticals), and KOS-1584, a next-generation epothilone drug getting ready to start Phase II in lung cancer - both are good fits to BMS' cancer pipeline, a sentiment echoed by Jeremy Levin, BMS' vice president of external science, technology and licensing.
"We're delighted to have the opportunity to bring [those] novel treatments to patients," he told BioWorld Today, and to explore the science "that Kosan has been so good at developing."
In addition to multiple myeloma, tanespimycin also is in testing in HER2-positive breast cancer, and the company also has KOS-1584, another epothilone, that is in preclinical testing in cancer. And in late 2006, the company partnered a motilin agonist program with New York-based Pfizer Inc. in a worldwide deal worth up to $250 million in up-front and milestone payments. (See BioWorld Today, Dec. 21, 2006.)
Kim said it was "premature" to make projections on how the 63-employee Kosan will be integrated into BMS. A press release issued by BMS late Thursday afternoon said only that Kosan will become a wholly owned subsidiary.
The latest in a recent spate of M&A deals, Kosan's buyout highlights pharma's aggressive approach to filling its pipelines, particularly in the highly competitive cancer space. Only last week, German cancer firm U3 Pharma AG was snagged by Tokyo-based Daiichi Sankyo Co. Ltd. for $235 million.
Earlier this year, Pfizer agreed to buy Durham, N.C.-based Serenex Inc., a company targeting Hsp90 in cancer indications, for an undisclosed sum, and London-based Antisoma plc agreed to take over privately held oncology firm Xanthus Pharmaceuticals Inc., of Cambridge, Mass., in a deal valued at $52.2 million. Last month, Slough, UK-based Piramed Ltd., which develops small molecules targeting P13-kinases to treat diseases including cancer, was bought by Roche Holdings Ltd. for $160 million up front.
Li expects more acquisitions to follow, with single-product companies that are profitable or near-profitable, as well as companies with broad pipelines or drug discovery technologies, capturing most of the big pharma attention. Last month, Stanford listed several firms under its coverage as possible takeover candidates, including OSI Pharmaceuticals, ImClone Systems Inc., ArQule Inc., Cougar Biotechnology, Medivation Inc. and Maxygen Inc.
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