Here's reaction/analysis - from today's Wall Street Journal
Dow Jones Newswires -- June 16, 1999
WSJE: UPDATE: Celltech PLC To Acquire Chiroscience Group PLC
By STEPHEN D. MOORE
Staff Reporter
Celltech PLC's proposed GBP 331 million (510.3 million euros) takeover of Chiroscience Group PLC opens a huge gap in size with rival biotechnology companies across Europe, and is likely to trigger a long-awaited round of industry consolidation.
The friendly offer, unveiled Tuesday by Slough, England-based Celltech, took investors and competitors by surprise. Celltech is one of Europe's oldest biotech firms. But in recent years the company's fortunes have been rocked by the failure of ballyhooed new drugs. Its low-key chief executive, Peter Fellner, has been upstaged by a new breed of brash entrepreneurs.
Chiroscience, a Cambridge, England-based firm headed by former Glaxo
Wellcome PLC executive John Padfield, has been one of the most
successful newcomers. Underscoring the company's appetite for growth,
Chiroscience completed a $120 million takeover two years ago of Darwin Molecular Corp., a highly regarded Seattle-based biotech firm. And Mr. Padfield made no secret of his plans for further swoops to expand that trans-Atlantic base.
Ironically, it was a detour in Mr. Padfield's own career planning that drove Chiroscience into Celltech's arms. "There had been discussions between the companies over a long period of time," one person familiar with the situation said. "But it never came together because you had two strong chief executives -- as well as fluctuations in the companies' share prices and other hurdles that got in the way," this person added.
The impasse dissolved earlier this year with a headhunter's call offering Mr. Padfield a senior post at British diagnostics group Nycomed Amersham PLC. The Chiroscience chief disclosed Tuesday that he will move to Nycomed Amersham as new head of the company's imaging
division following the completion of Celltech's purchase of Chiroscience.
"Sometimes it takes a catalyst to get something done, and I wanted to make sure the future of Chiroscience was secure before leaving," Mr. Padfield said in an interview. "It gave us an opportunity to reopen discussions with Celltech, and though we've actually only been in formal talks over the past three weeks, the result will be the strongest biotech company in Europe by a long way."
The proposed share exchange values each Chiroscience share at 293 pence, a premium of 13.1% to Monday's closing price for the stock. Chiroscience shares surged 21 pence, or 8.1%, to close at 280 pence Tuesday. Celltech stock fell 8.5 pence, or 1.8%, to 464 pence.
If the bid is successful, Celltech shareholders would own 52.4% of the combined Celltech Chiroscience PLC. Celltech's Mr. Fellner would
become chief executive of the new company with his current right-hand
man, Peter Allen, inheriting the role of chief operating officer.
The boards of both Celltech and Chiroscience have approved the merger
and Chiroscience directors recommended that the company's shareholders accept the offer. The proposed transaction is still subject to approval from Celltech shareholders at an extraordinary general meeting. However, analysts said the vote was largely a formality, not least because many U.K. institutional investors already are shareholders in both companies.
By joining forces, Celltech and Chiroscience plug holes in their respective new-drug pipelines and reduce the risk of development failures, which are a fact of life in the risky world of new drug discovery.
"If your new-drug pipeline has six compounds and one falls over, it puts the company at risk," Mr. Padfield said. "But if it's one out of 12 products, the risk is reduced."
Chiroscience's most advanced product, an anesthetic called Chirocaine, is poised for its global launch after the announcement Tuesday of a licensing deal with U.S. drugmaker Purdue Pharma LP. But there's still a substantial gap to the company's nearest follow-up compounds, which remain at an early stage of development.
Celltech, meanwhile, has lacked an advanced compound since the failure two years ago of a treatment against sepsis which the U.K. firm was developing jointly with German drug giant Bayer AG. But Celltech now has several products at advanced stages of clinical testing.
Moreover, the new Celltech Chiroscience will be financially strong with GBP 80 million in cash. Nick Woolf, a London-based analyst with
BancBoston Robertson Stephens, predicted the new company will be cash
generative by next year and post a profit in 2001.
"This transaction is a defining moment for biotechnology in the U.K. and Europe as a whole," Mr. Woolf said. Along with added marketing and
research clout, Celltech Chiroscience will gain critical mass in financial markets. With a market capitalization exceeding $1 billion, the stock will be a serious alternative to U.S. biotech highfliers for U.S. institutional investors along with European fund managers.
"This deal will show other successful U.K. biotech firms such as
Powderject Pharmaceuticals PLC and Cantab Pharmaceuticals PLC -- or
even France's Genset SA -- that they can gain critical mass in the markets quickly by coming together," Mr. Woolf said.
Obviously, liberal access to financial markets is a crucial strategic
consideration for young biotech companies, which often lack either sales or profits and survive by consuming their cash as they race to develop new drugs. But product failures have made institutional investors less and less willing to invest in small, illiquid stocks, analysts said.
"There's a dictum out there that companies with market value below $750 million aren't really on the radar screens of institutional investors," said Max Link, previously a senior executive at Sandoz AG and now a director at several biotech firms in the U.S. and Europe. "But 80% of U.S. biotech firms are valued at less than $200 million and only 16 companies -- 5% of the total industry -- have market value above $750 million. Consolidation of smaller companies is inevitable," Dr. Link said.
Still, Celltech and Chiroscience gave biotech matchmaking a surprise twist that could affect deliberations in the boardrooms of rival firms, Mr. Padfield boasted. "We've all been discussing consolidation, but people had been looking at putting a strong company together with a weak one. Putting together two of the strongest companies in the U.K. biotech industry is something everyone else missed totally," he mused. "And even after this, the weak companies will still be there as opportunities." |
