Recent Deals Discussion: Eli Lilly/Imclone and BTG/Protherics




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Video title: Recent Deals Discussion: Eli Lilly/Imclone and BTG/Protherics
Released on: October 27, 2008. © PharmaVentures Ltd
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In this programme Fintan Walton talks to Tibor Papp and Steven Renwick of PharmaVentures Consultancy. They discuss the recent deals between BTG and Protherics and Eli Lilly and ImClone.
Acquisition of Protherics by BTG.
Fintan Walton:
Hello and welcome to PharmaVentures Business Review here live in London. On this special show we look at some deals that have been done recently. We have Tibor Papp, who Heads up the Advisory and Transactions Team at PharmaVentures. And Stephen Renwick, who is a Consultant in the Advisory and Transactions Team. Welcome to the show both of you. The two deals that we want to look at are specifically acquisitions one is the acquisition by BTG here in the UK [PharmaDeals ID = 31380] of a relatively small biotech company called Protherics. And also the other deal we want to look at is the Lilly deal and their [PharmaDeals ID = 31381] acquisition of ImClone in the United States. So Tibor, I just want to turn to you with regard to the BTG acquisition, BTG a relatively larger organization to Protherics tell us what's actually happened there?
Tibor Papp:
Well first of all I'd like to know that this is more like an acquisition of equals than a large company acquiring the small company, although BTG share price and the market cap is larger. The deal was 280 million pounds offered for Protherics, at the time of the announcement the Protherics share price was around 40 pounds and the deal offered the investors 60 pounds this around 50% premium we have to know it was already on a very depressed Protherics share price which has been in declining the past three-years, on the other hand the BTG share price has appreciated, appreciated significantly and they back up some good clinical data in the second and third quarter, so it was right situation for BTG to make this acquisition.
Fintan Walton:
Right. You talked about the relative size, we talked about the relative size but obviously we could talk about the size of the company but also the share price it's really important that the share price plays obviously an important role when you've got two publically quoted companies attempting to get together, but beyond the size issues you said this is a as a good fit, why it is a good fit?
Tibor Papp:
Well I believe it is a good fit both strategically as well as operationally. I mean both of this companies are in the business of developing products for the niche markets the specialist markets in that combined companies will would generate products and market products in neurology, critical care and oncology, there is an alignment in their pipeline although admitted the BTG only has one program in oncology in preclinical but they have the definite intention in increasing their presence there. And just considering the products of Protherics they have two marketed products CroFab and DigiFab these product generated more than $30 million in royalty revenue to Protherics last year, we need to consider that BTG on the other hand has benefits which is a hemophilia product generating about again $30 million for them last year but that is facing a patent expiry in 2011. So just looking at that it's a good fit for BTG, it makes a lot of sense for BTG's investors, for Protherics well it is questionable know that the share price of BTG has declined it's a question of how much value it can generate from Protherics investors.
Fintan Walton:
Right.
Tibor Papp:
I think I would like to add one more thing, Protherics has four oncology programs three of these programs are in Phase II, one is Phase III so clearly it can provide potentially a strong oncology franchise for BTG which is very attractive for them.
Fintan Walton:
Right. And of course it's an old shared deal, so that does not necessarily a nice sweetener there for the investors of Protherics no cash component to it?
Tibor Papp:
Well certainly, yes we know that from the initial reaction of the market when we sorted there was a decline in share price after the announcement that the markets really wanted the cash bill obviously Protherics, I'm sorry, BTG wouldn't have these sort of cash reserve to pay for this, but they certainly have the share price to pay for this.
Fintan Walton:
Right.
Tibor Papp:
So at that time well the announcement did made a lot of sense now it is in question.
Fintan Walton:
Right. And do we see this deal closing off I mean, will the Protherics shareholders approve this?
Tibor Papp:
Well I think it's largely depends on the market movements as everything goes in the public markets, at the moment right now the share prices are still declining for both companies, I have doubts whether it would go through.
Lilly's acquisition of ImClone.
Fintan Walton:
Okay. Stephen, you've been looking at the other major headline recently which is Lilly's acquisition of ImClone and ImClone is one of these biotech companies that's caught the attention of people even outside biotech and pharma, it's had a very high profile, Is this a good move by Eli Lilly?
Stephen Renwick:
Yeah, well a lot of people think looking at Eli Lilly there they have to do something soon, so they obviously with buying ImClone they bought in a cancer franchise and Eli Lilly does have at least two products selling for oncology at the moment but both of those are due to go off patent within the next five years or so and they need to do something to replace, to replace those products and they didn't really have anything in their pipeline that looked like it was gonna coming along and replace it. And so you know some people will say it's not the desperation, some people will say it's a good strategic move. And also there are one of the few companies few big pharma that has they didn't have any real biologics capabilities, so they've done similar to other companies AstraZeneca with (indiscernable) bought in large company with a lot of biological capabilities and got an entire franchise in one goal.
Fintan Walton:
Right. But, some would look at this and say well this is was an opportunistic move by Lilly obviously because of the past relationships [PharmaDeals ID = 30923] [PharmaDeals ID = 8857] between ImClone and BMS?
Stephen Renwick:
Yeah. And that's what makes this interesting as you said everyone's been watching ImClone to see what's going to be happening and as I just said well people from outside pharma, biotech have been watching particularly because of the activist investor Carl Icahn who just in 2006 well into ImClone with all guns blazing and ousted the former CEO because he wasn't happy with their performance and at that time the board of ImClone wanting to accept an offer of about $30 a share which Carl Icahn said that's ridiculous that doesn't value the company appropriately. And I think at the time a lot of people thought it's Carl Icahn making a lot of noise and lot of people think had sympathy with the board that were ousted but it's on so that is been justified, the current, the offer from Eli Lilly is $70 a share and even recently as you know the Bristol Myers Squibb who developed and market Erbitux with ImClone they were in with an offer of $60 a share and they've increased to 62 and everyone knew that there was a mystery sitter and (indiscernable)Eli Lilly so they've really gone in there.
Fintan Walton:
Right. And clearly is this a displacement for BMS, I mean basically BMS is now not gonna get the full benefit of its first relationship with ImClone?
Stephen Renwick:
Well BMS and Eli Lilly they've said that they are going to be working closer together because they co-promote and the drug in North America and that will continue, I mean the I think ImClone gets 40% of the revenues and from sales of (indiscernable) in North America now BMS hasn't done too badly out of their sales because they owned large proportion of ImClone anyway and will be getting around about billion dollars for the transaction.
Share deal vs cash deal.
Fintan Walton:
Right, right. Now we've been watching the development of mergers and acquisitions in the industry these service to examples, but I suppose the big difference between the two is besides the scale is the fact that BTG is doing at a deal which was said earlier was an old share deal, while the ImClone deal is a cash deal. So the question is who's you know should have Protherics held out for a better deal than BTG's, I mean in the end they could have their shareholders could end up with cash not just shares in another biotech company, would that be possible Tibor?
Tibor Papp:
Well that many analyst believe that the time of the announcement or just before that could be there, one of their partners Nycomed raised out that would bid for them with cash. Well I had doubts because you know why should they do that when they have already looked down the relevant products that were interesting for them and to be honest with you for large companies there is little attraction in some of these niche products that Protherics has.
Fintan Walton:
So this may be the best deal for this may be the best for Protherics?
Tibor Papp:
Perhaps well us, they say that the CEO of Protherics says that we didn't have to do this, we did this because it made a lot of sense operationally as well. I certainly believe that Protherics although they have significant amount of cash in the bank but they needed to strengthen themselves, their pipeline, you know their presence in industry the same is true for BTG. I think, I would say that this is more like an opportunistic kind of deal because of the share price than the ImClone deal was.
Fintan Walton:
Right.
Tibor Papp:
But certainly you know take that away, take share price away these companies are very well aligned and it made a lot of sense and I was excepting the deal like this.
Fintan Walton:
So the key thing here of course is that the shareholders of Protherics are not going to they'll have to hold on to these shares to see, to make sure that the one and one makes three basically?
Tibor Papp:
Absolutely.
Fintan Walton:
And that's going to take some time unless you just want to sell out now?
Tibor Papp:
Yes, certainly I agree. As I said for BTG it makes a lot of strategic sense and otherwise so there is no question about that, for Protherics there are still the question marks left.
Future landscape of acquisitions.
Fintan Walton:
Right. So Stephen , again you've with your experience of working on the PharmaDeals team and so forth we've seen lots of mergers and acquisitions recently particularly of relatively mature biotech companies, Millennium been brought [PharmaDeals ID = 30116] by Takeda and so forth. We talked about how important this potentially is for a company like Eli Lilly to make that acquisition of ImClone where does that leave the landscape for acquisitions, there are obviously antibody based companies are flavor of the month, of the year or may be in the decade at the moment, does that mean that we for see fewer independent bio � antibody based companies in the future?
Stephen Renwick:
I think one of the things about the pharma industry is that the big players are all very cash rich, so even with the current economic climate there is no getting on the fact that they've got to replace products that go off patent they can't just sit back and wait, so they do have the money to go out and buy these companies and these mid size companies are the most attractive acquisition targets, they've got instead of just going for one product there is a lot of risk associated with that one product and with the current valuations you can is often makes more sense to buy the whole company rather than pay some of the sorts of large up front's that we can see in other deals.
Fintan Walton:
Or even royalties?
Stephen Renwick:
Yeah exactly.
Financial market and funding issues in biotech sector.
Fintan Walton:
Yeah. So and both of you then looking at what's going on in the industry and taking into account the financial markets at the moment which are in October 2008 have just crashed to great lows and the future funding, I mean does that mean that the biotech, healthcare sector is relatively protected against the financial markets, Tibor, generally trying to tackle that one?
Tibor Papp:
Well I don't think so, I mean obviously occasional, we have seen the occasional bounce in the biotech share price you know they have performed better on some occasions then the rest of the market, but recently we have seen you know that the share prices these companies, public company share price has dropped the same amount as the Dowjones index or S&P so they are not protective, they are not defensive anymore, so it would be foolish to think that you can be protective in these markets or in this sector. But commenting on that you know this results in many biotech companies in this range that Stephen mentioned undervalued, so it represents an opportunity for cash rich companies to buy very good assets very cheaply.
Fintan Walton:
Okay.
Stephen Renwick:
And that creates more problem because when you look at the way these biotech's were financed they are not they are not able to access the finance anymore so this that the kind of intellectual property movement from small companies financed through to medium companies through to large companies is going to get cut off particularly when you look at large pharma some of them are giving free communications are gonna you know almost stop basic R&D go for externalization and they you know even if they are cash rich if the money is not going into the biotech start of the value chain then you are not going to see those small companies coming through to be acquired.
Fintan Walton:
Thank you very much indeed for coming on the show. Thank you.
Tibor Papp:
Thank you.
Stephen Renwick:
Thanks.
Stephen Renwick
Consultant
Tibor Papp is a senior strategy advisor to leading companies, he has 16 years of experience in the healthcare/life sciences industry in corporate strategy, investment appraisal, portfolio development, business transformation, licensing/M&A deal making, marketing strategy, and risk management. He has advised health care and private equity companies about acquisition and transaction strategies in pharmaceuticals, biotechnology, medical devices, drug delivery systems and medical supplies globally. Currently, he is Head of Consultancy at PharmaVentures and focuses on commercialization strategies, product/technology licensing, mergers & acquisition, divestments and alliances. Dr Papp is also an experienced surgeon and has a PhD from the University of Aberdeen and an MBA from the University of Oxford. Stephen is a consultant at PharmaVentures. He joined the company in September 2005 and until recently he was the manager of the Strategic Intelligence department responsible for the development and production of PharmaDeals. In his work with the transactions group he has built up experience in company screening and relationship building for licensing and M&A transactions. Recently he has worked closely with the Licensing Executive Society on the execution of the LES BioPharmaceutical Royalty Rates and Deal Terms Survey. Stephen holds a PhD in genetics from University College London and an honours degree in biochemistry from University of Dundee.
PharmaVentures
PharmaVentures Consultancy is a leading specialist healthcare business advisory group assisting corporations in all aspects of deal transactions, from strategy formulations to implementation. They occupy a special position among advisors because of their strong analytical capabilities, proprietary deal making database and associated information assets, expertise in strategy formulation and extensive experience in deal transactions. They are proven experts in deals and alliances and have worked with over a 1000 companies from 38 countries worldwide.