Acquiring a peer across the Atlantic

Abcam to buy San Francisco-based antibody business Epitomics with even mix of cash and shares

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CAMBRIDGE, U.K.—Early March saw British biotech Abcam PLC,which supplies protein research tools, release its interim results for the sixmonths ended Dec. 31, 2011, and announce that it had entered into a definitiveagreement to buy San Francisco-based Epitomics International Inc., an antibodycompany with extensive operations in China, for a gross amount of $170 millionin cash and shares.
At completion of the acquisition, which is expected to occurno later than May 2012, Epitomics should have net cash of $15 million,resulting in net consideration for the acquisition in the amount of $155million. Of that, half is payable in cash and the remainder in new Abcamshares—with the acquiring company issuing 14.5 million new shares, or about 7.3percent of Abcam's enlarged issued share capital, to make that happen.
The new Abcam shares will be subject to a lock-up on resalethat expires six months after the tender offer closes and on other restrictionson resale imposed by U.S. securities laws. Abcam and Epitomics have agreed to a$10 million mutual break fee payable in certain circumstances if acquisitiondoesn't complete.
According to Abcam CEO Jonathan Milner, the acquisitionshould be earnings neutral in the first full year of ownership as Abcam investsfunds into the new business to expand production and accelerate growth. Epitomics'acquisition is expected to be accretive to earnings in the second full year ofownership.
The main reasons for the acquisition, Milner has noted, areto boost Abcam's own antibody technology and gain a significant presence in theChinese market. Epitomics develops and distributes rabbit monoclonalantibodies—RabMAbs—to pharma and biotech developers seeking new monoclonalantibody therapies, and the company employs some 250 people, with roughly 80 ofthem based in San Francisco and another 170 in China. In addition to itsantibody work, Epitomics also does work in reagents and in-vitro diagnostics.
Epitomics is currently led by Dr. Guo-Liang Yu, who servesas president, CEO and chairman of the board. Yu received his undergraduateeducation at Fudan University in Shanghai before immigrating to the UnitedStates and did his graduate work at the University of California, Berkeley andHarvard Medical School.
Abcam's products are used in cancer, cardiovascular,immunology, neuroscience and stem cell research, and it says it looks forwardto the addition of the U.S. company as that will allow it to providecustom-made antibodies and gain access to the fast-growing in-vitro diagnostic market.
This acquisition would make the second in a six-month periodfor Abcam and would be its largest purchase to date. In September 2011, Abcamagreed to acquire Ascent Scientific Ltd., a specialist provider of biochemicalreagents—a purchase that extended Abcam's product portfolio into smallmolecules and is consistent, Abcam says, with its vision of becoming theworld's leading supplier of protein research tools.
Ascent Scientific brought with it a "diverse and rapidlygrowing range" of more than 400 bioactive small molecules, manufactured bothin-house and through outsourcing. Ascent has a specialist production andanalytical facility based in Bristol, U.K., which also serves as the primarydistribution outlet and customer support base.
Nearly a year ago, in May 2011, Abcam agreed to acquireEugene, Ore.-based MitoSciences Inc., a provider of mitochondrial researchtools—also stated as being part of the mission to become the leading supplierof protein research and detection tools.
Commenting on the half-year result announced in March—whichsaw sales increase 13.5 percent and profit before tax, after adding backacquisition costs of Ascent, increase 15.9 percent—Milner said, "We areparticularly pleased that, despite a tough macro-economic climate, Abcam hasdelivered revenue growth ahead of our peers whilst also delivering strongprofits growth and cash generation. Once again these results demonstrate thestrength of our business model and the scalability of our eCommerce platform."
Clearly, with Abcam's lofty proteomic goals, the Epitomicsacquisition and the two that preceded it should not be viewed as anything nearthe end of the line for its M&A activities.
"These are exciting times for Abcam as we continue to sourcenew products to add to our catalogue whilst also searching for M&Aopportunities to create the world's leading life-science reagents company,"Milner says, adding that he is "delighted" to add Epitomic, "which marks agigantic step towards our ambition of creating the world's leading life-sciencereagents company."
Reporting by Reuters has revealed opinions among analyststhat the fit between Abcam and Epitomics is good, but that the size of theacquisition might pose difficulties. Investec analyst Sebastien Jantet calledthe acquisition "sensible" while adding that it is a big step financially andlogistically, "with the earnings enhancement back-end loaded." Keith Redpath,an analyst with finnCap Ltd., thinks earning enhancement within the next fewyears will have to be "significant" to justify the purchase price.

Rabbit Monoclonal Technology
Epitomics has developed a proprietary method for makingmonoclonal antibodies from rabbits rather than the conventional method ofbeginning with mice, which it says offers such advantages as more diverseepitope recognition, improved immune response to small-size epitopes, highspecificity and affinity, and greatly improved response compared to mouseantigens.
"To put it simply," the company says on its website,"rabbits offer better antigen recognition," with Epitome adding, "The rabbitimmune system generates antibody diversity and optimizes affinity by mechanismsthat are more efficient than those of mice and other rodents. This increasesthe possibility of obtaining a functional antibody that will work in a varietyof applications. Additionally, many small compounds and peptides do not elicita good immune response in mice but do so in rabbits."
Epitomics' RabMAb technology is reportedly the onlycurrently available hybridoma-based technology for making rabbit monoclonals,with broad patents that cover not only the rabbit fusion partner cell line butalso the method for generating rabbit fusion partner cell line and theantibodies produced from the cell line.

Epitomics, Leica Microsystems in pact to supply rabbitmonoclonal antibodies
NEWCASTLE-UPON-TYNE, England—Epitomics Inc. and LeicaMicrosystems announced at the end of February that they have signed anagreement for the supply of proprietary rabbit monoclonal antibodies to LeicaMicrosystems based on Epitomics' RabMAb technology.
The agreement also provides long-term support for Leica'sincorporation of Epitomics' products into higher regulatory classifications of in-vitro diagnostic products.
In December, Leica released its one-step, double-stainingdetection system, Leica ChromoPlex 1 Dual Detection for BOND, and the agreementwith Epitomics will allow the company to build a supporting range of antibodycocktails based on Novocastra mouse monoclonal antibodies and RabMAb rabbitmonoclonal antibodies, says Dr. Konstantin Fiedler, vice president of advancedstaining for Leica's Biosystems division.
"Additionally, with a selection of Epitomics' rabbitmonoclonal antibodies, we will also be able to further strengthen our portfolioof Novocastra concentrated and Bond Ready-to-Use antibody selection for ourBOND instruments," says Fiedler.
The agreement is an "important endorsement of the quality ofEpitomics products in the rapidly growing field of IHC for anatomic pathology,"says Dr. Guo-Liang Yu, president and CEO of Epitomics.
"Epitomics has accumulated a collection of candidateantibodies for potential future incorporation into companion diagnosticsproducts in recent years. This strategic relationship will take us to the nextlevel," says Yu.

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