BTG snatches up fellow UK biotech Protherics in £218 million, all-share deal

In what is being described as “further consolidation” of Great Britain’s biotechnology sector, BTG has agreed to buy Protherics in an all-share deal valued at £218.1 million, or about $396.28 million.

Jeffrey Bouley
LONDON—In what is being described as "further consolidation" of Great Britain's biotechnology sector, BTG has agreed to buy Protherics in an all-share deal valued at £218.1 million, or about $396.28 million. This will reportedly result in the creation of Britain's biggest biotech company—one that is anticipated would enter the FTSE 250 index.

The companies have reported that the merger would result in "significant revenues and royalties" from both marketed products and partnered development program, and a broad, diversified portfolio of development programs that include "key value drivers" like Varisolve and CytoFab. They also report that the union of the two companies would mean a strong financial position, with pro forma cash and cash equivalents of £95 million as of March 31, 2008.

Furthermore, the enlarged group reportedly would have enhanced growth potential, underpinned by the creation of a specialty sales force in the United States, allowing for enhanced returns on marketed products; the ability to capture more value from development products by taking them "to optimal licensing points"; and a greater focus on investment on later-stage opportunities. Also, the companies anticipate annualized saving of £20 million from synergies and elimination of redundant functions, which should be realized by no later than 2011.

"In addition to these clear financial strategic benefits, we have a potential FTSE 250 company that can be expected to provide increased share liquidity and a broader investor base," said Louise Makin, BTG's chief executive officer, during a conference call about the deal.

"We will have a valuable portfolio of licensed and marketed products, a pipeline of mid to late-stage programs in clinical development, and the cash resources and development expertise to progress the combined pipeline," said John Brown, BTG chairman, in announcing the deal. "[BTG] has demonstrated the ability to operate profitably, and by combining with Protherics has the opportunity to create a sustainably profitable business."

Stuart Wallis, chairman of Protherics, echoed the BTG sentiments by saying the merged company "will have the critical mass in terms of financial resources, skills and development pipeline to leverage the full potential of our critical care products that we have the opportunity to sell in the USA from 2010 onwards."

Investors didn't show as much enthusiasm when the deal was announced, however, with BTG shares falling 19 percent on worries about the merits of the merger plan.

Protherics had originally announced in August that it had been approached by several companies with bid offers, and some speculation had been going around that the company might be bought by AstraZeneca, which has a 3.2 percent stage in Protherics and has a deal dating back to 2005 with the company for CytoFab, a drug being explored for treatment of sepsis. Protherics also has deals with privately owned Swiss drugmaker Nycomed, which sells its CroFab treatment for rattlesnake bites and DigiFab for drug overdoses in the United States.

KBC Peel Hunt analyst Paul Cuddon has said he thinks people would have preferred a cash offer from a big pharma company like AstraZeneca, rather than stock in BTG. "If it was a more buoyant market maybe there would be more money available for Protherics to develop their own strategy," he notes, adding that "A merged company creates less risk, but also less focus."

Neil Mackinson, head of European healthcare investment banking at Piper Jaffray, which was joint financial adviser to BTG, counters: "BTG wants to become a sustainable business and the way to do that is to have marketable products." He predicted that some drugs in development might be put on hold or shelved, thus resulting in R&D savings.

Protherics' independent directors, who collectively hold just over 3 percent of Protherics stock, have already agreed to vote in favor of the merger. The acquisition is expected to be completed by early December. If the agreement goes through, 41.2 percent of the enlarged issued ordinary share capital of BTG will be held by former Protherics shareholders.

Dr. John Brown would continue as non-executive chairman of BTG, with an executive team led by Makin as CEO, along with Rolf Soderstrom, who will join the BTG board as chief financial officer and Christine Soden, who will move to the role of chief operating officer.

For the year ended March 31, 2008, BTG generated revenue (net of revenue sharing) of £42.9 million, with net recurring royalties of £24.9 million and a surplus of net recurring royalties over operating expenses of £8.9 million. Operating profit was £16.6 million before an impairment provision in respect of a manufacturing development facility of £8.1 million.

For the year ended March 31, 2008, Protherics delivered trading revenues of £23.5 million, delivering organic growth of 27 per cent. Gross margin on trading revenues increased to 47 percent. R&D expenditure in the period was £19.1 million, reflecting planned increased investment in the development pipeline. DDN

Jeffrey Bouley

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