GSK to acquire Cellzome for $99 million

Company to acquire remaining shares on top of its current 19.98 percent equity interest

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UPDATED May 22, 2012, with additional reporting and information

LONDON—GlaxoSmithKline (GSK) announced May 15 the establishmentof an agreement by which it will acquire those shares it does not already ownin proteomics technology company Cellzome. GSK will acquire the shares for $99million, and Cellzome will become part of GSK's research and developmentorganization.
GSK currently owns a 19.98 percent equity interest inCellzome, and after the acquisition it will assume full control of the company.In conjunction with the acquisition, Cellzome shareholders, with GSK included,plan on creating a spin-off company. The spin-off would hold the rights tothose of Cellzome's assets and activities that GSK does not want to furtherdevelop. The acquisition is not subject to third-party approvals, and theexpected completion date was May 21, though as of May 22, when this article was updated, there was still no indication on either company's website that the transaction had been finalized.
"The acquisition of Cellzome adds significantly to ourscientific capabilities and capacity to characterize drug targets and providesthe opportunity to further enhance GSK's ability to bring medicines to patientsin a more effective manner," John Baldoni, senior vice president of Platform& Technology Science at GSK, said in the initial news release about the acquisition.
The transaction reportedly fits with GSK's strategy of collaboratingwith external partners, with Cellzome representing the company's third platformtechnology acquisition since 2007. GSK acquired both Domantis Ltd., a leader indeveloping next-generation antibody therapies, and Praecis, which specializedin novel therapeutic programs and a chemical-synthesis and screeningtechnology. Cellzome's technologies focus on proteomics and can be usedthroughout the drug discovery process, and function by assessing druginteractions with target proteins in settings that are more closelyrepresentative of the entire biological system.
Cellzome's "product engine," as the company puts it, is usedboth in-house and in partnerships, and is centered on its proprietarytechnologies Episphere and Kinobeads, "which wok with native proteins in a truephysiological setting to discover small molecule drugs targeting proteincomplexes that underlie disease." The company focuses on epigenetic and signaltransduction drug targets in cancer and inflammation, it notes on its website,but the drug discovery method can be applied in other indications as well.Acquiring Cellzome and its technology platform secures GSK significantproteomic mass spectrometry and screening abilities, which the company feelscould reduce the failure of potential drug compounds in the early developmentphases.
The companies have worked together since 2008 in a pair ofstrategic drug discovery alliances. The first was announced in September 2008,focused on the discovery, development and marketing of novel kinase-targetedtherapeutics for inflammatory diseases. The alliance gained GSK access toCellzome's Kinobeads technology, and set Cellzome up to be eligible for severalsuccess-based milestone payments. The second alliance was announced in March2010, also focused on inflammatory diseases, and gained GSK exclusive access toCellzome's Episphere technology. The acquisition will allow GSK to applyCellzome's technology platforms across its entire portfolio, rather than justin immunoinflammatory disease indications.
"We are pleased to announce this transaction, which willenable GSK to progress the technologies that we have been developing for morethan a decade," Tim Edwards, CEO of Cellzome, said in the news release announcing the deal. "Thisfollows nearly four years of successful collaboration with GSK, during whichtime we demonstrated the value and breadth of the Cellzome platform for drugdiscovery."
Zacks Investment Research acknowledged the likelihood that adding Cellzome's proteomics technologies would enable better analysis of a drug's efficacy and safetyprofile, thus reducing the number of discontinued candidates in developmentphases for GSK, but the prospect of folding Cellzome into GSK's R&D organization and spinning off a new company did nothing to change Zacks' "Neutral" rating on GSK.

As Zacks notes, "a major part of Glaxo's revenues will be exposed togeneric competition as multiple drugs are scheduled to lose exclusivity in thenext few years.
We expect the company's top line as well as grossmargins to remain under pressure in the coming quarters."

In addition to genericcompetition, U.S. healthcare reform and E.U. pricing pressure willcontinue to affect sales, notes Zacks, which seems more focused on
Glaxo's recent hostile bid to acquirethe outstanding shares of Human Genome Sciences Inc. as opposed to the Cellzome deal. As Zacks notes, that acquisition would gain
Glaxo exclusive rights to Benlysta aswell as other candidates such as darapladib and albiglutide. "The acquisition will raise the returns on research anddevelopment expenses for Glaxo and lead to cost synergies of minimum$200 million by 2015. We believe this potential takeover would be accretive forthe company from 2013," Zacks says.

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