Glaxo plc's $14.2 billion bid for Wellcome plc was rejected Thursday as "inadequate." But on the same day, the pharmaceutical giant moved to acquire combinatorial chemistry company Affymax N.V. for more than $500 million.

Glaxo's bid undervalues Wellcome and fails to recognize its strengths, Wellcome said in recommending that its shareholders take no action at this time. Wellcome added that it is "exploring opportunities for achieving a better offer."

The combination of the London companies, proposed Monday, would result in the world's largest pharmaceutical concern, the largest deal in the business, and the largest firm in Great Britain. But the deal by no means is off entirely.

"Glaxo remains convinced that the proposed merger is not only in the best interests of both Wellcome and Glaxo shareholders, but that it will also secure Britain's leading position in the pharmaceutical industry," Sir Richard Sykes, Glaxo's deputy chairman and CEO, said in a news release. "The commercial logic of our bid is clear."

Glaxo already has a commitment from The Wellcome Trust for the charitable foundation's 39.5 percent stake in Wellcome plc. The trust said Monday it would sell its shares for Glaxo's 49 percent premium bid if a better offer is not presented.

"[Wellcome] basically has hung the `for sale' sign up," Nick Woolf, an analyst with Warburg Securities in London, told BioWorld. "They're quite happy saying they'll sell to the highest bidder." But Woolf isn't sure a higher bid will come in.

Buying Time

"That's a little optimistic, but it's a standard response in this situation" he said. "They're doing it to buy time, but not to consider remaining an independent. We've run the numbers through and we can't see a higher bidder, at least not one with a higher cash element."

Warburg said Switzerland-based Roche Holding Ltd. and Bristol- Myers Squibb Co., of New York, are the companies that might compete for Wellcome, but both are unlikely to come in with a high cash offer, Woolf said. "Either the board will accept the Glaxo offer, or the bid will run its course [through May 23]." If no higher bid comes, then Wellcome shareholders could accept the Glaxo offer.

"Glaxo is trying to give itself a larger revenue base and market share," Woolf said. "I think it will prove to be a good move. There are an awful lot of synergies and the cost- cuttings available are immense. We're looking at 600 million in cost savings by June 1997."

Synergies include Wellcome's AZT for HIV, and Glaxo's 3TC, which has been shown in recent clinical trials to be effective in combination with AZT. Wellcome also has the herpes drug Zovirax and other antiviral agents, as well as clinical and regulatory experience in that area.

Neil McGregor-Paterson, press officer for Wellcome in London, reiterated to BioWorld the intention is to secure the best deal for shareholders.

"We are an extremely attractive business, the industry is consolidating," McGregor-Paterson said. "We know the players and we're confident our plans will succeed."

J.R. Robb, chairman and chief executive of Wellcome, said, "Many are sad that The Wellcome Trust is severing its links with Wellcome plc after a long and close association. We are pursuing opportunities to achieve the best offer for the company. That, too, is why The Wellcome Trust should help us in this objective, and not limit its own and other shareholders' options."

Affymax's Appeal Is In Drug Discovery

While the addition of Wellcome would help Glaxo's near-term revenue stream, the acquisition of Affymax is expected to pad Glaxo's pipeline.

Affymax is incorporated in the Netherlands but operates out of facilities in Palo Alto and Santa Clara, Calif. Affymax has technologies that allow for the synthesis and screening of millions of compounds.

Glaxo offered $30 per Affymax share (NASDAQ:AFMXF), a premium of 67 percent to Wednesday's closing price of $18 per share. Affymax stock shot up 64 percent, to $29.50 Thursday, in trading of nearly 4 million shares.

Affymax reported unaudited revenues of $16.2 million for the nine months that ended Sept. 30, and a net loss of $14.2 million.

"Affymax's combinatorial chemistry, robotics and new screening capabilities mean it is a leading molecule discovery center in the biopharmaceutical industry," Glaxo's Sykes said. "By harnessing and developing Affymax's technologies, Glaxo will significantly improve its ability to find innovative medicines."

Specific Affymax technologies include its very large-scale immobilized polymer synthesis, its encoded synthetic libraries and its recombinant peptide diversity.

Glaxo's bid of $485 million is expected to increase by as much as $48 million because of options held by Affymax employees. A condition is that at least 50 percent of the shares are tendered. Affymax officials supported the acquisition.

Ed Hurwitz, and analyst with Robertson, Stephens & Co. in San Francisco, said that Glaxo's acquisition of Affymax is a sign of the times.

"The take-home message from the deal is there is inherent technology in these companies," he told BioWorld. "Large pharmaceutical companies see the value that the Street doesn't. To pay [such a large] premium to that company, which has always had a rich valuation, probably suggests there are more deals along those lines coming.

"Everybody is a potential takeover target if they have strong technology or promising products," Hurwitz said. "We think the consolidation theme is real." n

-- Jim Shrine Staff Writer

(c) 1997 American Health Consultants. All rights reserved.