Washington Editor

Indevus Pharmaceuticals Inc. is paying a nice premium to buy Valera Pharmaceuticals Inc. in a $120 million deal between specialty pharmaceutical firms that could get more valuable if certain product milestones are met.

The acquisition expands Indevus' reach into the urological, men's health and endocrinology markets, given Valera's portfolio of hydrogel-based implant products for prostate cancer and other urologic conditions, and provides expanded sales capabilities for the new entity going forward. Indevus, of Lexington, Mass., markets two products, Sanctura for overactive bladder and Delatestryl for male hypogonadism, while Valera, of Cranbury, N.J., markets Vantas for advanced prostate cancer and is awaiting FDA action on Supprelin-LA for central precocious puberty. Earlier-stage products in their respective pipelines include next-generation drugs for overactive bladder and male hypogonadism, sexually transmitted pathogens, interstitial cystitis and stuttering, as well as implants for bladder cancer, post-kidney stone lithotripsy and acromegaly.

"I think there's a lot of synergy between these two firms," Brooke Wagner, Indevus' vice president of corporate communications, told BioWorld Today. "It's not about any one product; it's about the synergy and the leverage."

He added that conversations between the companies began some time ago in relation to a marketing agreement that was announced in parallel with the buyout. The deal calls for Indevus' 85 sales representatives to begin co-promoting Vantas in the U.S. next month in tandem with Valera's 25-person sales staff, in return for royalties on product sales ranging between 13.5 percent and 35 percent. The product, a long-duration histrelin therapy, is under regulatory review in Europe. The deal will last two years, even if the buyout comes undone.

But clearly, the companies' management teams are looking more broadly.

"Our business development efforts have focused intensively on identifying late-stage, and particularly marketed or soon-to-be marketed products, that would immediately leverage our sales and marketing infrastructure," Indevus Chairman and CEO Glenn Cooper said in a conference call. He added that the transaction accelerates that plan by combining "two very good but relatively small specialty biopharmaceutical" firms to create "a larger, stronger and more dynamic company that instantly will be an emerging leader in urology and men's health."

Upon closing, the new business expects to pad its portfolio of three marketed products with five new product launches within two years, the same time frame in which the deal is expected to be accretive. On Tuesday, Valera's stock (NASDAQ:VLRX) gained $2.46 to $7.87, while shares in Indevus (NASDAQ:IDEV) fell 69 cents to $7.17.

"I believe we are now ready for the next step in our evolution," Valera President and CEO David Tierney said in the conference call. "We're very much looking forward to combining our R&D and commercialization best practices with those of Indevus to even further extend our reach in our shared markets."

Terms of the stock-for-stock purchase call for Indevus to issue $7.75 worth of its stock for each Valera share, plus contingent payments of up to $3.50 per share based on the achievement of future product milestones. Each Valera share exchanged would be converted into a 10 percent collar, not more than 1.1766 Indevus shares and not less than 0.9626.

Each Valera share will be converted into three contingent stock rights relating to three Valera products in various stages of development. One right is convertible into $1 of Indevus stock upon FDA approval of Supprelin-LA and the availability of sufficient launch quantities, another right is convertible into $1 of Indevus stock upon FDA approval of the biodegradable ureteral stent and the last right is convertible into $1.50 of Indevus stock upon FDA approval of the octreotide implant.

Upon completion of the transaction and subject to the approval of the Indevus board of directors, Valera Chairman James Gale will join the Indevus board, and Tierney will provide consulting services during a transition period after the completion of the transaction. Valera's facility, which includes manufacturing operations and research and development capabilities, will be maintained as part of Indevus' operations going forward.

Cooper, who said Valera had been on Indevus' "radar screen" for about a year, noted that he expects the combined entity's late-stage portfolio to be "one of the most exciting" in the specialty pharmaceutical space. Looking to the next year, he pointed to a number of "anticipated highlights" for the company: two approvals, three filings for approval, two Phase III trial initiations and the start of the co-promotion agreement. Its combined revenues are expected to reach $70 million in the next fiscal year and $80 million in 2008.

The merger, which has been approved by both companies' boards, is expected to be completed on or around April 30 of next year, subject to regulatory clearance, stockholder approval from both companies and other customary closing conditions. UBS Investment Bank is acting as Indevus' exclusive financial adviser in the transaction, and Banc of America Securities LLC is Valera's exclusive financial adviser.