BioWorld International Correspondent

LONDON - Vectura Group plc is acquiring Innovata plc in an agreed all-share deal that values the pulmonary drug delivery specialist at £131.9 million (US$248.7 million) and creates one of the UK's largest biotech companies.

Innovata shareholders will receive 0.2858 new Vectura shares for every Innovata share, representing a 13 percent premium to the closing price of 26 pence on Nov. 16 and will own 46 percent of the enlarged group. Innovata's shares rose 1 pence to 24.5 pence when the deal was announced Nov. 17, while Vectura's shares fell 1 pence to 88.5 pence. The market capitalization of the combined company would be £280 million to £300 million.

Chris Blackwell, CEO of Vectura, will head the merged company. He said there is a "phenomenal strategic fit" between the companies. "[The merger] is an opportunity to do something that the biotech sector in the UK and specialist respiratory [sector] badly needs, and that is to consolidate," he told BioWorld Today. "We will be one of the biggest biotechs in the UK, and not far off the top listing for respiratory companies in the U.S."

Both are currently listed on the Alternative Investment Market in London, and Blackwell said the plan is to move to the main market in 2007. "This will create more liquidity in the stock, and enable us to be seen more clearly in the U.S.," he said.

The merged company will have eight marketed products and £92 million cash to invest in the development pipeline. Both bring big-name collaborations, with GlaxoSmithKline plc and Novartis AG numbered among Vectura's partners, while Innovata has a joint venture with Bristol-Myers Squibb Co. for inhaled insulin, a global marketing deal with Baxter International Inc. for Adept, for the prevention of surgical adhesions, and also receives royalties from Baxter for Advate, an animal and human serum-free formulation of Factor VIII that uses Innovata's stabilization technology.

At the same time as announcing the acquisition, the two published financial results. Vectura's figures for the six months ending September show £60 million cash, while Innovata's annual results for the year to the end of September put its contribution at more than £20 million. However, with turnover for the year of £33.6 million, the Innovata side of the business will make the biggest contribution to the combined pro-forma revenues of £45 million.

"We have got good revenue streams from marketed products, and a good strong pipeline," Blackwell said.

Innovata was formed in June 2005 when ML Laboratories plc acquired pulmonary drug formulation specialist Quadrant Technologies Ltd. for £46.7 million in cash and shares and moved to the Nottingham, UK, base of Quadrant, which owned laboratories kitted out at the expense of its erstwhile owner, Elan Corp. plc, of Dublin, Ireland.

The acquisition was paid for with £19.5 million cash and the issue of 131.9 million new ML Labs shares at 20.625 pence per share. The cash was raised by placing 91.6 million shares at 19 pence each, bringing in £23.7 million net.

That was the culmination of a restructuring process set in motion in March 2005 after shareholder pressure prompted the replacement of then-CEO Stuart Sims.

Quadrant was spun out of Cambridge University in 1996 to commercialize drug stabilization technology based on trehalose, a sugar used by desert plants and other organisms to replace water when they go into suspended animation at times of drought. The company floated on the London Stock Exchange and subsequently was sold to Elan in 2000.

Chippenham, UK-based Vectura raised £20 million when it floated in June 2004 and came back to the market in July this year raising £45 million in an oversubscribed placing. At the same time, it announced positive Phase IIb results for its two lead products, NVA237 for treating chronic obstructive pulmonary disease and VR004 for erectile dysfunction.

The company said the new money would be used to create additional value by taking certain inhalation products further through development before out-licensing, taking others all the way to filing and through broadening the pipeline. It proposed spending the money on co-development opportunities, where it would seek additional rights for certain territories, or on drugs with orphan drug status, in which investment in later-stage trials is lower than for products with larger markets.

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