In what could be the largest vaccine transaction in history, GlaxoSmithKline plc offered to acquire ID Biomedical for $1.4 billion.
London-based GSK recently received FDA approval of its flu vaccine Fluarix, but a buyout of Vancouver, British Columbia-based ID Biomedical would bring GSK a second product in that space: Fluviral, a vaccine already marketed in Canada and one that is waiting for U.S. clearance.
Through a negotiated deal, GSK agreed to pay C$35 per ID Biomedical share held, valuing the transaction at C$1.7 billion.
"This price represents a premium of 13 percent on [Tuesday's] close, which - it is important to note - is the highest closing price in the company's history," said Anthony Holler, ID Biomedical's CEO.
The company's stock (NASDAQ:IDBE) rose 13.3 percent Wednesday, or $3.46, to close at $29.46.
The transaction is expected to close at the end of this year or early in 2006, following approval by ID Biomedical's shareholders and certain regulatory clearances and conditions. The boards of both companies have unanimously approved the acquisition.
Upon closing, GSK would assume about $77 million in debt from its new subsidiary. It also is loaning ID Biomedical up to $120 million to repay term debt and continue its operations through the closing date.
During a conference call Wednesday, Holler explained ID Biomedical's decision to sell to a large company.
"Although we're confident that we can compete in the flu business," he said, "there is no question that this is an extremely capital-intensive global product, and ID Biomedical would have required significant resources to complete our strategic plan."
The acquisition eliminates ID Biomedical's need to raise "several hundred million dollars" over the next few years, financings that would have diluted the company's value. It also takes away the risk of competition from companies such as GSK, which could introduce new technologies considering its access to significant capital.
"Although these dynamics are difficult to predict, it at least raises the possibility of leaving us at a competitive disadvantage sometime down the road," Holler said.
Analyst Jennifer Chao, of New York-based Deutsche Bank Securities Inc., reiterated her "buy" rating of ID Biomedical's stock, noting that the company's risks include setbacks to Fluviral distribution in the U.S. in 2006, a default on Fluviral purchase agreements, as well as the possibility that a flu pandemic in price-controlled Canada could obligate the company to prioritize that country over others.
ID Biomedical currently supplies Canada with 75 percent of its flu vaccine, and it received a 10-year mandate from the Canadian government in 2001 requiring it to provide influenza vaccine for all Canadians in the event of a pandemic.
With Chiron Corp.'s misstep last year in which it failed to provide the U.S. with half of its expected flu vaccine supply due to contamination concerns at the UK manufacturing facility, ID Biomedical saw an opportunity to bring Fluviral to the U.S. market. It filed for approval with the FDA and signed marketing and distribution agreements last December with Henry Schein Inc., AmerisourceBergen Corp. and McKesson Corp. The contracts are for up to 38 million doses per year starting in the 2006-07 flu season.
GSK's interest in ID Biomedical mirrors a similar buyout agreement in which Basel, Switzerland-based Novartis AG offered to acquire Emeryville, Calif.-based Chiron last week for $4.5 billion. Chiron turned down the offer, calling it inadequate, but it expects to provide 18 million to 26 million doses of Fluvirin to the U.S. this coming flu season. (See BioWorld Today, Sept. 2, 2005, and Sept. 7, 2005.)
Novartis' offer to Chiron was not negotiated, unlike GSK's offer to ID Biomedical. Holler also pointed out that the $1.4 billion offer for ID Biomedical represents an average annual return of more than 80 percent per year since Jan. 1, 2000, when the company's market capitalization was about $50 million.
It's a good offer, he said, considering ID Biomedical will take no further risk going forward.
"We don't have FDA approval yet for the flu vaccine," Holler said, "and there are risks out there that even you and I can't predict."
If the acquisition doesn't go through and ID Biomedical receives a superior offer from a third party, it will pay GSK a C$50 million breakup fee.
Aside from Fluviral, ID Biomedical has developed other vaccine products, including FluINsure, StreptAvax and PGCvax. The first, an influenza vaccine, is at the Phase II stage as a nasal spray. The second completed a Phase I trial for Group A streptococcus infections. And PGCvax is in Phase I for pneumococcal group infections.