In what could be the largest acquisition of 2005 - and certainly the largest so far - Shire Pharmaceuticals Group plc has nabbed Transkaryotic Therapies Inc. in a deal worth $1.6 billion.
The companies signed a definitive agreement in which Shire will pay $37 in cash for each share of TKT common stock. The price represents a 44 percent premium to TKT's four-week average closing price, and a 21.6 percent premium to Wednesday's closing price of $30.44. The stock (NASDAQ:TKTX) rose 15.7 percent Thursday, or $4.77, to close at $35.21.
"I think this has been the big upside that people have been anticipating - that TKT would eventually get bought," said Christopher Raymond, analyst with Chicago-based Robert W. Baird & Co.
"For biotech, the broader issue is that this is the first major acquisition that we've seen in some time," he told BioWorld Today.
According to BioWorld Snapshots, the last acquisition worth $1 billion or more was completed in December when Genzyme Corp. took over ILEX Oncology Inc. That deal first was announced in February 2004. Amgen Inc. also acquired Tularik Inc. last August for $1.3 billion.
But the last time a pharmaceutical company paid big money for a biotech was in February 2004 when New York-based Pfizer Inc. bought Esperion Therapeutics Inc. for $1.3 billion.
"Collectively, Wall Street has been waiting and hoping for a broader trend of pharma acquisitions of biotech names," Raymond said.
As pharmaceutical companies look to grow their pipelines, it's only logical that many will turn to the biotech space to fill that gap. But analysts like Raymond are surprised they have not seen more action in that direction.
Also, biotech companies can use being acquired by big pharma to escape depending on the markets. Earlier this week, Johnson & Johnson announced plans to acquire Peninsula Pharmaceuticals Inc. for $245 million. Peninsula had filed for its initial public offering, but as talks with J&J developed, pricing was delayed, and, now, of course, the IPO will not happen. (See BioWorld Today, April 20, 2005.)
"For Peninsula, I would argue that we have not seen exactly the most receptive market to new IPOs. It's not been fun for people," Raymond said. "So certainly for them to be acquired, maybe they made the right decision. TKT was probably a little bit of a different decision."
TKT has a cash position of about $155 million, and Shire's move to acquire the Cambridge, Mass.-based company came out of its talks to form a licensing agreement for Dynepo to treat anemia associated with renal disease.
"Our initial discussions were in that area and we liked what we saw so much, we ended up buying the company," said Matthew Emmens, CEO of Basingstoke, UK-based Shire.
Closing of the acquisition is expected to occur in the third quarter. TKT shareholders need to vote, but Warburg Pincus & Co. and certain of its affiliates have agreed that they will vote all of their shares in favor of the transaction. The group owns about 14 percent of TKT.
If the acquisition does not close, Shire and TKT have in place a separate agreement in which Shire gains the rights outside North America to Dynepo. Under that scenario, Shire would make a one-time payment to TKT of $450 million with no royalties to TKT, and would assume the responsibility to pay single-digit royalties to Aventis Pharmaceuticals Inc., of Strasbourg, France. TKT reacquired rights to Dynepo in Europe and other territories outside the U.S. from Aventis in March 2004.
Founded in 1988, TKT specializes on rare diseases caused by protein deficiencies. It has three products that could reach the market in 2006, and it sells Replagal (agalsidase alfa), an enzyme-replacement therapy for Fabry's disease, in 34 countries outside the U.S. That product had sales of $77 million in 2004, and they are expected to rise to $100 million this year, said David Pendergast, TKT's president and CEO.
The company plans to introduce Dynepo (epoetin delta) to treat anemia associated with renal disease in the European Union in the first half of 2006. The product was approved in the EU in 2002, but a launch has been delayed by litigation with Amgen related to erythropoietin patents. Amgen's patents in the UK expire this year. (See BioWorld Today, Oct. 19, 2004.)
Emmens said the product has a $2.3 billion market potential in Europe alone.
TKT's other two products are enzyme-replacement therapies: iduronate-2-sulfatase (I2S) for Hunter syndrome and GA-GCB for Gaucher's disease. I2S recently completed a pivotal Phase III trial and top-line results are expected in June. The company could file for regulatory approval in the U.S. and Europe in the second half of this year.
"We anticipate the market to be on the order of $300 million," Pendergast said. "There's no therapeutic competition."
GA-GCB is completing a Phase II trial and initial data should be available in the second half of this year. Emmens projected that the product could reach the market in 2008 and bring in $140 million in worldwide sales.
Shire's interest in TKT is not unlike many pharmaceutical companies that are working to build their pipelines. TKT brings Shire products for a market that has only a few players, enabling it to diversify its revenue base and build a pipeline and platform for growth.
From TKT's perspective, the acquisition makes sense, since Shire has a greater ability to commercialize TKT's products.
"The combined company meshes nicely," Emmens said.
As part of the acquisition, a few management changes have taken place. Michael Astrue, TKT's CEO, resigned as an officer and director of the company, and TKT's board appointed Pendergast in his place.
Raymond credits Astrue, who joined TKT early in 2003, with stabilizing the company after it learned its lead product, Replagal, would be shut out of the U.S. market by Genzyme's Fabrazyme for the orphan indication Fabry's disease. It was Astrue, Raymond said, that pulled back the Dynepo rights from Aventis, and brought the Hunter syndrome product to the pipeline.
"He was brought in to do exactly what he did. Kudos to him for doing it," Raymond said. "And I think shareholders have to be very pleased."
SG Cowen & Co. LLC, of New York, are advising TKT in the acquisition transaction, and it delivered a fairness opinion, as did Banc of America Securities LLC, also of New York.