West Coast Editor

With the antibiotic dalbavancin in Phase II trials, Versicor Inc. said it has agreed to buy collaborator Biosearch Italia SpA - from which it gained the rights to the drug - for $260.7 million in a stock swap expected to close early next year.

"Obviously, they saw the Phase II data and decided to increase their bet," said Thomas Shrader, analyst with Gerard Klauer Mattison & Co. in New York, adding that the data are expected to be made public at the Interscience Conference on Antimicrobial Agents and Chemotherapy in late September in San Diego.

Company officials could not be reached, but boards of directors of both firms have unanimously approved the merger, under which Biosearch shareholders will receive 1.77 shares of newly issued Versicor common stock in exchange for each Biosearch ordinary share.

Based on Versicor's stock price at the close of business Monday, the exchange ratio results in an implied purchase price of $21.43 per share of Biosearch. Versicor will seek approvals for the combined company to trade on both Nasdaq and the Nuovo Mercato, Italy's stock exchange.

"I thought it was a pretty fair deal for Versicor," Shrader said. "They paid about $100 million, for essentially all the rest of [the rights to] dalbavancin."

In other words, Versicor is paying $260.7 million, but Biosearch has $110 in cash, "so they paid $150 million, and I figure about $50 million goes to development [already under way] of their two other pipeline products, and manufacturing and research and development," he said.

As a result of the deal, Versicor can expect a 90 percent margin on dalbavancin sales in the U.S. and Europe and is free to partner the drug in Japan, he noted. Previously, Shrader estimated a 70 percent margin in the U.S. and no rights in Europe or Japan.

The combined company expects to have a total of 47.8 million shares outstanding upon closing the deal, composed of 26.3 million currently outstanding Versicor shares and 21.5 million Versicor shares to be issued to Biosearch shareholders.

Antibiotics and antifungals will be the focus of the new company. Dalbavancin has shown promise as a replacement drug for vancomycin, against which infections - such as those caused by the Enterococcus faecalis and Staphylococcus aureus bugs - have become resistant. (See BioWorld Today, June 13, 2002, and July 10, 2002.)

Aside from dalbavancin, which has completed Phase II trials in skin and soft-tissue infections and is in Phase II trials for bloodstream infections that are catheter-related, Versicor has its lead product, anidulafungin, in Phase III trials for esophageal candidiasis and aspergillus, plus a Phase II study in invasive candidiasis.

Biosearch has a topical acne drug in Phase I and oral ramoplanin in Phase III for bloodstream infections caused by vancomycin-resistant enterococci. The latter is being developed with licensing partner Genome Therapeutics Corp., of Waltham, Mass. (See BioWorld Today, June 1, 2001, and Oct. 10, 2001.)

"I didn't have a sense that Biosearch was desperate to sell and, to me, Versicor has always been a very ripe target," Shrader told BioWorld Today. "If both drugs [anidulafungin and dalbavancin] hit, this becomes an appealing acquisition."

Anidulafungin could reach the market by early 2004, he said. The antifungal market is smaller than the anti-infective market - about $3 billion for systemic fungal infections, which is just over 10 percent of the bacterial-infection market, he noted. But fungal infections are growing as patients live longer with diseases that compromise their immune systems, or diseases that require treatments that do so.

In anti-infectives, Versicor has a development advantage since early stage clinical trials and even preclinical data are very predictive of efficacy for anti-infective drugs, Shrader said. In other words, test-tube proof that the drug destroys bacteria almost always translates to human tests.

"If you kill 'em here, you kill 'em there and you probably kill them everywhere," he said. Later-stage trials are mainly to confirm safety, and Versicor's drugs seem unusually safe, he added.

Versicor's only "Achilles' heel," he added, "was that they had to raise cash to get those drugs through, and now they don't." Versicor reported $85.2 million in cash for the second quarter.

Shrader said that when Versicor contacted him and wanted to talk confidentially, a merger with Biosearch was "one of my two guesses."

The other?

"That Pfizer had bought them," he said, noting that Versicor's capabilities would have added nicely to New York-based Pfizer Inc.'s lineup, even though some pharmaceutical companies are backing off anti-infectives.

"The new patent filings are thinning out and a lot of people are leaving big [pharmaceutical company] positions in anti-infectives," he said. Such drugs are "hot in the $200 million to $300 million per-drug range, but these are not the billion-dollar molecules a lot of people focus on," he added.

Finding a drug that can attack and kill bacteria against which vancomycin no longer works is "the key to the whole sector," Shrader said. "With the Cipros of the world [available], there's no medical need" for others, he said, referring to Leverkusen, Germany-based Bayer AG's broad-spectrum antibiotic ciprofloxacin, approved in 1987.

"For garden variety, community-acquired infections, the current drugs work extremely well," he said.

Versicor and Biosearch have been collaborating since 1998, and in 1999 formed a research effort called BIOCOR to optimize anti-infective natural products from Biosearch's library of natural products using Versicor's combinatorial chemistry.

When the merger is completed, the Versicor name will be kept temporarily and George F. Horner III, CEO of Versicor, will continue to serve in that capacity. Claudio Quarta, CEO of Biosearch, will serve as the chief operating officer.

The transaction seems fair for both parties, with Biosearch maybe getting somewhat more benefit, Shrader said. "It was close, and you expect [Versicor to pay] some sort of premium," he said.

Versicor's stock (NASDAQ:VERS) closed Wednesday at $10.99, down $1.12, or 9.3 percent.

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