West Coast Editor

The world found out Wednesday who's been wooing Paris-based Genset SA, and it turned out to be Serono SA, which made a cash offer to buy Genset for €107.4 million.

Genset said Friday, as it asked for trading of its stock to be temporarily halted, that it was "engaged in preliminary discussions concerning a possible major strategic transaction" with another firm that wanted to make a cash offer. But the would-be buyer, Genset said, would only do so if shareholders of Genset vote to eliminate the 20 percent cap on voting rights at a special meeting, which the shareholders did.

Genset CEO Marc Vasseur was not taking calls at the end of a long day, but Nick Miles, director of media relations for Serono, spoke from his home about the deal.

"We'd been in touch with [Genset] on a number of things over the last few months," Miles said. "They've got a good valuable library of cDNA clones, and we started looking at the bigger picture."

Before anything could happen, though, the "poison pill" in Genset's bylaws had to be removed, Miles said.

"[The bylaws] basically said that, no matter how many shares, in terms of capital, a shareholder owns, even if they own 50 percent of the company, they could only exercise 20 percent of the voting rights," he said.

"[This is] frequently done to protect incumbent shareholders and management, but it was a big obstacle to anyone who wanted to buy Genset, and it's been ditched," he told BioWorld Today. "As a consequence, our bank has formally filed our offer with the French stock exchange authorities late this afternoon. We will have a final closing date in due course."

The deal, which Genset's board of directors unanimously recommended to accept and which is expected to close by the end of August, calls for Serono to pay €9.75 in cash for each Genset share, €3.25 in cash for each Genset American Depository Share and €102.6 in cash for each Genset convertible bond.

The offer also is subject to acceptance by holders with a minimum of two-thirds of the voting rights of Genset, taking into account the convertible bonds on an "as-converted" basis.

A spokesperson with Genset noted that "we will only know if the second condition is met at or near the end of the offer period, when we see if two-thirds of the shares have been tendered or not. Once we get the OK from the French regulatory authorities, the offer period will be open for a minimum of five weeks, during which each shareholder will decide whether to tender their shares or not."

Geneva-based Serono said its functional genomics program would fit well with Genset's genetics-driven gene and protein discovery platform. Genset, for its part, gets a partner to help advance a pipeline of drug candidates among its collection of secreted proteins, even as the firm works on its anti-obesity drug, Famoxin, described as a protein that helps the body burn fat. The company has other candidates for metabolic disorders and for diseases of the central nervous system.

Development of Famoxin has lagged because Genset hasn't been able to produce reliable clinical supplies of the compound. In April, the company said clinical trials of Famoxin, originally slated to be under way before the end of 2001, will start in October.

"We're not buying [Genset] for Famoxin, let's make that clear," Miles said. "This is something not going into Phase I until January 2004, as far as we're concerned."

The giant Serono, on the other hand, has an array of approved products and a crowded pipeline, with revenues that totaled US$1.4 billion in 2001. The company focuses on multiple sclerosis, reproductive health and growth and metabolism. In MS, Serono's Rebif, an interferon beta 1-a, won FDA clearance this year and is expected to sell $550.3 million worldwide in 2002, including $45.3 million in the U.S. (See BioWorld Today, March 11, 2002.)

"That's our earnings driver," Miles said. "We're encouraged by the initial uptake, but it's a big fight with you-know-who. We'll see how it goes."

Rebif is competing in the MS market with Cambridge, Mass.-based Biogen Inc.'s Avonex, also interferon beta 1-a. Biogen said earlier this month it expects second-quarter U.S. Avonex revenues to be between $170 million and $180 million.

Serono's offer specifically consists of €9.75 in cash for each Genset share and €3.25 in cash for each Genset ADS (each ADS representing one-third of a share). The prices are a premium of about 195 percent and 188 percent to the volume-weighted average market price on the Nouveau Marché of Euronext Paris and Nasdaq, respectively, for the month leading up to June 18 - the last trading day for Genset shares and ADSs prior to the announcement.

The offer is €102.64 for each Genset convertible bond, or OCEANE (using a French acronym), which corresponds to their redemption value as of June 26 and represents a premium of 38 percent to the last traded price of €20.99 on May 23 on Nouveau Marché of Euronext Paris.

For each of Genset's outstanding warrants, the offer is €1. The exercise price of each of these warrants is higher than the offer price per share. The price offered for Genset's warrants to be granted by the special shareholders' meeting is equal to the difference between the offer price per Genset share and the exercise price of each such warrant - in other words, €6.5 assuming the €3.25 exercise price.

Genset's estimated worth (excluding the OCEANEs) as of the end of June is €27.7 million, which puts the value of the offer at €107.4 million (US$106.4 million).

As part of the arrangement, activities in Genset's Paris office likely will be moved to a research center at Evry, south of Paris, and the overall work force could be reduced by as much as 20 percent. The company already was mulling the closure of its U.S. subsidiary, Genset Inc., of San Diego, and probably will do so now.

"That makes perfect sense to us," Miles said, noting that the San Diego site is where the work on Famoxin is being done. "Probably that work will come into Geneva," he said.

As for the higher-ups, he said: "That's very straightforward. The CEO, the chief scientific officer and others are all fully committed to joining us. That's all done and dusted. They've obviously got some leading world-class science there."

Genset's stock (NASDAQ:GENXY) Wednesday remained at its held price of $1.49. Serono's shares (NYSE:SRA) ended the day at $15.97, down 18 cents.