Scooping up the shares it doesn’t already own, Alkermes Inc. agreed to purchase the remaining 81 percent of Reliant Pharmaceuticals LLC in a stock deal worth about $934 million.
Structured as a tax-free exchange of equity, non-Alkermes equity holders of Reliant will receive about 31.1 million shares of Alkermes stock, or approximately 31 percent of the outstanding shares of the merged company, after closing. Based on Wednesday’s $30.05 closing price of Cambridge, Mass.-based Alkermes, the purchase price for the remaining portion of Reliant comes to $934 million.
Alkermes’ stock (NASDAQ:ALKS) fell 44 cents Thursday to close at $29.61.
“In retrospect, this will be viewed as the pivotal deal that we’ve done in building Alkermes,” Alkermes CEO Richard Pops said. “We’ve built the company over the past 10 years through a series of careful acquisitions. In the beginning, those acquisitions and mergers were motivated by expanding the technology base and a technical capability to be able to develop an end product. More recently, [we’ve] been shifting toward product candidates, and now the whole commercial infrastructure necessary to make good on the promise of these drugs.”
The merger unites privately held Reliant’s three marketed product brands, its product pipeline, U.S. sales and marketing infrastructure and its management team with Alkermes’ drug formulation and development capabilities, its pipeline and its manufacturing capabilities. The merged company will retain Alkermes’ name and will be headquartered in Cambridge. Reliant, which will maintain its base in Liberty Corner, N.J., will become a wholly owned subsidiary of Alkermes. Pops remains Alkermes’ CEO, while Joseph Krivulka will continue as Reliant’s president.
Alkermes’ seven-member board of directors will be expanded to include four new members: Krivulka; Fred Craves, managing director of Bay City Capital LLC; Mark Hoplamazian, senior vice president of The Pritzker Organization LLC, of Chicago; and Tom Pritzker, chairman of Hyatt Corp. and president of The Pritzker Organization.
Bay City Capital, of San Francisco, and the Pritzker family business interests were the majority owners of Reliant before the merger.
“Reliant was essentially [the Pritzker family’s] vehicle for investing in Alkermes,” said Lawrence Gyenes, Reliant’s executive vice president and chief financial officer.
Three months ago, Alkermes made a 19 percent equity investment in Reliant in a deal valued at $100 million. (See BioWorld Today, Dec. 19, 2001.)
“We were making a major commitment to each other in the context of that deal, but it was really important that we proceeded step-wise and get to know each other and work together,” Pops said. “Obviously, the functional capabilities looked good together in a theoretical way, but we had to determine from a practical point of view whether we could really make these companies work, and we became increasingly convinced of that.”
Reliant owns rights to five marketed products based on its three prescription pharmaceutical brands: Lescol, DynaCirc and Axid. Lescol (fluvastatin sodium) and Lescol XL, extended-release tablets developed by Novartis AG, of Basel, Switzerland, are part of the $11 billion U.S. market for statin-based cholesterol management. DynaCirc (isradipine) and DynaCirc CR, extended-release formulations also developed by Novartis for the treatment of hypertension, compete in the $4.6 billion U.S. calcium channel blocker market. Axid (nizatidine), developed by Eli Lilly and Co., of Indianapolis, is part of the $1.7 billion U.S. H2-histamine blocker market for the treatment of gastroesophageal reflux disease (GERD) and peptic ulcer. Reliant earned $277 million in 2001 from these products.
Gyenes said Alkermes’ ability to raise funds will allow Reliant to continue to seek other compounds.
“It takes capital to do that,” he said. “And [Alkermes’] reputation in the financial community, and its ability to go to the public equity markets will give us a real leg up in terms of what we’d like to do in leveraging our own business model.”
Reliant manages a sales force of approximately 750 people with 80 regional and district managers complemented by a 30-person national accounts team. This selling effort is supported by nearly 100 marketing, clinical, regulatory and support staff based at its headquarters.
“Looking at the strong technologies that they bring to the table in terms of novel drug delivery systems, those are extremely compatible with the types of things that we’re doing, but I think on a higher level,” Gyenes said. “We’re bringing the commercialization side of the business [Alkermes] essentially doesn’t have a sales force and up to now have largely been licensing its technology and applying it to other drug agents of other drug entities.”
Reliant also is developing three product candidates focused primarily on reformulating marketed compounds. Last month, Reliant acquired the North American rights to the antiviral MIV-606, a chemical entity developed by Stockholm, Sweden-based Medivir AB, for the treatment of herpes zoster. That product is in Phase II trials.
The combined company will feature a portfolio of partnerships with pharmaceutical and biotechnology companies such as Eli Lilly; Genentech Inc., of South San Francisco; London-based GlaxoSmithKline plc; Johnson & Johnson, of New Brunswick, N.J.; Serono SA, of Geneva; and Novartis.
Alkermes’ ProLease and Medisorb technologies provide controlled, sustained release of injectable drugs lasting several days to several weeks, and the company also develops pharmaceutical products based on its AIR pulmonary technology.
“Of course there’s an inherent value to a large U.S.-based marketing and sales organization,” Pops said. “But what’s also important is that you have the actual products for them to sell. They’re selling five products now, three important brands, two of which, DynaCirc and Lescol, are patent protected through [2008 and 2011], in the two cases, and offer an opportunity for significant growth going forward.” n