By Brady Huggett
With a sonic boom heard throughout the industry, MedImmune Inc. and Aviron Inc. announced their intention to come together in a $1.5 billion merger and form a company to rival biotechnology¿s biggest and most successful.
Once Aviron, of Mountain View, Calif., is safely inside MedImmune, of Gaithersburg, Md., the entity will begin growing toward its target of generating more than $2 billion in revenue in 2006.
David Mott, CEO of MedImmune, called the union an ¿excellent fit¿ between ¿two biotech leaders¿ and described it as a ¿tremendous opportunity¿ for the shareholders of both companies ¿ shareholders who will see each Aviron share translating into 1.075 shares of MedImmune. Based on MedImmune¿s closing price of $44.10 on Friday, the deal values Aviron shares at $47.41 apiece and the company at $1.5 billion.
MedImmune¿s stock (NASDAQ:MEDI) fell $5.27, or about 12 percent Monday, to close at $38.83. Aviron¿s stock (NASDAQ:AVIR) rose $4.37, also about 12 percent, to close at $41.42.
¿We are issuing approximately 14 percent of MedImmune to Aviron shareholders and we expect the transaction to be dilutive in 2002, but neutral to 2003 cash EPS before the impact of amortization of intangibles and other deal-related costs,¿ Mott said in a conference call. ¿We expect the transaction to provide double-digit accretion in 2004 through 2006. Our goal is to achieve over $2.1 billion in revenues and over $2.50 a share in diluted earnings in 2006.¿
Elise Wang, an analyst for Salomon Smith Barney in New York, said the deal was, at least in part, brokered on Aviron¿s late-stage but stalled FluMist flu vaccine product.
¿The idea is to merge the vaccine businesses [of the companies] together,¿ Wang said. ¿MedImmune has particularly high hopes for FluMist, although the transaction is going to be highly dilutive. And it is also highly dependent on FluMist getting approval in the time frame [MedImmune] talked about, which is Q3 of next year.¿
Indeed, the combined pipelines of the companies would boast four products in Phase III studies, five in Phase II trials and a bevy of monoclonal antibody and vaccine products, but FluMist, if approved, could generate the kind of revenue that makes lower-tier biotechnology companies salivate.
FluMist is a live attenuated virus vaccine delivered nasally as a mist, designed to prevent influenza. The product was submitted for approval to the FDA on Oct. 31, 2000, and Aviron received a complete response letter on Aug. 31, 2001. Aviron has maintained it will file its response to the letter by the end of the year.
Mott said that while the ¿timeline is tight,¿ MedImmune¿s assumption is to launch the product in 2002 for the full flu season. However, sales may be constricted in 2002 somewhat by supply. In 2003, he said, expect production to ¿ramp up significantly.¿
Wang noted the safety issues brought up by the Vaccines and Related Biological Products Advisory Committee when FluMist was sent up for review. While the committee found the product to be efficacious, it stumbled over FluMist¿s safety, specifically concerning children. (See BioWorld Today, July 30, 2001.)
¿There have been questions on the safety of the product in regards to certain populations,¿ she said. ¿Because it is a live attenuated vaccine, there have been questions about high-risk pediatric patients and some who may be immunocompromised.¿
MedImmune has a strong product of its own in Synagis, marketed for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in pediatric patients at high risk of RSV disease. Through the first three quarters of 2001, Synagis generated $267 million in sales to wholesalers and distributors, $241 million of which was in the United States. It is that product that allowed Mott to say the transaction ¿creates a premier biotech company with two products [Synagis and FluMist] which each have the potential to generate over $1 billion in end-user sales.¿
Wang wasn¿t ready to go that far.
¿We take a more cautious viewpoint,¿ she said. ¿We feel FluMist is a multi-$100 million product, but we aren¿t on the bandwagon to say it is a billion at this stage.¿
FluMist is partnered with Wyeth-Lederle Vaccines, a business unit of American Home Products Corp., of Madison, N.J., for U.S. marketing rights. Wyeth-Lederle committed up to $400 million to the partnership in a deal signed in January 1999, in which Aviron receives half the revenues. That relationship will continue, Mott said. (See BioWorld Today, Jan. 13, 1999.)
Mott stressed in the conference call that, although there are areas where the companies have overlapping expertise and personnel, the merger is not one bent on cutting costs for the companies or slicing up work forces. Instead, the opposite should occur.
¿This is not driven by cost savings or reductions between the companies,¿ Mott said. ¿In fact, we expect there will be more employees and more spending in Aviron next year than there is currently. We are in a build mode and we are in that mode because we think they have a product with blockbuster potential.¿
But with FluMist so close to a potential product launch, the question is why would Aviron merge at all? While analysts had difficulty with the question, Boyd Clarke, Aviron CEO and chairman, did not.
¿We¿ve always been confident in our ability to secure licensure of FluMist,¿ he said. ¿We believe that this transaction with MedImmune offers the most rapid and effective way to transform our enterprise into a commercial force.
¿We have an opportunity to participate in a significant acceleration in our enterprise toward a robust, strong operation. The strategic and tactical fits were superb.¿ Plus, Boyd noted, even if the FluMist label excludes high-risk children, it will still ¿involve a larger target audience than any product that has ever entered the market, to my knowledge.¿
If it all plays out as MedImmune plans, the separation between biotechnology¿s upper echelon and the middle to lower ground could be widening, forcing others to similar methods if they want catch up.
¿I think we¿ll see some strategic mergers selectively occur,¿ Wang said. ¿Biotech and biotech, pharma and biotech ¿ we may see some of that, because there is a lot of interest. We may see companies augmenting their pipeline in that way, but there will be select deals done, not widespread.¿
The deal would create a company with a market cap of more than $10 billion. MedImmune. now the sixth largest biotech company, would remain there, behind Amgen Inc., Genentech Inc., Immunex Corp., Genzyme Corp. and IDEC Pharmaceuticals Corp.