By Randall Osborne


Not many pharmaceutical firms can say that, in a period of two years, they got bombed by an alleged would-be stock manipulator and made more news by having famed attorney F. Lee Bailey own $24 million worth of shares.

BioChem Pharma Inc. has seen it all. Or, more of it than most companies. Bailey went to jail for contempt of court in a dispute over money owed to the feds in a drug case. So did the bomber, found guilty in a completely unrelated case of stock fraud and explosives charges. Prosecutors claimed he had the idea of knocking the company's stock down so he could make money by trading on the tumble, according to The Canadian Press reports.

It didn't work. Trading of BioChem shares was halted after the bombs, which injured no one, went off. When buying and selling resumed, the firm didn't suffer.

Nor did it suffer in the merger plan disclosed on Dec. 11, either, said John Sonnier, analyst and vice president with Prudential Vector Healthcare. Not hardly.

Under the terms of the arrangement, shareholders of BioChem, of Laval, Quebec, will get $37 worth of Shire Pharmaceuticals Group plc consideration shares per BioChem share, provided the average closing price of a Shire American Depository Share (ADS) during the last 15 trading days ending on the third trading day prior to the closing is between $47.20 and $70.80. The exchange price is a 39.6 percent premium over BioChem's Dec. 8 closing price of $26.50.

"I want to choose my words carefully," Sonnier told BioWorld Financial Watch. "I have a hold on the stock, and $37 seems like a good deal." Maybe a better deal than it ought to have been, he added.

In cases like the BioChem/Shire merger, though, figuring value is always a challenge, because it's based largely on what lies ahead, Sonnier said. It's easy enough to calculate what would have been the past of the new company together, the firms would have listed revenues approaching $600 million in 1999, he said, about two-thirds of that attributable to Shire but guessing the future is another matter entirely.

Partly because of its history and partly because of its name, BioChem itself is sometimes mistaken for a biotechnology firm, rather than a specialty pharmaceutical company. "For a long time, they were more of a diagnostics company, and they used their franchise to develop 3TC [lamivudine]," Sonnier said. "It was only in last few years that they divested their diagnostics business, which was fully integrated and was half of their employees."

These are new times. Rolf Stahel, CEO of Shire, noted in a conference call about the agreement that the companies together will have 12 drug candidates in Phase II trials or beyond.

Shire's leading products on the market include Adderall, for attention deficit disorder, which accounts for about 40 percent of sales; Agrylin, for thrombocythemia; Carbatrol, an anti-convulsant; Pentasa (aminosalicylate), for ulcerative colitis; and ProAmatine, for hypotension.

Stahel said the same geographical zones will be targeted by the Shire sales force in marketing the two firms' existing products, and the disease areas of interest remain much the same: central nervous system disorders mainly, plus oncology, antivirals and vaccines.

"In [gastrointestinal disease], we'll see what we are doing with those projects over time," he added.

Shire gains the strong-selling 3TC, and another lamivudine product, Zeffix, for hepatitis B, with which BioChem's partner, London-based Glaxo Wellcome plc, is targeting worldwide markets.

What else is changing for Shire has to do with process and this is where the potential upshot for biotech comes in, Stahel said. Because the new company, with BioChem's development expertise, will be able to "pick up one little step earlier than Shire usually does" those experimental drugs not yet optimized as leads, he said, it will be able to put together deals that call for less outlay in terms of royalties. Putting lamivudine and others in the lineup also reduces Shire's dependency on Adderall, an amphetamine product with competition.

But, for biotechnology firms aiming to hook up with the merged company, and for their investors, is the deal good news or bad?

"As specialty pharma companies mature, they're going to be on the hots for drugs, and the big bolus of drugs exists within biotech," Sonnier noted, and Stahel already has indicated the new entity will be shopping for bargains.

Sonnier's colleague, Tim Anderson, pharmaceuticals analyst with Prudential Vector Healthcare, of New York, is skeptical about how full Shire/BioChem can pack its basket, however.

"Is Shire really committed to lead optimization and clinical development? I find that a little hard to believe," Anderson said. "It's probably already fairly challenging for them to pursue multiple compounds in development."

Such moves as the buying of BioChem must happen "if you're evolving into a big company, trying to mirror a large pharmaceutical's platform, where you do your own [research and development]," Anderson said. Specialty pharmaceutical firms are "really just marketing organizations, until they develop their own pipelines."

But these are in short supply. Anderson told BioWorld Financial Watch that Alza Corp. was said to be "looking at BioChem this time around, but didn't want to pay that much." Shire paid the premium price to get late-stage compounds and marketed products, he said.

"Many people on the pharma side don't understand the deal," he added.

Shire is "more worried about the [Adderall] franchise than they let on," with recent disclosures by a generic pharmaceutical firm that it was developing a competitor for the amphetamine product, Anderson said. In late 1999, Shire completed its merger with Roberts Pharmaceuticals Inc. to provide a backup for the Adderall market, he said, but "whereas it seemed like they were proactive then, it's almost like they're reactive now."

If the new, merged firm is able to make more deals with biotechnology companies, they'll find a collaborator who's easier to deal with than a larger collaborator, Anderson said.

"You get more say," he noted. "A little company is not going to be able to tell Pfizer what to do. But [a deal with Shire] doesn't give them the clout, and that's the downside."

Biotechnology firms with solid products won't have trouble finding partners, late or early stage, anyway and the Shire/BioChem combo won't be able to do enough in that zone to make a difference, Anderson said. Since the new company won't be making many new deals, it doesn't matter if, as Stahel vowed, it manages to take on experimental drugs sooner and pay less.

"There are pluses and minuses both ways," Anderson said. "It's tempered in both directions. But I don't think this is going to change the landscape too much. I wouldn't view it as a threat to the biotech world." *