By Randall Osborne
West Coast Editor
In a $4 billion stock swap, UK-based Shire Pharmaceuticals Group plc said it will merge with Canada's BioChem Pharma Inc., creating what Shire CEO Rolf Stahel called a pairing of "the two most profitable, fast-growing, publicly traded specialty pharmaceutical companies" in the world.
"Our in-licensing team can no longer complain there's not enough money to pay for the opportunities out there," said Stahel, who also will serve as CEO of the new company, in a London conference call early Monday. Together, he said, the merged firm would have had revenues in 1999 of around $600 million.
Much of that (about $401 million) would have been Shire's, but 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.
Stahel said he had promised shareholders to boost net profits by $100 million per year and add early stage drug candidates, and "with this deal we have achieved both objectives. Together, we will have 12 late-stage products in Phase II or beyond."
Under the terms of the arrangement, shareholders of BioChem, of Laval, Quebec, will get $37 worth of Shire 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 of their merger - is between $47.20 and $70.80.
The $37 exchange price is a 39.6 percent premium over BioChem's Dec. 8 closing price of $26.50, and at that price BioChem shareholders would hold $4 billion of the combined company's stock.
If the average Shire ADS price is greater than or equal to $70.80, the exchange ratio will be fixed at 0.5226 of a Shire ADS per BioChem share. If the price is less than or equal to $42.70, the exchange ratio will be fixed at 0.7839 of a Shire ADS for each BioChem share.
Shire (NASDAQ:SHPGY) closed Monday at $43.687, down $7.875. BioChem (NASDAQ: BCHM) ended the day at $29, up $2.50, or 9.4 percent.
Expected to be completed in the second quarter of next year, pending approval of shareholders of both firms, the merger is an almost half-and-half proposition. If the average Shire ADS price is $51.562 (the closing price on Dec. 8), then Shire's shareholders would end up with about 53 percent of the new company, and BioChem shareholders would have the remainder, assuming all BioChem shareholders make the exchange.
BioChem, focused on infectious diseases and cancer, launched its anti-HIV compound lamivudine, or 3TC, in 1995.
"The royalty income [from London-based partner Glaxo Wellcome plc] for the last 12 months stands at $125.5 million," which is pure profit, Stahel noted. "There are no marketing expenses involved here."
Another BioChem/Glaxo lamivudine product is Zeffix, the only oral, once-daily treatment for the hepatitis B virus (HBV). Data have shown seroconversion, an indication of long-term remission of HBV, increased from 38 percent after one year of treatment to 65 percent after three years. It also appears to improve HBV liver damage once believed irreparable.
Glaxo is targeting worldwide markets with Zeffix.
Stahel said he is "very excited" about Zeffix, which "will play a major role," thanks to its $11 million in sales.
"That product can grow for a long time to come," Stahel said.
Shire, of Andover, England, focuses on central nervous system disorders, metabolic diseases, cancer and gastroenterology, with a broad portfolio and a marketing team in the U.S., Canada, UK, Ireland, France, Germany, Italy and Spain. The company intends to add Japan by 2004.
"You can see how [BioChem's] know-how dovetails beautifully" with Shire's sales strength, Stahel said.
Leading Shire products include Adderall, for attention deficit disorder; Agrylin, for thrombocythemia; Carbatrol, an anti-convulsant; Pentasa (aminosalicylate) for ulcerative colitis; and ProAmatine, for hypotension.
Adviser to Shire in the merger was Deutsche Bank, of Frankfurt, Germany, supported by Bear Stearns & Co., of New York. Acting as brokers for Shire were Merrill Lynch & Co., of New York, and West LB Panmure Ltd., of London. For BioChem, San Francisco-based Chase H&Q and Merrill Lynch provided financial advice.
As of Sept. 30, Shire had $41.8 million in cash. BioChem had $186.5 million at the end of the same period.