By Mary Welch
In a deal worth about $440 million in stock, MedImmune Inc. solidified its commitment to oncology by acquiring U.S. Bioscience Inc., a company with three cancer products already on the market.
Under the terms, MedImmune will acquire all of U.S. Bioscience¿s outstanding shares in a tax-free stock-for-stock merger. The equity value of the deal is $440 million based on a MedImmune average stock price of $110 and 29.8 million fully diluted U.S. Bioscience shares outstanding. If the deal goes through at that price, the exchange ratio would be 0.15 MedImmune shares for each U.S. Bioscience share, giving U.S. Bioscience about 7 percent of the combined company.
The exchange ratio is subject to adjustment depending on the average closing price of MedImmune over a 20-day trading period ending three days prior to the U.S. Bioscience¿s shareholder meeting, when the merger will be voted upon. The boards of both companies approved the proposed merger, which is expected to close late this year or early in 2000.
The offer at MedImmune¿s opening stock price Wednesday of $102.062 valued each U.S. Bioscience share at about $15.31. U.S. Bioscience¿s shares (AMEX:UBS) gained $2.625 Wednesday, or 23 percent, to close at $14.125. MedImmune (NASDAQ:MEDI) gained $7.187 to close at $109.25.
¿Everyone¿s talking about this huge wave of consolidation that¿s going to take over the biotech industry,¿ said Alex Zisson, senior analyst and managing director of Hambrecht and Quist LLC in New York. ¿But there aren¿t a lot of small companies that have the rights to their major pipeline products. Most have licensed them out. But U.S. Bioscience hadn¿t licensed out its pipeline. That¿s what made them attractive. They didn¿t need to sell, but it¿s expensive to keep developing products and the sales force. The risk for U.S. Bioscience shareholders is now how well MedImmune¿s pipeline does with Vitaxin and the candidates it has in trials. It certainly diversifies the risks.¿
Vitaxin, a humanized monoclonal antibody, is in Phase II trials for the treatment of cancer by inhibition of angiogenesis. MedImmune, of Gaithersburg, Md., acquired it from Ixsys Inc., of San Diego, earlier this year.
As part of the deal, MedImmune required U.S. Bioscience to grant it an option to purchase up to 19.9 percent of its outstanding shares. If the merger is called off, MedImmune will pay the West Conshohocken, Pa.-based company a $15 million kill fee and up to $2 million in expenses.
¿MedImmune had signaled that it intended to in-license later-stage products or do an acquisition outright,¿ said Peter Drake, vice president and senior analyst with Prudential Vector Healthcare Inc. in New York. ¿It¿s a very positive move. MedImmune expands its product franchise into oncology with three FDA-approved products, all of which are upside from here. It¿s a vintage Hockmeyer-Mott move,¿ he said, referring to Wayne Hockmeyer, MedImmune¿s chairman and CEO and David Mott, its vice chairman and chief financial officer.
¿It¿s smart, strategic and creative and adds value for shareholders,¿ Drake said. ¿It¿s also good for U.S. Bioscience¿s shareholders. They get [a significant] premium.¿
Bill Tanner, vice president with SG Cowen Securities Corp. in New York, believes MedImmune should get ¿kudos for making an acquisition that¿s not dilutive and does not have a negative impact on earnings. It¿s not a blockbuster deal but it addresses our primary concerns, which are how are they going to try to maintain acceptable earnings and grow? The near-term revenue stream isn¿t great, but it¿ll grow. It¿s a good move.¿
The companies arranged for several alternative pricing formats to the deal. For instance if, during the specified 20-day time frame, MedImmune¿s average share price is greater than $140, the exchange ratio would be $19.10 divided by the average share price. If MedImmune¿s average share price is greater than $132 but less than or equal to $140, the exchange ratio would be 0.1364. If MedImmune¿s average share price is $120 to $132, the exchange ratio would be $18 divided by MedImmune¿s average share price.
If MedImmune¿s share price is $88 to $100, the exchange ratio would be $15 divided by MedImmune¿s average share price. And, still, if MedImmune¿s average share price is less than $80, U.S. Bioscience could terminate the deal unless MedImmune serves notice that the exchange ratio would be $13.64 divided by the average share price.
The attraction of U.S. Bioscience is its oncology portfolio and accompanying infrastructure. The company¿s products include Ethyol (amifostine), which is approved for the reduction of cumulative kidney toxicity associated with repeated administration of cisplatin in patients with advanced ovarian cancer and non-small-cell lung cancer. This summer it also was approved for use in the reduction of chronic dry mouth in patients undergoing post-operative radiation treatment for head and neck cancer.
The second product is NeuTrexin, which is used to treat moderate-to-severe Pneumocystis carinii pneumonia in patients with compromised immune systems. It also is in clinical development for metastatic colorectal cancer. The third is Hexalen, a second-line chemotherapy used to treat patients with persistent or recurrent ovarian cancer. Lodenosine, a nucleoside reverse transcriptase inhibitor, is in Phase II trials to treat patients with HIV infection.
¿The merger is a really good strategic fit,¿ said Lesley Marino, an analyst with BancBoston Robertson Stephens Inc. in New York. ¿MedImmune is getting three approved products on the market and a 30-person focused sales force that will fit well into MedImmune¿s hospital sales force.¿
Eric Schmidt, who covers U.S. Bioscience for SG Cowen Securities Corp., believes the acquisition is a smart one. ¿U.S. Bioscience is a solid company with excellent prospects,¿ he said. ¿To some extent those prospects weren¿t fully being recognized by Wall Street, and so it has a relatively depressed stock price. It has great assets in oncology and obviously MedImmune is intending to make a push in oncology. This acquisition gives them a great start with commercialization infrastructure, three drugs and a good pipeline of new indications as well.¿
U.S. Bioscience posted a second quarter 1999 loss of $1.8 million, compared to a loss of $3.1 million for the corresponding 1998 quarter. Product sales for the quarter increased 23 percent over the same period last year. Sales were about $11.6 million for the first half of 1999.
MedImmune has three products ¿ Synagis, CytoGam and RespiGam ¿ marketed by its hospital-based sales force and five others in clinical development
MedImmune expects the transaction to be neutral to earnings next year and then accretive. The company posted revenues of $139 million for the first six months of 1999, an increase of 66 percent over last year¿s six-month figures. It had earnings of $18.5 million, or 29 cents per share for the first half of the year. n