SkyePharma's DepoTech Buyout Package Worth Up To $56M

SkyePharma's DepoTech Buyout Package Worth Up To $56M

By Jim Shrine

Special to BioWorld Today

SkyePharma plc, looking to increase its presence in the U.S. along with its drug-delivery capabilities, said Monday it plans to purchase DepoTech Corp. in a stock exchange and equity purchase initially valued at about $30.6 million.

The purchase price will increase by about $14 million worth of SkyePharma stock if DepoTech's lead product, DepoCyt, is launched in the U.S. by March 31, 2000, and $11 million more if a development agreement with a corporate partner is signed by March 2000 for either DepoMorphine or a macromolecule based on the company's lipid-based, sustained-release technology.

John Longenecker, DepoTech's president and chief operating officer, told BioWorld Today the move was driven in part by the lack of capital now available to small biotechnology companies. He said DepoTech, of San Diego, had cash to sustain operations only into early 1999.

As part of the deal SkyePharma, of London, made an equity investment of $5 million into DepoTech at $1.75 per share, a 40 percent premium to the stock's $1.25 closing price on Friday. The stock exchange part of the deal was valued at $25.6 million and would give holders of DepoTech's 14.5 million shares 2.7 million SkyePharma American Depository Shares, which averaged $9.43 last week. The milestones could bring DepoTech another 2.7 million ADSs.

DepoTech (Nasdaq:DEPO) gained $0.437 per share Monday to close at $1.687. SkyePharma (Nasdaq:SKYEY) was unchanged at $9.625.

"We looked carefully at a number of opportunities and decided a merger with SkyePharma was the best solution to our resource-limitation issues," Longenecker said. "This deal maintains the upside for our shareholders while allowing us to share in the future growth of SkyePharma."

SkyePharma has research facilities in Basel, headquarters in London, a manufacturing facility in Lyon, France, and a small U.S operation in Raleigh, N.C., dedicated to marketing, mostly complex generics. SkyePharma's expertise is in oral and pulmonary/inhalation drug delivery and it is working with many large pharmaceutical companies on delivery formulations.

"We have an objective of becoming the leading drug-delivery company in the world," Michael Ashton, SkyePharma's chief operating officer, told BioWorld Today. "Our game plan is to expand our presence in the oral side, expand delivery in the pulmonary area to the potential delivery of larger molecules, and then look for other technology platforms we believe are exciting and have synergistic effect.

"What struck me when we looked at DepoTech was once upon a time it was a high-flier," with a market cap exceeding $300 million, Ashton said. "We saw a company that had been savagely beaten in the public arena, largely because DepoCyt was not approved by the FDA," although that decision was not related to the product's effectiveness, he said.

SkyePharma also saw a good way into the U.S. market through DepoTech, since DepoCyt is being reviewed again by the Oncologic Drugs Advisory Committee on Nov. 16, this time as a treatment for neoplastic meningitis from lymphomas. The committee last December declined to recommend the drug — an injectable, sustained-release formulation of the chemotherapeutic agent cytarabine - for neoplastic meningitis from solid tumors.

The negative recommendation sent DepoTech's stock tumbling. Its 52-week high is $15.875, but it traded around the $5 range after the December panel recommendation and lower still since the FDA's formal DepoCyt rejection in May.

Chiron Corp., of Emeryville, Calif., is DepoTech's U.S. marketing partner for DepoCyt. Pharmacia & Upjohn (Bridgewater, N.J.) has a 50-50 deal with DepoTech to market it elsewhere. Ashton said that works well since his company is not yet positioned to market DepoCyt, though a marketing group is in the long-range plan.

"We need to consolidate these technologies and continue building strong relationships with pharmaceutical companies," Ashton said. "Then we can demonstrate to biotech companies we can deliver product, deliver it better and provide them with a different form of delivery."

The near-term goal is to get DepoCyt out and to learn more about DepoTech's sustained-release technology, Ashton said. The deal gives SkyePharma immediate inroads into the biotech industry in the U.S. and into large molecules, which it intends to deliver through the lung, he said.

DepoMorphine, a sustained-release encapsulated product, which could affect the ultimate price of the deal, is in two Phase II studies for treating acute post-surgical pain. One is expected to be completed by the end of the year and the other in the second quarter next year. Longenecker anticipates the SkyePharma buyout to be completed early in 1999 if all goes as scheduled.

SkyePharma had revenues of about $8.5 million in the first half of 1998 and a net loss of about $17.7 million, which includes a non-cash charge of $5 million related to the April 1996 purchase of Basel, Switzerland-based Jago. It gained the Nasdaq listing in July through a $40 million offering of ADSs, giving it cash and equivalents of about $60 million. *