Chiron Corp., which owns a minority stake in Viagene Inc. and failedin a bid last month to buy out the rest of the gene therapy company,has made an offer of $95 million that Viagene could not refuse.
"It's a generous offer to Viagene," said Matthew Geller, ofOppenheimer & Co. in New York. "It would be hard to resist."
The deal sent Viagene's stock (NASDAQ:VIGN) soaring $3.19 toclose Monday at $8.56, a 60 percent jump. Chiron (NASDAQ:CHIR)was at $56.75, up 25 cents.
Geller said the only thing that appears slightly unusual about themerger is that Chiron has considerable cash to spend, but decided toissue more stock for the acquisition. Last year when Ciba-Geigy Ltd.purchased 49.9 percent of Chiron, the Switzerland-basedpharmaceutical giant gave its American partner access to $1.2 billionin cash.
The apparent difference between the failed negotiations in March(see BioWorld Today, March 21, 1995, p. 1) and Chiron's renewedbid, which was made Friday and hashed out over the weekend, wasprice. Chiron simply boosted its offer, analysts speculated.
Based on Friday's closing stock prices, Chiron is paying a premiumof 64 percent, or $3.48 per share, for Viagene. Chiron ended lastweek at $56.50, and Viagene was at $5.37.
Under terms of the deal, Chiron, which already owns about 2 millionshares (17 percent) of Viagene, agreed to buy all other outstandingshares of the San Diego company in a combination cash and stockswap.
Chiron will acquire 10.7 million outstanding Viagene shares, whichinclude 1.5 million employee stock options, by paying either $9 pershare or exchanging one Viagene share for .155 Chiron shares.
Chiron has agreed to pay a maximum $38 million in cash and issueup to 1 million new shares to cover the $95 million purchase price,which represents a buy out of Viagene for $8.85 per share.
Larry Kurtz, spokesman for the Emeryville, Calif.-based Chiron, saidthe deal reflects a balance of cash and stock. He added that Viagenefavored the stock swap to give its shareholders the option of a tax-free transaction.
An Offer Too Good To Ignore
Viagene's president and CEO Robert Abbott said, "In the context ofthe biotechnology industry today and in the past year or two, it's agreat deal."
Referring to the merger price and approximately $20 million Chironpaid to acquire its minority stake two years ago, Abbot said theimplied value of Viagene is about $115 million.
"Viagene didn't have to enter a transaction," he observed. "It had twoyears of cash. But Chiron demonstrated to us it's the mosttechnologically rich company in the industry."
The merger will allow Viagene to pursue product candidates it haskept "in the freezer for the past three years," Abbott said, adding thecompany expects to continue operating as it currently does.
Abbott declined to comment on specifics about the negotiationsduring the weekend of March 18. Those talks ended without aresolution and were discontinued.
Abbott said Chiron approached Viagene again Friday and bySaturday afternoon the basic structure of the agreement was reached.Abbott and Chiron Chairman William Rutter then traveled to Japanto assure Viagene's other major corporate partner, Green CrossCorp., of Osaka, that the merger would not affect its collaboration.
Green Cross owns 11 percent of Viagene and indicated it supportsthe merger and intends to continue development of an HIV genetherapy, which is Viagene's most advanced product candidate.
Chiron's $95 million purchase price is among the biggest deals in thebiotechnology industry this year. Among other major collaborationsare New York-based Pfizer Inc.'s $120 million agreement in Marchwith four genomics companies: Myco Pharmaceuticals, ofCambridge, Mass., Immusol Inc., of La Jolla, Calif., and AEATechnology and Oxford Assymetry, both of England.
In April, Schering-Plough Corp., of Madison, N.J., entered into a$120 million collaboration with COR Therapeutics Inc., of South SanFrancisco. And in January, Genentech Inc. and Scios Nova Inc., bothof South San Francisco, inked a $100 million pact.
(See BioWorld Financial Watch, April 3, 1995, for a first-quarteroverview of mergers and acquisitions in the industry.)
Chiron and Viagene began collaborating in 1993 on development ofgene transfer products and gene therapy drug activation technology.In April 1994 the two began a clinical trial using Chiron'srecombinant interleukin-2 and Viagene's gama interferon genetherapy product to treat metastatic melanoma.
Viagene, which also has a collaboration with Germany-based BayerAG, has nine clinical trials under way. In addition to targeting HIVand melanoma, the company's gene therapy candidates are aimed atother forms of cancer and hemophilia.
At the end of 1994, Viagene, which has 160 employees, had $29million in cash and an annual burn rate of between $12 million and$15 million.
Kurtz said his company's merger with Viagene represents anotherstep in the expansion of Chiron's gene therapy program.
Chiron's Other Pacts
Earlier this month Chiron agreed to pay up to $50 million for a long-term collaboration with Progenitor Inc., of Columbus, Ohio. Chironalso has an agreement with Ribozyme Pharmaceuticals Inc., ofBoulder, Colo.
The three companies have complementary approaches to genetherapy, Kurtz said, noting that Viagene has focused on viral vectors,Progenitor has concentrated on nonviral vectors and Ribozyme hasdeveloped a gene expression technology.
The Viagene merger, Geller said, is part of Chiron's diversification toexpand its pipeline "so they can see themselves as the consolidatingcompany in biotechnology. Gene therapy is a tough area. It's a long-term bet with a lot of hurdles to overcome. And [Chiron] is going upagainst strong competition."
Several months ago, Chiron CEO Edward Penhoet said his companyplanned to target undervalued small companies for possibleacquisition and to play an active role in the consolidation of the cash-starved biotech industry. (See BioWorld Today, Nov. 30, 1994, p. 1.)n
-- Charles Craig
(c) 1997 American Health Consultants. All rights reserved.