Glaxo plc's $14.2 billion bid for Wellcome plc was rejectedThursday as "inadequate." But on the same day, the pharmaceuticalgiant moved to acquire combinatorial chemistry company AffymaxN.V. for more than $500 million.

Glaxo's bid undervalues Wellcome and fails to recognize itsstrengths, Wellcome said in recommending that its shareholders takeno action at this time. Wellcome added that it is "exploringopportunities for achieving a better offer."

The combination of the London companies, proposed Monday,would result in the world's largest pharmaceutical concern, thelargest deal in the business, and the largest firm in Great Britain. Butthe deal by no means is off entirely.

"Glaxo remains convinced that the proposed merger is not only in thebest interests of both Wellcome and Glaxo shareholders, but that itwill also secure Britain's leading position in the pharmaceuticalindustry," Sir Richard Sykes, Glaxo's deputy chairman and CEO,said in a news release. "The commercial logic of our bid is clear."

Glaxo already has a commitment from The Wellcome Trust for thecharitable foundation's 39.5 percent stake in Wellcome plc. The trustsaid Monday it would sell its shares for Glaxo's 49 percent premiumbid if a better offer is not presented.

"[Wellcome] basically has hung the `for sale' sign up," Nick Woolf,an analyst with Warburg Securities in London, told BioWorld."They're quite happy saying they'll sell to the highest bidder." ButWoolf isn't sure a higher bid will come in.

Buying Time

"That's a little optimistic, but it's a standard response in thissituation" he said. "They're doing it to buy time, but not to considerremaining an independent. We've run the numbers through and wecan't see a higher bidder, at least not one with a higher cashelement."

Warburg said Switzerland-based Roche Holding Ltd. and Bristol-Myers Squibb Co., of New York, are the companies that mightcompete for Wellcome, but both are unlikely to come in with a highcash offer, Woolf said. "Either the board will accept the Glaxo offer,or the bid will run its course [through May 23]." If no higher bidcomes, then Wellcome shareholders could accept the Glaxo offer.

"Glaxo is trying to give itself a larger revenue base and marketshare," Woolf said. "I think it will prove to be a good move. Thereare an awful lot of synergies and the cost-cuttings available are immense. We're looking at 600 million in costsavings by June 1997."

Synergies include Wellcome's AZT for HIV, and Glaxo's 3TC,which has been shown in recent clinical trials to be effective incombination with AZT. Wellcome also has the herpes drug Zoviraxand other antiviral agents, as well as clinical and regulatoryexperience in that area.

Neil McGregor-Paterson, press officer for Wellcome in London,reiterated to BioWorld the intention is to secure the best deal forshareholders.

"We are an extremely attractive business, the industry isconsolidating," McGregor-Paterson said. "We know the players andwe're confident our plans will succeed."

J.R. Robb, chairman and chief executive of Wellcome, said, "Manyare sad that The Wellcome Trust is severing its links with Wellcomeplc after a long and close association. We are pursuing opportunitiesto achieve the best offer for the company. That, too, is why TheWellcome Trust should help us in this objective, and not limit its ownand other shareholders' options."

Affymax's Appeal Is In Drug Discovery

While the addition of Wellcome would help Glaxo's near-termrevenue stream, the acquisition of Affymax is expected to padGlaxo's pipeline.

Affymax is incorporated in the Netherlands but operates out offacilities in Palo Alto and Santa Clara, Calif. Affymax hastechnologies that allow for the synthesis and screening of millions ofcompounds.

Glaxo offered $30 per Affymax share (NASDAQ:AFMXF), apremium of 67 percent to Wednesday's closing price of $18 pershare. Affymax stock shot up 64 percent, to $29.50 Thursday, intrading of nearly 4 million shares.

Affymax reported unaudited revenues of $16.2 million for the ninemonths that ended Sept. 30, and a net loss of $14.2 million.

"Affymax's combinatorial chemistry, robotics and new screeningcapabilities mean it is a leading molecule discovery center in thebiopharmaceutical industry," Glaxo's Sykes said. "By harnessing anddeveloping Affymax's technologies, Glaxo will significantly improveits ability to find innovative medicines."

Specific Affymax technologies include its very large-scaleimmobilized polymer synthesis, its encoded synthetic libraries and itsrecombinant peptide diversity.

Glaxo's bid of $485 million is expected to increase by as much as$48 million because of options held by Affymax employees. Acondition is that at least 50 percent of the shares are tendered.Affymax officials supported the acquisition.

Ed Hurwitz, and analyst with Robertson, Stephens & Co. in SanFrancisco, said that Glaxo's acquisition of Affymax is a sign of thetimes.

"The take-home message from the deal is there is inherent technologyin these companies," he told BioWorld. "Large pharmaceuticalcompanies see the value that the Street doesn't. To pay [such a large]premium to that company, which has always had a rich valuation,probably suggests there are more deals along those lines coming.

"Everybody is a potential takeover target if they have strongtechnology or promising products," Hurwitz said. "We think theconsolidation theme is real." n

-- Jim Shrine

(c) 1997 American Health Consultants. All rights reserved.

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