Processing Magazine

Bristol-Myers to buy Kosan for $5.50 per share

May 30, 2008
According to the Associated Press, drug developer Bristol-Myers Squibb Co. said recently it will pay $5.50 per share in cash for cancer therapy maker Kosan Biosciences Inc., in a move to enhance its cancer treatment pipeline.

The purchase price is more than triple the $1.65 price at which Kosan shares closed, and based on Kosan''s 42.66 million shares outstanding at April 30 values the company at $234.6 million. Excluding the company''s cash balance, Bristol-Myers said it is paying about $190 million for Kosan, which it will finance with existing cash.

The news sent Kosan shares surging $3.78 to $5.43 in afternoon trading on more than 60 times average volume. Bristol-Myers shares rose 33 cents to $22.42.

Boards of both New York-based Bristol-Myers and Hayward, Calif.-based Kosan have unanimously approved the deal, which is expected to close in 30 days. Kosan directors and executives have agreed to tender their shares and the company won''t solicit competing offers.

The Kosan buyout adds compounds in two classes of cancer treatments to Bristol-Myers'' pipeline, including Hsp90 inhibitors, one of which is in late-stage testing as a treatment for the blood cancer multiple myeloma.

Bristol-Myers is also licensing exclusive worldwide rights to Kosan''s developing cancer treatments, called epothilone compounds, which have use against various cancers and potentially in neurodegenerative diseases. Under that deal, Kosan will receive $25 million upfront and is entitled to future milestone payments. That agreement will remain in effect even if the buyout deal is not completed.

Bristol-Myers'' cancer drugs include colon cancer drug Erbitux, in partnership with ImClone, chemotherapy treatment Taxol, leukemia drug Sprycel and breast cancer treatment Ixempra.

Credit Suisse Securities is serving as financial adviser to Bristol-Myers while Kosan is being served by Lazard Freres & Co.

Roth Capital analyst Jerry Tang noted this deal follows two high-profile biotech transactions in April, when U.K.-based drugmaker GlaxoSmithKline PLC offered $720 million to acquire Sirtris Pharmaceuticals at an 84 percent premium, and Japan''s Takeda Pharmaceuticals bought Millennium Pharmaceuticals for $6.6 billion -- marking a 53 percent premium.

He said market volatility has diverted more stressed small biotech companies to look for corporate partnerships or takeovers, rather than financing in the capital market. And with big pharma''s large cash reserves and thin pipelines, they are bound to remain aggressive in the small-cap space.