LONDON Respiratory drug specialist Vectura (VEC.L) has agreed to buy rival SkyePharma (SKP.L) for 441 million pounds ($621 million), in a notable piece of consolidation among Britain's universe of small biotech companies.
The tie-up will create a lung disease group with expertise across different inhaler technologies and a combined market value of more than 1 billion pounds, which should attract a wider range of institutional investors.
Unlike large, successful biotechnology firms in the United States, British firms have yet to achieve critical mass and, as a result, have often struggled to secure an active following from investors and analysts.
"I would expect to see a number of new holders coming into this stock, given our mid-cap market capitalization with the combination," said James Ward-Lilley, Vectura's chief executive, who will become CEO of the enlarged group.
"We have today really got the opportunity to be an industry leader in terms of the device and technology focused on inhaled respiratory airway disease."
The two companies receive royalties from a number of marketed products and others are in the pipeline. There is particular excitement over Vectura's VR315, a generic version of GlaxoSmithKline's (GSK.L) blockbuster lung drug Advair, that could be approved next year.
SkyePharma shareholders will get 2.7977 new shares for each share held, valuing SkyePharma at 441.3 million pounds. Vectura said it expected the deal to boost earnings in the first year.
The agreed offer, announced by both firms on Wednesday, is worth 410.15 pence per share and represents a modest 4.2 percent premium to SkyePharma's closing price on March 15, although it is 13.6 percent above the 90-day average price.
Alternatively, SkyePharma shareholders can choose to receive a part of the offer in cash.
An all-stock deal would result in SkyePharma shareholders owning about 41.75 percent of the combined company. If the 70 million pounds available under the cash alternative is paid in full, SkyePharma shareholders would own about 37.62 percent of the combined company.
Samir Devani, an analyst and head of Rx Securities, said the merger had strong industrial rationale and would create a "one-stop shop" for respiratory drug development.
Vectura said it had identified annual pre-tax synergies of approximately 10 million pounds, which are expected to be fully realized by 2018.
The two companies had combined 2015 revenue of 153.9 million pounds, generating earnings before interest, tax, depreciation and amortization (EBITDA) of 50.5 million pounds.
The deal has been recommended by both companies' boards and is backed by HBM Healthcare Investments, which holds approximately 28.5 percent of SkyePharma.
Vectura was advised by JP Morgan and Rothschild, while Lazard worked for SkyePharma.
(Additional reporting by Vidya L Nathan; editing by Anupama Dwivedi and Jason Neely)
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