Ebb & Flow

The preferred currency for biotech M&A has been stock rather than cash, because most CEOs want to keep the latter to fund R&D. Thus, it's notable that Triangle (VIRS) is the third Warburg Pincus portfolio company to get acquired for cash in the last three months. The other two are Synaptic and Visible Genetics. Lundbeck (CSE:LUN) plans to buy SNAP for $121 million in cash, and Bayer Diagnostics bought Visible Genetics for $61.4 million (see BioCentury, Nov. 25 & Oct. 21).

GILD, which is paying $464 million for VIRS, has its own reasons for wanting to pay cash(see "Strategy," A6).But that still leaves the question of whether Warburg is demanding cash rather than stock in order to sign off on a deal. Investors are left to speculate, as Warburg declined to discuss the transactions.

Whatever Warburg's leanings, it is known for taking big positions and board seats, both of which give increased influence. In SNAP's case, Warburg holds a 35% stake and the firm's Jonathan Leff and Stewart Hen hold two of the eight board seats. Leff and Hen also sit on VIRS's 10-member board. Last year, Warburg purchased 23.4 million shares of VIRS, which if held would translate into a 30% position.

The firm stands to make tidy profits on SNAP and VIRS, having invested at valuations significantly lower than their takeout prices. The firm put $60 million into VIRS in August 2001, when VIRS was valued at $130 million. Earlier that month, Warburg led a $45 million round for CNS play SNAP, which then was valued at $60 million.

Warburg invested $36 million in HIV genotyping play Visible Genetics in July 1999, when it was valued around $120 million. But it is not known whether it remained an investor through the Bayer buyout.

Warburg currently has positions in 13 life science companies (see "Warburg Pincus's Portfolio", A15, & "Triangle's Market Valuation").

Fellner on the prowl

Speaking of M&A, the City shouldn't be surprised if British Biotech (LSE:BBG; BBIOY) uses that avenue to build its business, now that outgoing Celltech CEO Peter Fellner is taking over as chairman. Fellner helped build Celltech (LSE:CCH; CLL), through M&A deals, including Medeva and Chiroscience in January 2000, and he is expected to push for transactions at BBG.

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