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12:00 AM
Sep 05, 2005
 |  BioCentury  |  Finance

Ebb & Flow

Chiron's six independent directors clearly opened the door to Novartis' proposed acquisition of the 58% of CHIR it doesn't already own. However, NVS can hardly have failed to notice that CHIR is looking very inexpensive. Indeed, since 1999, the company's market cap to revenue ratio has steadily decreased (see "A Bargain").

The sinking ratio does not reflect flagging revenues, which will have more than doubled from 1999 if CHIR's 2005 revenues come in at the Street's estimate of $1.9 billion. In 1999, the company posted revenue of $763 million. Instead, the stock has slid as CHIR has had repeated problems with vaccine manufacturing. In October 2004, it shut down the Liverpool facility that manufactures Fluvirin flu vaccine because of contamination. That product should be back this year, as the facility passed FDA inspection last week and is producing vaccine for the 2005-06 flu season. But the company recently disclosed it will not supply its Begrivac influenza vaccine to non-U.S. markets for the 2005-06 season because some lots did not meet sterility specifications. That vaccine is manufactured in Marburg, Germany.

While the six independent directors either declined to talk or did not return calls seeking comment on why they want NVS to buy CHIR now, the pharma company's motives include building vaccine and infectious disease businesses, and gaining a growing revenue stream from blood testing, including the Procleix products that CHIR markets under a deal with Gen-Probe(GPRO). In 2004, blood testing revenues were CHIR's fastest growing segment, up 17% to $494 million from $422 million in 2003. In the second quarter, CHIR's blood testing revenues were up 16% to $133 million versus the same period in 2004. The company's vaccine sales increased 12% to $97 million and biopharmaceutical sales were up 4% to $132 million.

While CHIR may look cheap to NVS, the biotech company's investors seem to think that the $40 cash offer is just an opening bid. CHIR rose $6.49 (18%) to $42.93 on Thursday, the day the bid was announced, and closed Friday at $42.79, up $7.50 (21%) on the week.

However, CHIR might not have a ton of leverage at the bargaining table. It might be challenging to find another suitor when NVS already owns so much of the company.

MedImmune's booster shot

Investors liked MedImmune's plans to end its 1997 U.S. co-promotion deal with Abbott (ABT) for MEDI's Synagis antibody for respiratory syncytial virus (RSV) on June 30, 2006. The stock popped $2.83 (10%) to $29.93 on Wednesday, when the deal was announced. ABT will receive additional payments under the amendment, which prompted MEDI to lower its EPS guidance by $0.10 to $0.24-$0.30 in 2005 and by $0.11 to $0.40-$0.50 in 2006.

The upside will hit in 2007, when MEDI expects to report EPS of $1.15, up $0.28 from its prior guidance. The company said the timing of the deal was important, as it expects to launch Numax, a second-generation version of Synagis, in 2008. MEDI has always planned to sell Numax on its own, and spokesperson Jamie Lacey said "there could have been a disconnect and tensions with Abbott" with both drugs on the market. Moreover, "this deal lets us get a Numax force in place about two years ahead of schedule."

MEDI plans to increase its sales force by 125 members to about 425 people. That should give the company the bandwidth to sell Synagis on its own, plus Numax and CAIV-T, a second- generation version of MEDI's FluMist influenza vaccine.

The company also bolstered its pediatric pipeline last week, in-licensing anti-staphylococcal monoclonal antibodies from GlaxoSmithKline (LSE:GSK; GSK). The deal includes BSYX-A110,...

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