Cephalon, Inc. (CEPH) recently announced its intention to acquire Australian biopharma company ChemGenex Pharmaceuticals Limited. Cephalon extended an offer to acquire ChemGenex for approximately A$225 million (US$231 million).
Terms of the Deal
Per the terms of the deal, Cephalon will pay A$0.70 cash for each ChemGenex Share with dividends and other rights. In addition to this, the company will pay A$0.02 cash for each listed ChemGenex option. The A$0.70 offer price represents a 59% premium to ChemGenex’s last traded share price.
ChemGenex’s Board of Directors intends to recommend the offer to the shareholders given the absence of a better offer.
Cephalon had initially entered into a convertible note subscription agreement with ChemGenex in October 2010. At that time, Cephalon had paid A$15 million to ChemGenex in return for a note convertible at A$0.50 per share. Cephalon had also entered into call option agreements with two of ChemGenex’ major shareholders: Stragen International NV and Merck Sante SAS.
Cephalon has served notice for the conversion of the notes and has also decided to exercise its call options.
Omapro Lead Candidate at ChemGenex
With this acquisition, Cephalon will gain full access to Omapro, the lead pipeline candidate at ChemGenex. Omapro, which completed phase III trials recently, is being studied for the treatment of chronic myeloid leukemia (CML).
A new drug application (NDA) is expected to be filed with the US Food and Drug Administration (FDA) in the second half of 2011. Approval will be sought for the treatment of CML patients who have failed two or more tyrosine kinase inhibitors (TKIs). A Marketing Authorization Application (MAA) will be filed in the EU at the same time.
ChemGenex has an agreement with Hospira Inc. (HSP) for the development and commercialization of Omapro in Europe, the Middle East and parts of Africa.
Cephalon’s announcement regarding the ChemGenex deal comes on the heels of its recent agreement with privately-held biopharma company, Gemin X Pharmaceuticals, Inc. whereby Cephalon will acquire Gemin X for $225 million cash. Both deals should help strengthen Cephalon’s oncology pipeline.
Neutral on Cephalon
We currently have a Neutral recommendation on Cephalon, which is supported by a Zacks #3 Rank (short-term “Hold” rating). With Provigil sales remaining strong, we remain concerned about the slower-than-expected conversion of patients to Nuvigil.
Both 2012 and 2013 should be challenging years for the company due to the genericization of Provigil. However, we are pleased with Cephalon’s efforts to reduce its dependence on its central nervous system franchise.
Cephalon is looking to expand into new therapeutic areas to drive long-term growth and has been very active on the in-licensing/acquisition front over the past few quarters. The company is also looking to expand its presence in emerging markets like China.
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