Nedlands-based pharmaceutical company PharmAust Ltd will take a 39.5 per cent stake in NASDAQ-listed US-based Commonwealth Biotechnologies Inc in exchange for its its discovery chemistry subsidiary Mimotopes Pty Ltd.
Nedlands-based pharmaceutical company PharmAust Ltd will take a 39.5 per cent stake in NASDAQ-listed US-based Commonwealth Biotechnologies Inc in exchange for its its discovery chemistry subsidiary Mimotopes Pty Ltd.
PharmAust managing director Paul D'Sylva will become CEO of Commonwealth as a result of the deal.
The transaction is the culmination of a deal announced in July which anticipated PharmAust would end up with 40-45 per cent of Commonwealth, then worth between $8.6 million to $10.6 million when its shares were trading at US$2.84 each.
Today, PharmAust has valued the deal Mimotopes deal at $7.2 million, based on a on a 50-day Commonwealth share price average of US$2.50 per share for the 2.1 million shares.
Commonwealth shares closed yesterday on the NASDAQ at US$2.10 per share, which would price the deal at $5.8 million.
PharmAust and Commonwealth had previously signed an agreement to co-market their products, which Dr D'Sylva said at the time would offer the industry a single-point of service for early stage drug discovery and development.
Dr D'Sylva's company acquired Mimotopes 20 months ago for what he said was a peppercorn cost as part of the divestment process of US-based multinational Fisher Scientific International Inc.
He said the deal gave Mimotopes a valuation and provided PharmAust with control of a Nasdaq-listed enterprise with a significant existing business.
Dr D'Sylva said he was not concerned about the share price fall.
"It is not unusual for the acquiring party's shares to go while they are making an acquisition," he said.
"We expect that to make a turn for the better."
Mr D'Sylva was also confident of managing the Virginian-based Commonwealth, pointing out that, when combined, PharmAust and Commonwealth had 140 staff and turnover of $20 million.
"There's plenty of managing directors that manage more that," he said.
Its been an active period for PharmAust which has initiated court proceedings against pharmaceutical wholesaler Advance Healthcare Group following its tumultuous annual general meeting.
The legal action was made public in a statement by Advance Healthcare.
According to Advance Healthcare, Pharmaust has claimed the chairman of the Advance Healthcare AGM did not accept as valid a corporate representative appointment sent by facsimile during the meeting. It is understood that the result of that decision, Pharmaust's 5 million proxies were disallowed in a series of crucial votes.
At the meeting, held earlier this month, shareholders approved a complex recapitalisation that could result in up to 80 per cent of Advance being controlled by Sydney investment fund Hawkesbridge Private Equity via a debt for equity swap.
Hawkesbridge sold its 11 per cent shareholding on the eve of the meeting to newly appointed Advance Healthcare chief executive Ken Atkinson.
Lying behind the fireworks is a battle over who controls Advance's core business, Cottman Australia, which is a major pharmaceutical wholesaler in Western Australia and South Australia with annual turnover of $96 million.
Advance stated in an announcement to the ASX that it believes the correct procedures were followed in the vote.
The full text of an announcement from Commonwealth Biotechnologies Inc is pasted below
Commonwealth Biotechnologies Inc., a life sciences contract research organisation and biotechnology company announced today that the Board of Directors of the company has unanimously approved the Stock Purchase Agreement to acquire all of the outstanding capital stock of Mimotopes Pty Ltd, a Melbourne, Australia based, wholly-owned subsidiary of PharmAust Pty Ltd.
As consideration for the transaction, CBI will issue 2,150,000 shares of CBI common stock to PharmAust Chemistry Pty Ltd, a wholly-owned subsidiary of PAA and Mimotopes' parent company. As a result, PAA will hold a 39.5 per cent equity position in CBI. CBI has obtained an independent, third party fairness opinion of this transaction, which deemed the transaction to be fair from a financial point of view to the shareholders of Commonwealth Biotechnologies, Inc. Closing of the transaction is subject to shareholder approval.
Mimotopes is focused on the fast-growing market for research grade peptides and peptide therapeutics, a market estimated to grow at 40 per cent per year over the next several years. Currently, peptide technologies make up about 3 per cent of CBI's revenues. The acquisition of Mimotopes would represent an immediate and dramatic boost in this revenue line, potentially making peptide technologies the source of 30 per cent of CBI's revenues. When completed, this transaction will represent the single largest growth transaction in CBI's 15-year history.
In addition to top line revenues, CBI will also acquire a seasoned sales team well versed in selling services to the pharmaceutical and biotech industry. Mimotopes currently has U.S. based sales offices in San Diego, CA, Raleigh, NC, and Minneapolis, MN as well as offices in Europe (UK) and Asia (Melbourne). In addition to long-standing client relationships built over its nearly 20 year history, Mimotopes also brings to the table key partnerships with two major biotech and pharmaceutical entities, Invitrogen Corporation and Genzyme Pharmaceuticals, partnerships which CBI expects to foster and expand. Completely new market opportunities in Australia and the Pacific rim will also result from this acquisition.
"While the enhanced revenue, expanded sales force, and new market opportunities are easy to understand as fundamental reasons to consummate this acquisition, there are a number of less obvious but highly compelling reasons why this is an outstanding opportunity for CBI. We will be acquiring a solid company, highly regarded in the industry, and led by an outstanding executive team.
Paul D'Sylva, Ph.D., the Managing Director of Mimotopes will bring to the combined entity an exceptional skill set in business and finance that will complement the senior management of CBI whose strength is the development of new technologies and the delivery of high quality science. Post-transaction, Dr. D'Sylva will apply his skill set as CEO of the combined entity.
Dr. Robert B. Harris will continue as President and will continue to oversee all aspects of CBI operations. Eventually, a re-alignment of the Board of Directors of CBI is expected to take place so as to better serve the strategic goals of the new company; the ultimate goal being the development of a vertically-integrated biotech services company to support all aspects of the drug discovery and drug development process", said Richard J. Freer, Ph.D., Chairman of the Board and Chief Operating Officer.
"Also, the Mimotopes' client base and sales efforts are almost exclusively in the market segment that CBI seeks to grow, that is the commercial sector. This acquisition will enhance the already ongoing emphasis on commercial sector growth most recently underscored by the hiring of Joe Chimera, Ph.D. as CBI's Senior Vice President of Sales, Marketing, and Business Development", Freer added.
Dr Paul D'Sylva, Managing Director of PharmAust Ltd, said "The sale of Mimotopes to CBI will bring Mimotopes closer to its key clients and partners and facilitate its continued expansion in the USA. Mimotopes and CBI offer complimentary drug discovery products and services that combined will deliver measurable revenue and cost synergies and create a stronger, more profitable business, which means better value for PharmAust and CBI shareholders".
Dr D'Sylva said that "he was looking forward to the challenge of leading the merged Company as CEO and would be positioning CBI for growth in the global market for drug discovery outsourcing services."
The rapidly growing market for drug discovery outsourcing services will increase by an estimated 15% to reach US$7 billion by 2009 (Kalorama Information, 2006). Outsourcing drug discovery services including chemistry, biology, screening and lead-optimisation are a critical part of doing business in today's pharmaceutical industry. The trend for outsourcing has become more widely accepted, with both large and small companies needing to supplement their own internal drug discovery efforts and/or utilize technologies they can't afford in-house.
Dr D'Sylva said that "on the back of this deal, CBI will be well positioned to increase its market share in this large and growing market." He said that he would be "focused on driving growth and shareholder value by increasing revenues and earnings and improving market awareness and understanding of CBI to facilitate a re-rating in the stock towards industry standards."
