Last week witnessed an interesting M&A deal between SuperGen and Astex. Here, we look at investor returns and wonder what could be in store for the enlarged company?
Supergen (SUPG) is a NASDAQ listed biotech with a market cap of $170 million (at time of writing). Astex Therapeutics is a private UK biotech and previously a Fierce 15 Winner (2006). In the deal, SuperGen is acquiring Astex, with Astex shareholders getting 35% equity in the new combined entity, $25 million cash up front, and $30 million cash or stock to be paid over the next 30 months. The new company will be called Astex Pharmaceuticals (with NASDAQ ticker of ASTX).
Since founding in 1999, Astex has received substantial investor support from several top-tier UK VCs. How did the investors do? A back of the envelope calculation suggests the following – As current Astex shareholders will have 35% of the post-merger entity, at SuperGen’s current valuation of around $170 million, this suggest a valuation for Astex of nearly $150 million (i.e. Combined value is $170m/ 0.65 = $262 million, hence Astex 35% shares = 262-170 = $92million. Add to that the $25million upfront cash, and $30million cash or stock to be paid over 30 months = $147million). This assumes no liquidation preference for investors.
From their website, Astex have had about £80million of investment since 1999 (equivalent to around $130-$150 million, depending on when investments were made, and a fluctuating dollar: pound exchange rate over the period). So really, at present this deal does not offer much more than just a return OF investment, rather than any upside for investors. Though, this is a way to get some liquidity now with further ability to sell down shares in a public traded company.
What is perhaps more interesting is that the combined entity now looks quite substantial and is itself much more likely to become a target for M&A in a year or two. From the press release, key facets of the new company include:
- $120 million in cash and cash equivalents
- A revenue stream from its product Dacogen®, marketed in North America by Eisai and in the rest of the world by Johnson & Johnson
- A clinical pipeline with 7 drugs in development – 4 at phase II, and 3 currently partnered with big pharma
- Validation and scalability through partnerships with big pharma including GSK, J&J, Novartis, AstraZeneca and Eisai
- Nearly $2 billion in headline value future potential milestones plus royalties
- A technology platform which has driven much of the partnering with big pharma
- Operations in the US and the UK
The pipeline is not that dissimilar to Plexxikon, who were recently acquired by Daiichi Sankyo for $805 million plus up to $130 million in near-term milestones. The fact that they will have both a US and and EU base may make them particularly attractive to another Japanese group.
It will be interesting to watch. What was important for Astex is that they continued to ring the changes. They have an expensive engine that, whilst very productive, does require frequent injections of cash to sustain it whilst the phase II products progress.
Biotech funding takes many forms. As with many promising yet cash hungry biotechs, this is a cross between an endurance race and a relay race. VC investors – tired yet still hopeful – have handed the baton onto the final runner in the public markets. How will she run?
This post is by Raman Minhas and Nigel Crockett. Raman is the CEO of ATPBio, a consultancy supporting biotech funding through VC, big pharma investors and partnering. Nigel is a Director at Tukan Partners, a consultancy providing biotech business development. He is also a principal at ATPBio.
Disclaimer: Nothing in this blog post is an investment recommendation. Investors should do their own research.