GlaxoSmithKline PLC said Wednesday it has agreed to buy ID Biomedical Corp., maker of the Fluviral flu shot, for about $1.4 billion as it moves to position itself as a leading influenza-vaccine manufacturer. ID Biomedical shares soared on the news.
London-based GlaxoSmithKline said it will pay $35 Canadian dollars ($29.50) per share for the Vancouver, British Columbia, company and loan ID Biomedical up to $120 million to repay debt and meet cash requirements until the deal closes.
ID Biomedical’s shares jumped 19 percent to an all-time high of $31.05 on the Nasdaq following the news, then settled at $29.64 in late afternoon trading. Glaxo’s U.S. shares rose 38 cents to $50.58 on the New York Stock Exchange.
The companies said they expect the transaction to close by the end of 2005 or early 2006. The deal has been approved by both boards but still must be voted on by ID Biomedical shareholders and clear regulatory reviews.
ID Biomedical supplies about 75 percent of the Canadian government’s flu vaccine and is seeking U.S. approval for the Fluviral shot. The company has facilities in both countries.
There has been more interest in vaccine developers since the nation’s expected flu-vaccine supply was cut in half last year by manufacturing issues at a Chiron Corp. plant. Only two other companies were set to supply flu vaccines in the United States at the time. Earlier this week, Emeryville, Calif.-based Chiron rejected a takeover bid from Swiss Drug company Novartis AG., which said it was interested in the biotech company’s vaccine business.
Fears of bioterrorism in the wake of Sept. 11 also heightened interest in vaccine makers, analysts said.
“For someone like (GlaxoSmithKline) it’s such a small deal, but it is something that they identified as strategically important for their business,” JP Morgan analyst Craig Maxwell said.
Some analysts speculated that ID Biomedical’s shares rose above GlaxoSmithKline’s bid price because investors were betting that another offer for the company may be in the works.
Taunya Sell, an analyst at Ragen MacKenzie in Seattle, believes the chance of a counter offer is less than 50 percent. Sell said there aren’t that many vaccine makers and other big pharmaceutical companies may not be ready to make such a move.
“I know the management of ID Biomedical and I think they feel good about this decision,” Sell said
The United States has put incentives in place this year that make entering into the market more desirable, said Pacific International Securities analyst Karen Boodram.
“The manufacturer’s price has gone up and doctors receive a higher administration fee for giving the flu vaccine,” Boodram said. U.S. Medicare reimbursement for the vaccine rose to $10.10 a dose this year from $8.02 last season, according to Boodram.
Boodram said GlaxoSmithKline’s price for ID Biomedical looks reasonable, but noted that there’s no deterrent to a competitive bid.
Meanwhile, Sprott Securities Ltd.’s David Dean argued that the bid is low, noting his target price of $41 Canadian dollars ($34.48).
“But at the same time I don’t see anyone who’s going to come in and offer a counter-bid,” Dean said.
GlaxoSmithKline said ID Biomedical is on track to produce about 75 million doses a year of its Fluviral vaccine starting in 2007. The London company’s own flu vaccine, Fluarix, was approved by U.S. regulators in August.
GlaxoSmithKline recently decided to double the flu vaccine production capacity at its plant in Dresden, Germany, and bought a vaccine facility in Marietta, Pa., where the company plans to develop new flu vaccine technology. The company said it is also developing an improved flu vaccine for the elderly.
The Centers for Disease Control has estimated that at least 75 million doses of flu vaccine will be needed this season. Sanofi Pasteur Inc. plans to produce 60 million doses, while Chiron has projected 18 to 26 million doses and GlaxoSmithKline expects to supply 8 million doses. MedImmune Inc. also has planned 3 million doses of its live FluMist vaccine.