By Carey Krause
In a move that strengthens its internal and partnered drug discovery and development efforts, Vertex Pharmaceuticals Inc. has agreed to buy Aurora Biosciences Corporation for $592 million in a stock-for-stock transaction. The move pairs Aurora's cell-based assay development and ultra-high throughput screening capabilities with Vertex's chemogenomics platform, which seeks to design drugs in parallel in multiple gene families.
Under the deal, Vertex will exchange 0.62 shares for each Aurora share, and Vertex will have to issue about 14 million shares of stock in exchange for Aurora's common stock. The deal will be accounted for as a pooling-of-interests and is expected to close in the third quarter. Aurora will retain its name and management as a free-standing Vertex company.
The combined entity could have revenues of roughly $180 million in 2001, compared to analyst estimates of $89 million for Vertex alone. The deal is not expected to materially affect Vertex's net loss projection for 2001, which is $60 million to $65 million. Vertex gains Aurora's net cash, which was $100 million at year-end 2000, adding to Vertex's cash resources of $685 million at the end of March 2001.
"We are excited about this acquisition of Aurora because its technology platform complements our own strength in parallel drug design," says Vicki Sato, president of Vertex Pharmaceuticals. "We expect that this technology will allow Vertex to move aggressively and quickly into gene families that are accessed effectively through cell-based assays like ion channels and g-protein coupled receptors, so we'll move into some very target-rich gene families much more quickly than we would have been able to if we had chosen to build this capability organically. We also expect in the very near term that their high throughput cell-based assay technology will speed our evaluation of drug candidates in our ongoing work in kinase and caspase gene families, as well as the growing effort that we have internally against the different protease targets."
Last year, Vertex signed an $800 million agreement with Novartis for kinase inhibitors and a $95 million agreement with Serono S.A. for caspase inhibitors. Vertex has 12 drug candidates in development and one marketed drug, Agenerase (amprenavir), an HIV protease inhibitor that it co-promotes with GlaxoSmithKline.
Analysts view the transaction favorably. Scott R. Greenstone, analyst at Thomas Weisel Partners says, "The companies focus on different drug classes and have more than 25 collaborations with few overlaps. Combined, the companies will have a robust and integrated discovery platform trading at 13 times projected full year 2002 revenues relative to the average 24 times for other research collaborators." The new entity will have over 400 US patents issued and pending, including proprietary technologies and chemical classes of compounds.
"In theory the research Vertex is engaged in with other companies could be assisted by the acquisition. Vertex has agreements that span the stages of development from preclinical to clinical to later-stage clinical. The high throughput screening combined with the chemogenomics platform is the first of its kind in terms of biotech acquisitions," says SG Cowen analyst Bill Tanner. He points to a Vertex/Aventis collaboration for VX740, which is in Phase II trials for rheumatoid arthritis, as a potential blockbuster, akin to Immunex's Enbrel with $1 billion in sales.
"If successful in acquiring Aurora, we believe Vertex would immediately become one of if not the leading potential partner for a large pharma in the area of both GPCRs [g-protein coupled receptors] and ion channels," says Prudential Securities analyst Charles Duncan. "These two classes of drug targets are the basis for more than half of the top 100 currently marketed drugs and should provide Vertex with a rich selection of new drug leads for internal and partnered drug development initiatives."
Vertex is on track to select one or two novel kinase inhibitors for preclinical development this year and to advance five candidates into development, says Vertex CEO, Joshua Boger.