Biotech: Germany-Based Firm to Acquire Local
Biotech for $35 Million
Analysts are applauding Germany-based Lion Bioscience AG’s acquisition of a local biotech firm.
San Diego-based Trega Biosciences Inc.’s technologies will add another dimension to Lion’s specialty of mining data which researchers need to discover and develop drugs, analysts said.
Lion, a Heidelberg-based bioinformatics company, announced Dec. 27 it will buy Trega for $35 million in American Depositary Shares, which are expected to be valued between $68 and $92 each.
American Depositary Shares are issued under a deposit agreement representing ordinary shares which are traded in the issuer’s home market. Lion shares are traded on the “Neuer Markt” in Frankfurt, Germany.
The combined company has the potential to revolutionize the way drug discovery is conducted in the future, said Trega President and CEO Michael Grey.
Trega sells a chemistry library and a computer system (iDEA) that can simulate how a person would metabolize and absorb a drug.
Lion has a sophisticated system that allows scientists to compile data across 400 different databases. It also sells software to analyze data and identify potential drug targets.
Analysts agree this is a good deal for Trega, which never made any money.
Firm Struggled For Years
Trega was founded in 1992 by Richard Houghten with technology that came from the Scripps Research Institute, a company spokeswoman said. She couldn’t provide dates.
Trega went public in 1996 as Houghten Pharmaceuticals. One year later the firm changed its name to Trega.
The firm has been struggling for years.
Trega shares closed at 87 cents Jan. 4, down 17.65 percent from the previous day.
Lion said the agreement valued Trega at about $1.35 per share on a fully diluted basis, according to published reports.
Analysts predict more consolidations between toolbox firms are on the horizon.
Said John McCamant, editor of the Medical Technology Stock Letter in Berkeley, in the drug discovery process those companies that provide the most tools will be the leaders.
Ronald Renaud, an analyst with Chase Hambrecht & Quist in New York, agreed.
“Some of these companies will do well as a stand-alone,” he said. “But as they move down the development path they need to increase critical mass.”
He predicts more mergers between toolbox firms within the next three to five years.
Another trend, McCamant predicted, is for toolbox firms to develop drugs themselves instead of merely selling the tools that speed up the drug discovery and developmental process. Developing products holds the promise of much higher returns, he said.
New Trend
“We will see more genomics companies transitioning from data or software to getting into products,” he said. “That is the one proven business model in biotech, and that’s where the lion’s share of the money is.”
Lion’s acquisition of Trega puts them one step closer, he added.
Tom Dietz, an analyst with Pacific Growth Equities in San Francisco, agreed.
During the screening process, Trega’s library of compounds that make up a potential drug will be tested against Lion’s identified drug targets. If a “hit” is found, the compound is typically tested in animals.
But Trega’s platform technology iDEA allows scientists to simulate drug interactions on computers first, Grey said.
The drug discovery process is lengthy and extremely risky.
“Only one in 10 drug candidates administered in clinical trials gets to the market,” Grey said. Many challenges prevail in identifying potential drugs. A big problem is that much of the research is done in isolation, which creates bottlenecks. To reduce these bottlenecks translates into time and money saved, he said.
And that’s the goal of the combined firm.
For Trega, which had $5.8 million in cash as of the third quarter ended Sept. 30, the deal is all-around positive, Grey said.
“This is very much an investment decision, not an old-fashioned merger,” Grey said. “The attraction was that there was a total overlap in the vision of the two companies.”
No Layoffs
All 117 Trega employees will remain at the local headquarters, Grey said, adding there will be no layoffs.
They will continue to work under Grey, who will oversee Lion’s U.S. operations.
Lion also has a research and sales unit in Cambridge, Mass. and research unit in Cambridge, U.K.
The firm has more than 300 employees, a spokesman said.
Lion shares closed at $75.06 on Jan. 4 on the Nasdaq stock exchange.
The merger is the latest in San Diego to combine complementary technologies and raise value.
In July, Carlsbad-based toolmaker Invitrogen bought Connecticut-based Dexter Corp. for $1.9 billion to gain access to 10,000 research products made by the firm’s Life Technologies unit.
Invitrogen laid off 150 employees last month as part of its reorganization.
