LONDON – Proximagen Group plc has fallen into the arms of its long-term partner and 16 percent shareholder, Upsher-Smith Laboratories Ltd., in a deal worth up to £356.8 million (US$554.7 million).

Of that, shareholders will get £3.20 per share, or £223 million, immediately and up to a further £1.92 per share contingent on future progress of two of Proximagen's programs.

The sale brings investors to a cash exit just at the point where Proximagen's portfolio of 15 early stage programs was beginning to require heavy investment to advance in clinical development.

Excluding any contingent payment, the acquisition price represents a 16.4 percent premium to London-based Proximagen's share price Tuesday and an 84 percent premium to the average price of the shares over the past six months.

Shares of Proximagen (LSE:PRX) gained 21 percent, or 59 pence, to close Wednesday at £3.34.

The size of the contingent payment hangs on future progress of two programs: VAP-1, a Phase I vascular adhesion protein for treating inflammation, and PRX00933, an oral 5-HT2c agonist for obesity. Under the terms of the acquisition, investors will receive one contingent value right (CVR) for each share they own. There are complicated provisions regarding the percentage of any net revenues the holders of those CVRs will be entitled to, and the amount of effort Upsher-Smith will be required to put into commercializing the two products.

With 10 of Proximagen's 15 programs in preclinical development, Upsher-Smith is in effect buying an early stage R&D engine to bolt onto its clinical development and commercialization capabilities. It also furthers the U.S. company's aim of becoming a leader in central nervous system (CNS) diseases.

The acquisition will allow the portfolio programs "to benefit from the extensive resources" of Upsher-Smith, said Proximagen CEO Ken Mulvany. At the same time, the deal "returns significant value to investors" who have backed the company since it went public in March 2005, and "demonstrates that the UK biotechnology sector can bring together scientific excellence and business acumen and generate significant return," Mulvany said.

Upsher-Smith will retain Proximagen's operations in Cambridge, UK, and London, a sizable commitment that is balanced by the fact that Proximagen had £48 million in the bank at the end of May. The cash to pay for Proximagen comes from Upsher-Smith's balance sheet and $300 million in new loans.

Since it went public on the Alternative Investment Market in London in March 2005, raising £12.7 million, Proximagen has grown from a core of five early stage neuroscience programs to range across CNS, inflammatory diseases and cancer. It was formed as a spin-off from the neurodegenerative diseases research group of King's College London by Peter Jenner in November 2003 and seed funded by IP Group plc, the quoted university technology commercialization specialist, which put in £400,000 in March 2004.

Basking in getting back 35 times the initial investment, Alan Aubrey, CEO of IP Group, said the sale of Proximagen is "an excellent example" of the value that can be created from small seed investments in university spinouts.

Mulvany previously flirted with potential acquirers in the second half of 2007, before settling instead for a big pharma deal with Boehringer Ingelheim GmbH, and declaring the investors wanted him to build more value into the programs.

That led to the first agreement with soon-to-be owner Minneapolis-based Upsher-Smith, a $232 million deal for PRX1, an improved formulation of L-Dopa, in July 2008. As part of the deal, Upsher-Smith made a $6 million equity investment, giving the U.S. company a 7.1 percent stake. (See BioWorld Today, July 15, 2008.)

In June 2009, Upsher-Smith invested further when Proximagen raised £50 million in a placing. That money was intended to be put to work acquiring distressed assets beached by the 2008 capital crisis, and Proximagen subsequently bought Cambridge Biotech Ltd. and its portfolio of pain and obesity programs in October 2009, Minster Pharmaceuticals plc in January 2010 and two CNS programs that were surplus to requirements at GlaxoSmithKline plc in December 2010. (See BioWorld Today, June 8, 2009.)

Following those maneuvers, Proximagen agreed to a second licensing deal with Upsher-Smith, out-licensing U.S. rights to a former Minster compound, tonabersat. It sold another Minster compound, sabcomeline, to Brain Cells Inc., of San Diego, for up to $51 million.

Three other programs were partnered with H. Lundbeck A/S in October 2011, when the Valby, Denmark-based company invested £10.3 million in Proximagen. Lundbeck has now agreed to sell its 9 percent holding to Upsher-Smith, as have the other major Proximagen shareholders. (See BioWorld Today, Sept. 30, 2011.)