BioWorld International Correspondent

Leveraging a stock that had gained 119 percent since the start of the year, Crucell NV agreed to an all-share takeover of Berna Biotech AG in a deal valued at CHF591 million (US$448.6 million).

The transaction values Berna Biotech's stock at CHF15.72 (US$11.89) per share, which represents a 27.3 percent premium to its closing price Wednesday, immediately before the acquisition was disclosed, and a premium of 25.4 percent on its three-month trading average. Berna Biotech shareholders will be offered 0.447 share of Crucell for every share currently held.

The merger is expected to close next February, assuming shareholder and regulatory approvals. Upon full acceptance of the recommended offer, Berna Biotech shareholders would hold 27.3 percent of the enlarged entity.

The deal, the company said, would create the world's leading independent vaccine company.

"It's a hundred years of vaccine history, combined with new technologies," Crucell CEO Ronald Brus told a conference call audience. The combined entity would have approximately 1,000 employees, 2004 pro forma revenues of €159 million (US$186.2 million) and more than €200 million in cash by the year end. The aggregate revenues of the two companies totaled €61 million in the first half of 2005.

The enlarged entity would retain the Crucell name and would remain based in Leiden, the Netherlands. It would also retain its listings on Nasdaq and the Euronext market in Amsterdam but would seek a listing on the Swiss Stock Exchange in Zurich.

Berna Biotech, of Berne, Switzerland, can trace its origins back to the Swiss Serum and Vaccine Institute Berne, which was founded in 1898. The company has four marketed vaccine products for influenza, hepatitis A, hepatitis B and typhoid, as well as manufacturing facilities in Switzerland, Spain and Korea. Its most advanced pipeline products include a yellow fever vaccine and a two-dose hepatitis B pediatric vaccine, for which it has completed regulatory filings, as well as a vaccine to prevent Pseudomonas aeruginosa infection in cystic fibrosis patients, for which it expects to file next year.

The company reported a net loss of CHF12.5 million on revenues of CHF66.0 million for the first half of the year - some way off the annualized €300 million run rate it said it would attain by 2005 when it acquired Rhein Biotech N.V., of Maastricht, the Netherlands, for €279 million in cash and shares. [See BioWorld International, May 29, 2002.]

During the conference call, Crucell officials said little about potential synergies or efficiencies that could be realized through rationalization. "The primary reason for combining the two organizations is not cost savings, it's to drive future growth," Brus said. "If there are areas with potential for cost savings, we will certainly look at it."

The current transaction, said Richard Parkes, an analyst with ING Group NV, who is based in London, values Berna Biotech at approximately twice its enterprise value. "That's a pretty good price for the business."

However, as Crucell's shares are, he said, highly valued, it also is "a very good deal" for its shareholders. "Crucell's business is very early stage. It has long-term, future potential, but is limited in terms of near-term products. By buying in Berna, they are getting access to marketed products, a late-stage product pipeline and manufacturing and distribution capacity."

Nick Turner, analyst at Jefferies International in London, took a similar view. "It's a very good deal for Crucell. Effectively, what you have here is an all-stock deal paid for with overpriced equity," he said.

The merger would necessitate a shift in the market's perception of Crucell as a technology company deriving most of its revenue stream from royalty payments to a vaccine company dependent on product sales. In that context, Turner said there appears to be little scope for the enlarged entity to undertake additional licensing deals. "It sounds as if all the major assets are out-licensed," he said.

That shift also would impose additional burdens on the Crucell organization.

"Operationally, this is going to be a big challenge to improve the profitability of the Berna business going forward, which is not something Crucell's management has experience of," Parkes said.

A recent hire, John Lambert, former president of the vaccines unit of Chiron Corp., of Emeryville Corp., will be responsible for strategy and integration within the enlarged entity. Two senior Berna Biotech executives are joining the Crucell management as well. CEO Kuno Sommer will become chief business officer, while Simon Rothen, chief operating officer at Berna Biotech, will take on the same role in Crucell.

Crucell's shares (NASDAQ:CRXL) dropped 88 cents on Thursday, to close at $25.46, while Berna Biotech's shares gained 15.79 percent or CHF1.95, to close at CHF14.30 in Zurich.