By Mary Welch
DuPont Pharmaceuticals issued a tender offer to buy CombiChem Inc. for $95 million in cash, or $6.75 per share.
"We have plenty of money in the bank and we could have kept on going," said Vicente Anido, president and CEO of San Diego-based CombiChem. "We had looked at strategic options, everything from acquiring another company to merging with a similar size company. In fact, we had even talked with other companies about being acquired.
"But when we looked at all the options and evaluated them carefully, we realized that the DuPont deal offered a decent return to the shareholders as well as opportunities to the employees. For instance, DuPont will allow CombiChem's employees to cash out of their CombiChem plans rather than be folded into DuPont's benefits plan. That's pretty unusual and a nice Christmas gift for the employees."
So far, holders of 34 percent of CombiChem's outstanding shares have committed their support to the acquisition, the company said. There are about 13.5 million CombiChem shares outstanding. The deal is expected to close by the end of the year.
CombiChem's stock (NASDAQ:CCHM) closed Wednesday at $6.625, up 93.75 cents, or about 16 percent.
CombiChem, which integrates proprietary computer modeling technology with advanced chemistry expertise for drug discovery, will become part of DuPont's drug discovery efforts. The company, founded in 1994, uses its proprietary Discovery Engine process to focus on the generation, evolution and optimization of new lead candidates. CombiChem will be integrated into DuPont Pharmaceuticals Research Laboratories but remain in California. There are few expected staff layoffs.
"CombiChem is an outstanding company that has shown great performance in combining sophisticated computer technology with chemistry," said Thomas Barry, a spokesman for Wilmington, Del.-based DuPont. "They will play a large role in accelerating our drug discovery efforts. We have a large number of excellent drug discovery targets and the CombiChem staff will help speed up those efforts."
The deal makes sense, according to Michael King, senior analyst with BancBoston Robertson Stephens Inc. in New York. "I think CombiChem realized that developing combinatorial chemistries for the kinds of applications that DuPont wants to use them for is very expensive and I don't think CombiChem could have gone that way on its own."
While he called the $95 million offer "fair," King said CombiChem may have decided to be acquired by DuPont rather than having a large collaborative relationship with the company after observing what happened when its competitors entered into similar alliances.
"When ArQule did a collaboration with Pfizer, it didn't get much response in its stock after an initial jump," King said. "I think Anido made a pragmatic decision. He may have decided that the best value he could get for the company would be a deal to be acquired by a public company."
In July, ArQule Inc., of Medford, Mass., entered into a multi-year agreement with New York-based Pfizer Inc. for $117 million. The day the deal was announced, ArQule's stock jumped 39 percent, closing at $6.625, up $1.875 in trading of 5.3 million shares. Since then the stock has remained in that range. (See BioWorld Today, July 22, 1999, p. 1.)
Anido said that CombiChem will work on various DuPont projects that have specific targets, as well as build up the company's chemical libraries. "We will be an integral part of their drug discovery effort," he said.
CombiChem has several ongoing collaborations with companies such as ICOS Corp., of Bothell, Wash.; Athena Neurosciences Inc., of South San Francisco; ImClone Systems Inc., of New York; Ono Pharmaceutical Co. Ltd., of Osaka, Japan; Sumitomo Pharmaceuticals Co. Ltd., of Osaka; Roche Bioscience, of Palo Alto, Calif.; Teijin Ltd., of Tokyo; and Catalytica Advanced Technologies Inc., of Mountain View, Calif. The fate of those collaborations has yet to be decided, Anido said.
"It will all depend on our discussions with our partners," Anido said. "We have done some excellent work and we'll see if they feel they are competitive with DuPont. Even if they do, they may feel it's OK for us to still work on the project. A lot of our collaborations are 18 to 24 months in duration - they're relatively short-lived. We may just finish them up or get them to the point where we can turn them back to our partners. Of course, any downstream revenues and rights would now go to DuPont."
Barry said that any decisions regarding those collaborations will be worked out over the next several months.