04 May Massachusetts firm to buy UW spinoff Bone Care for $600 million
Madison, Wis. — Massachusetts-based Genzyme Corp. said on Wednesday it has agreed to buy Bone Care International, a University of Wisconsin-Madison biotech spinoff, for $600 million in cash.
Bone Care and Genzyme, a 24-year-old company with annual revenues of more than $2 billion and almost 7,000 employees worldwide, plan to complete the deal in the third quarter.
Both companies recently reported healthy quarterly profits and revenues. Bone Care tallied its fifth straight quarter of increasing profitability in the quarter that ended March 31 by bringing in net income of $2.5 million (12 cents per share), compared with a net of $302,000 the previous fiscal third quarter. Genzyme reported first-quarter net income of $95.6 million, up nearly 41 percent over the first quarter of 2004.
Shares of Bone Care erupted after the news, rising $8.28 per share to end the day at $32.11, very close to Genzyme’s per-share offer price of $33. Genzyme stock closed at $60.02 a share, up 12 cents.
Dan Quinn, Genzyme’s public relations director, said the company has the cash on hand to complete the deal, but that it has not yet decided what combination of cash and credit it will use.
Bone Care did not return several phone calls from WTN on Wednesday.
Genzyme plans to do away with the Bone Care name once the merger is complete, Quinn said. Whether that will be done in phases or immediately upon completion remains to be seen. Also up in the air are the future locations of Bone Care’s 170-some employees, many of whom are sales representatives who live outside the Middleton/Madison area.
Genzyme’s chief motive for the merger was to bring Bone Care’s flagship product, Hectorol, into its stable of renal disease drugs. Hectorol treats secondary hyperparathyroidism in patients with chronic kidney disease.
While Genzyme’s Renagel product has gained substantially in the market – sales were up 19 percent in the first quarter compared to a year ago – it is primarily used for late-stage patients already on dialysis. Hectorol, which is available both as an injection and in capsules, also can be used to treat patients in earlier stages of the disease.
“We’ve been interested in Bone Care and Hectorol for quite a while,” Quinn said. “Hectorol is very much a complementary product to Renagel. The salespeople would call on the same doctors and discuss the same disease state. The products are very much aligned in that sense.”
“Our long-range goal is to develop a formulation of Renagel that would be appropriate for that earlier stage market, as well,” Quinn added. “It matches up a lot with what we’re trying to do from a patient care perspective, but also from a commercial perspective.”
Hectorol’s commercial potential is getting high marks from analysts as it continues to sell briskly. Injection sales of the drug were $18.7 million in Bone Care’s fiscal third quarter, a full $1 million over the projection from analysts at First Albany Capital. Based on Hectorol’s sales, First Albany raised its fiscal year 2005 sales guidance for Bone Care to $83 million in late April from $79.8 million.
The numbers prompted First Albany to maintain its “strong buy” status for Bone Care before lowering it to neutral on news of the $33 buyout price.
“Overall, we believe Bone Care is well-positioned to continue gaining share in the vitamin D market as the company has doubled he size of its sales force since last year and the 0.5 mcg Hectorol capsule continues to gain share,” First Albany said in an April 27 report.
In a conference call Wednesday morning, Genzyme Chairman and CEO Henri Termeer noted that Genzyme’s existing overseas sales channels will help place Hectorol into foreign markets where Bone Care has no presence at all.
“It was very important for us to understand that we could grow this franchise and not just add a sales number, but grow the franchise and develop it and grow the business over many years,” Termeer said. “And the basis for that is clearly here.
“Hectorol [has not been] introduced internationally,” he said. “It’s clearly an area where we have been very successful with Renagel. So it’s our full intent to introduce this program throughout the globe alongside the Renagel program.”
In terms of where top Bone Care personnel fit into the new equation, Quinn said the company has not made any determinations. Regulatory approval from the Federal Trade Commission and the Securities and Exchange Commission are expected within 60 days.