Wyeth courting Crucell

Just hours after boasting about the company’s $14bn cash pile and desire to make biotechnology acquisitions at the Goldman Sachs healthcare conference yesterday, Wyeth’s chief executive, Bernard Poussot, proved true to his word with news that the company is in “friendly discussions” to buy Dutch vaccine maker Crucell.

Considering the amount of air time given to talk about a surge in deals the healthcare industry is expected to see this year, the move is not particularly surprising, especially as Wyeth is already very strong in the vaccines space. With Crucell’s shares jumping 38% to €15.93 in mid-afternoon trading today, the market is clearly hopeful Wyeth will make a formal offer, with some analysts predicting a bid in the €15 – 20 per share range, valuing Crucell at around €1.3bn ($1.8bn).

Chances of success?

Although both companies would probably have preferred that their discussions remained private until a formal agreement had been reached, it appears Crucell’s hand was forced to reveal these talks with Wyeth by a leak during late trading yesterday which caused Crucell’s ADRs to suddenly jump 34%, causing a suspension of further trading.

With Crucell claiming the discussions “are at a preliminary stage” the chances of an agreement being reached or within what timeframe remain uncertain.

However, given Wyeth’s expertise in the field as the industry’s fourth biggest-seller of vaccines and a limited number of vaccine companies available to big pharma to consolidate their positions in this rapidly growing sector, many commentators expect a deal to be reached.

Valuing the deal

Crucell currently sells around 35 vaccines globally, with a broad portfolio of traveller vaccines for cholera, hepatitis, typhoid and yellow fever. However, the group’s biggest-selling vaccine and major growth driver is Quinvaxem, launched in 2006, which protects children against five major diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B and Haemophilus influenzae type b (causing bacterial meningitis).

Sales of Quinvaxem are one of the main reasons Crucell recorded a profit for the first time in the third quarter last year (Crucell needs to prove it is more than Quinvaxem, November 11, 2008).

With Quinvaxem sales set to peak at $217m in 2010, the vaccine is worth $556m to Crucell, according to EvaluatePharma’s NPV Analyzer. The total value of all Crucell’s vaccines currently sits at $1.28bn, or $19 (€14) per share (see table below).

Therefore Crucell’s current share price of around €16 offers a modest premium to this NPV rating, which does not value the company’s vaccine and antibody technology platforms or many of its earlier stage vaccines.

As such, some analysts have suggested a bid in the €15 – 20 per share range could materialise to fully account for the technology value and the scarcity of vaccine assets available. Sanofi-Aventis’ $549m acquisition of UK vaccine company Acambis last year attracted a 65% premium; a similar premium for Crucell would equate to an offer of around €19 per share.

Rationale for Wyeth

The vaccine sector, for so many years dismissed as unattractive and untrendy, is now set to be one of the fastest growing therapy areas in the industry (Therapeutic focus - vaccines set for rapid growth, June 25, 2008).

Wyeth already sells the world’s biggest-selling vaccine in Prevnar, a pneumococcal vaccine for infants and toddlers, which is expected to have generated sales of $2.8bn in 2008 and is forecast to reach $3.8bn by 2014.

Although Crucell’s annual revenues of around $350m will come in handy as Wyeth negotiates its way through its own patent cliff starting in 2010 with generic competition to Effexor XR, the main rationale for acquiring Crucell is more likely to be to expand its vaccine and antibody technology capabilities whilst picking off one of the few remaining vaccine assets.

Bidding war

Crucell currently has no fewer than 72 different partners, including Wyeth following an early-stage vaccine deal in 2007, and other pharma giants such as Merck & Co, Sanofi-Aventis and Novartis.

As such, some commentators have suggested that a bidding war may break out with Novartis and Sanofi-Aventis potential counter-bidders. However, given potential anti-trust issues and the fact these deals are likely to be unaffected by a change of ownership, the chances of a bidding war appear low.

Assuming Wyeth does acquire Crucell and following Sanofi-Aventis’ acquisition of Acambis, the vaccines sector appears to be set for a new wave of consolidation, the previous one being in 2005/06. Interestingly the deals so far have involved companies already active in the vaccines space, in contrast to Novartis’ acquisition of Chiron in 2006 which marked a new strategic direction for the Swiss company.

Meanwhile the shares of Crucell’s peers rose today, with Bavarian Nordic rising 11% to DKr158 and Intercell up 7% to €24.25.