Japanese to Buy San Diego Biotech Firm
In yet another Japanese move into the U.S. biotechnology industry, Gen-Probe, a San Diego company selling medical diagnostic products, has agreed to be acquired by Chugai Pharmaceutical Co. of Tokyo for $110.6 million.
The Gen-Probe deal illustrates that the Japanese are aggressively pursuing a goal of biotechnology dominance. The deal also exemplifies how small U.S. biotechnology firms are having increasing difficulty raising capital to finance product development, a condition that is pushing them into the arms of the Japanese, analysts said Tuesday.
Japanese companies have made marketing, research and equity investment agreements with 250 or more of the 1,100 U.S. biotechnology firms, said G. Steven Burrill, head of Ernst & Young’s biotechnology consulting operation in San Francisco. But Chugai is proposing what would be only the second Japanese acquisition a publicly owned U.S. biotech firm, he said.
Last summer, publicly owned Lyphomed of Rosemont, Ill., was acquired by Yamanouchi Pharmaceutical in a two-stage deal worth more than $700 million.
“Japan has set worldwide dominance of biotechnology by the year 2000 as a national priority,” Burrill said. “When Japan has set a priority in a given industry--be it autos, steel, consumer electronics or semiconductors--they have gotten their act together and come out major winners.”
Gen-Probe officials admitted Tuesday that, before accepting the Chugai offer, the company found itself at a “strategic crossroads” with cash running low. As of Sept. 30, shareholders’ equity had been reduced to $8.2 million after losses totaling $29.5 million since its 1983 founding.
Gen-Probe was considering raising $5 million to $7 million in a private equity placement before deciding on the Chugai buyout, President Thomas Bologna said Tuesday.
For the nine months ended Sept. 30, Gen-Probe reported a loss of $4.2 million on revenue of $7.2 million, contrasted with a loss of $6.9 million on revenue of $3.9 million for the same three quarters last year. Product sales increased to $3.6 million from $2 million a year ago.
Chugai will tender $6.25 for each of Gen-Probe’s 17.7 million fully diluted shares, Gen-Probe officials said. The offer is more than twice the $3.125-per-share price of Gen-Probe shares in over-the-counter trading Monday, before the deal was made public. The stock closed Tuesday at $6, up $2.875. The offer is less than the $7 a share that investors paid in Gen-Probe’s October, 1987, initial public stock offering, but analysts generally were enthusiastic.
“I think it’s a great deal for shareholders,” said Peter Drake of Vector Securities, an investment banking firm in Deerfield, Ill. Recent deals, including Genzyme’s acquisition of Integrated Genetics and Xoma’s buyout of Ingene, have been done at or below the companies’ stock market value, Drake said.
Founded in 1983, Gen-Probe sells medical diagnostic products that involve the binding of pieces of synthetic genetic material to genes of viruses, bacteria, other human pathogens and cancer cells in human blood. The resulting hybrids are then made to emit light or radioactivity for detection in hospital laboratories.
Gen-Probe has received Food and Drug Administration approval for eight DNA probe products, more than any other genetic probe company, Gen-Probe treasurer Howard Sampson said. The best-selling kits are those that test for venereal diseases, including chlamydia and gonorrhea.
Gen-Probe’s product sales have increased more slowly than hoped. The firm’s first products--kits for Legionnaires’ disease and pneumonia--met market resistance because they involved radioactive materials and thus required special handling. The company has since shifted new product development toward non-radioactive “chemiluminescent” hybrids that emit light when tests are positive.
In 1988, Chugai and Gen-Probe signed a joint research and marketing deal in which Chugai paid $15 million to fund Gen-Probe’s research for 10 diagnostic products.
