Welcome to your deal review for the month of March. Cellular Dynamics threw shareholders for a loop after making a seemingly hasty decision to sell the company off to Fujifilm in a $307* million deal. Merck and synthetic biology specialist Intrexon announced a mammoth CAR-T deal, valued at nearly a billion dollars. Kite Pharma made a strategic acquisition in Europe to deepen its T cell receptor expertise and expand its pipeline.
A dozen or so law firms are investigating the Board of Cellular Dynamics International (ICEL) after the company announced, on March 30th, Board approval of an all-cash acquisition from Japanese giant Fujifilm. The bid from Fujifilm would provide shareholders $16.50 per share, a premium of 108% relative to the previous day’s close. Despite this, shareholders are clearly unhappy with the deal. In the coming weeks, we will find out whether CDI’s Board made sufficient effort to negotiate the best possible deal for shareholders or solicited interest from other potential suitors. There has been rumour CDI might evolve into a therapeutics company, which commands higher valuations. This might explain investors’ disappointment in the valuation. Although, without proof of this, it’s debatable whether this should factor into the deal valuation.
Yet another Big Pharma company entered the CAR-T race last week. Merck Serono (MRK) signed a deal with Intrexon (XON) to gain access to its RheoSwitch® platform to design CAR-T cells with inducible gene expression, an approach that will more optimally regulate their effect in vivo following infusion. In exchange for commercialization rights to the program’s first two targets, Merck will pay Intrexon $115 million upfront; provide up to $826 million in milestone payments; and, pay out a tiered royalty on sales: a total valuation of $941 million and one commensurate with current market interest in cell-based immunotherapies. Intrexon will retain the rights to develop other targets.
Merck entered the cell-based immunotherapy space in 2013 when it partnered with Opexa Therapeutics (OPXA) on the development of Tcelna® (imilecleucel-T), a T cell-based immunotherapy targeted to autoreactive T cells in individuals with multiple sclerosis (T cells that destroy the myelin cells surrounding neurons). Merck recently provided a $3 million payment as part of the collaboration to support the ongoing Phase 2b study of Tcelna® in patients with Secondary Progressive MS.
CAR-T pioneer Kite Pharma (KITE) has strengthened its T cell receptor (TCR) platform through the acquisition of private, Netherlands-based T-Cell Factory. Like Juno Therapeutics (JUNO), KITE is developing T cell therapies that can target both surface (CAR-T) and intracellular (TCR) antigens. KITE plans to leverage T Cell Factory’s discovery platform to fill out its development pipeline. KITE’s most advanced candidate is at the Phase 1 stage and targets various tumour types that express NY-ESO-1. The acquisition will also provide KITE access to investigators, clinical sites, and manufacturing capacity at the Netherlands Cancer Institute. The founders of T Cell Factory received an up front payment of $20 million for the discovery platform (modest given the general valuations we are seeing in the space) and are entitled to milestone payments.
The Fujifilm bid for Cellular Dynamics was somewhat of a surprise, until I looked into the history of the company. As we all know, Fujifilm’s principal business has historically been in optical devices, photofinishing chemicals and accessories. When digital was developed, the company ventured into imaging and medical devices. Since then it has built up an interest in regenerative medicine (RM) and, apparently, for a cash-rich company with $4 billion on its balance sheet for acquisitions, new industry interests are easy to satisfy.
In 2014, Fujifilm purchased Japan Tissue Engineering (TEC) to interface with its existing recombinant peptides business to produce novel RM applications. A source of high quality cells for experimentation purposes is the obvious missing component. CDI would provide extensive intellectual property and the critical mass needed to get a new RM therapeutics company off the ground. Fujifilm is also keenly interested in iPS cells and cells as tools applications like cell-based drug screening, another driving force for the transaction.
*All quoted dollar figures are in U.S. currency.