cook on merger

Merger with Nasdaq-listed Nabi the perfect drug for Biota
Rebecca Urban
September 24, 2012 12:00AM

Peter Cook, chief executive of Biota, is convinced the merger with Nabi Biopharmaceuticals in the US will give the Australian company the right exposure. Picture: Stuart Mcevoy Source: The Australian
PETER Cook has spent enough time in the US in recent months to be convinced that Biota's merger with the Nasdaq-listed Nabi Biopharmaceuticals is the right move.
The bankers, investment managers and analysts that the Biota chief executive meets all seem to know about the flu drug developer and understand its story.
"They love it," Cook says. "We are better known in the US than we are here, before we started this process and more so now. We walk into an investment house and they immediately know all about us."
It's Nabi's own investors who have proven less than receptive to the prospect of a merger.
Headquartered in Rockville, Maryland, the biotechnology company had been developing a vaccine to help smokers kick the habit before it fell over in late-stage clinical trials last year, leaving it with more than $US90 million ($86m) in cash and nothing to spend it on.

But while Nabi was out looking for business opportunities, many of its investors were eyeing off  the cash.
The merger, announced in April, is a backdoor listing into the US for Biota, an Australian Securities Exchange-listed pharmaceutical developer best known for its flu drug Relenza that has long felt under-appreciated by the local market.
The original deal would have involved Nabi contributing about $US54m of its cash, with Biota chipping in its drug development pipeline as well as royalty earnings from its products that are already on the market.
However, the deal has since been amended to appease Nabi stockholders, who were shaping up to reject the proposal at a meeting to be held this week.
Under the revised terms, the amount of cash that Nabi will contribute has been slashed to $US27m, with the excess funds to be returned to Nabi stockholders. As a result, Biota's shareholders will emerge with a greater proportion of the merged entity, which has generally been welcomed by investors.
Cook, however, stresses that the amended deal is not about pacifying one of Nabi's more outspoken investors, the arbitrage player Mangrove Partners, which had been soliciting proxies in a bid to block the deal.
He says the decision came after several sleepless nights spent wondering, "how can we rescue  this?", and followed discussions with Nabi's board as well as banking and legal advisers.
As it was a scrip-based merger, he says, it came down to simple mathematics.
"The companies' share prices had shifted around quite a bit," Cook says.
"Nabi's went down and up, ours went down and up and back down. The reality was . . . Biota's share price had become unattractive to Nabi. They were going to be paying $US54m to get around $US46m in Biota stock and that's just a no-brainer."
For Biota, the merger has never been about getting hold of Nabi's cash.
At the end of the 2012 financial year, it had more than $50m cash of its own as well as a $US231m deal with the US Biomedical Advanced Research and Development Authority to fully fund development of its next-generation flu drug, Laninamivir, through to phase three trials.
Biota is keen to be sited closer to its main customer, the US government, as well as investors who understand it and value it appropriately, which, it believes, will improve liquidity for shareholders. One of its largest investors is the US-based East Hill Holding Company, which owns a 12 per cent stake, and is backing the merger.
Cook blames "legacy issues" for dragging on Biota's share price, which peaked at almost $7 back in 1999, when the company launched Relenza, but has languished since.
Relenza sales, and therefore the royalties that Biota is entitled to receive, have never quite lived up to initial expectations because of a fractious relationship with marketing partner GlaxoSmithKline, which culminated in costly legal action that was eventually settled.
"Our share price moves on one thing -- threat of influenza outbreak, real or imagined," Cook says. "I don't think the market has recognised the value accretion points on the way through."
Biota's chief executive for the past seven years also believes part of the problem is that Biota differs from other well-known companies in Australia's life science sector. It is not a device-maker like ResMed and Cochlear.
Nor does it have much in common with companies such as Pharmaxis and Acrux, which have both had recent success getting new pharmaceutical products to market based on previously approved drugs. Cook likens Biota to a small pharmaceuticals developer and believes the work and processes involved in developing a new drug for market are widely misunderstood by the local market.
While Biota's share price has fallen significantly in recent months -- it was trading at 94.5c before the merger announcement and hit a low of 66c last month -- the company does not perceive that as a sign its shareholders do not support the merger.
Cook puts the fall down to an inevitable "wait-and-see mentality" until it becomes apparent whether it succeeds or not.
He says he understands that some mum-and-dad investors might not wish to continue to hold the company's shares if they are listed on a foreign exchange, given the added paperwork required for overseas trading.
However, he insists shareholders had received ample notice that the company was tracking towards a Nasdaq listing as far back as the 2010 annual meeting, when the idea was initially flagged.
Recent investor roadshows in Australia have drawn mixed reactions. Surprisingly, for a company with close to 12,000 shareholders, each meeting has been lucky to attract a dozen people.
In Brisbane, the audience had tended to ask many questions, keen to gather information on the deal. In Sydney, "they all think they can do my job better than me," Cook jokes.
But, in reality, 90 per cent of the proxies already lobbed by Biota shareholders have been in favour of the merger.
A shareholder meeting scheduled to take place in Melbourne tomorrow has been postponed, to give investors more time to consider the amended deal.
However, the merger is still on track to be completed by the end of the year.
While Biota is in talks with a US executive, former Inhibitex Incorporated boss Russell Plumb, about running the merged company, Cook plans on sticking around for a "reasonable period of time".
Cook and the former Ansell executive and Biota chairman Jim Fox will likely join the board as non-executive directors.
Cook, who was paid $897,000 last year, according to Biota's annual report, also intends to keep a stake in the company, which currently constitutes 700,000 shares.
After all, he says, after years of planning it's now a matter of when -- not if -- Biota hits the "big time".