23 May 2013
BTG PLC
PROPOSED ACQUISITION OF THERASPHERE(R)
Creating a leading Interventional Oncology business and accelerating BTG's Interventional Medicine strategy
Introduction
BTG plc (BTG), the specialist healthcare company, is pleased to announce that it has entered into an agreement to buy the Targeted Therapies division of Nordion, Inc. (Nordion) for a total cash consideration of approximately US$200 million (GBP133 million)(1) (the Targeted Therapies Acquisition).
The consideration payable under the Targeted Therapies Acquisition will be funded in part out of existing cash resources, with the balance being funded by part of the net proceeds of a placing of up to 32.8 million new ordinary shares, representing up to 9.99 per cent. of BTG's existing issued ordinary share capital, announced separately today (the Placing).
The Targeted Therapies Acquisition is subject to approval from BTG shareholders (the Shareholders). BTG will post a circular to Shareholders convening a general meeting to approve the Targeted Therapies Acquisition (the Circular) and a further announcement will be made when the Circular is posted. BTG has received letters from Invesco Asset Management Limited and M&G Investment Management Limited indicating their intention to vote in favour of the Targeted Therapies Acquisition in respect of 134.1 million shares, representing approximately 40.9 per cent of the issued share capital of BTG, as at the date of this announcement.
Targeted Therapies is a high growth profitable business that is focused on utilising Therasphere(R) for targeted interventional treatment of liver cancer. Therasphere(R) is a product comprising radioactive glass beads which target the tumour from within the body with a high concentration of radiation, thereby limiting both damage to surrounding healthy tissue and side effects for the patient in comparison to externally delivered radiation.
The rationale for the acquisition of Targeted Therapies, and the Therasphere(R) product, is as follows:
-- Complementary transaction in line with BTG's existing strategy of growing its Interventional Medicine business, following its acquisition of Biocompatibles International plc
-- Creates a leader in interventional oncology
-- Scale benefits of an enlarged platform including an enlarged combined U.S. field force
-- A reduction in the annualised operating costs of Targeted Therapies of approximately US$3 million is expected by the end of financial year ended 31 March 2014
-- Attractive financial impact with an estimated ROI in line with BTG's target for this type of acquisition of 15 per cent to 20 per cent in year five(2)
Louise Makin, CEO of BTG, said:
"This is an exciting opportunity to build on our existing interventional oncology business and to create a commercial and scientific leader in the sector. We believe that the combination will be highly beneficial to both patients and physicians as it brings together expertise that will be applied to the development and use of locoregional therapies for liver cancer."
A conference call for analysts will be held this morning at 8am BST. For details please contact Mo Noonan at FTI Consulting on +44 (0)20 7831 3113.
BTG Plc +44 (0) 20 7575 0000
Louise Makin - Chief Executive
Officer
Rolf Soderstrom - Chief Financial
Officer
Andy Burrows, Director of Investor
Relations +44 (0) 20 7575 1741
J.P. Morgan Cazenove +44 (0)20 7742 4000
James Mitford
Nicholas Hall
FTI Consulting +44 (0) 20 7831 3113
Ben Atwell
Simon Conway
Information on Targeted Therapies
Through the Targeted Therapies business, Nordion manufactures and markets Therasphere(R), which is used in the treatment of both inoperable primary liver cancer (HCC), the most common form of primary liver cancer, and metastatic liver cancer. Therasphere(R) is approved in the U.S. by the Food and Drug Administration (the FDA) under a Humanitarian Device Exemption (HDE) as a radiation treatment for HCC. In the EU and Canada, Therasphere(R) is approved for the treatment of liver neoplasia, which includes both HCC and metastatic liver cancer.
The marketing of Therasphere(R) is carried out directly in the U.S., Canada and certain EU countries, and the Therasphere(R) product is sold via distributors in a number of other territories. Therasphere(R) is a therapy that consists of millions of small glass beads (20 to 30 micrometres in diameter, or about the width of a human hair) containing yttrium-90 (Y-90), a radioactive substance used for a number of therapeutic purposes. The product is injected by physicians into the artery of the patient's liver through a catheter, which allows the treatment to be delivered directly to the tumour via its bloodflow.
The Targeted Therapies business is currently headquartered in Ottawa, Canada, and has an international presence, with Therasphere(R) being used in approximately 200 sites in 15 countries around the world. It is expected that approximately 45 employees from the Targeted Therapies business will transfer to BTG with effect from completion of the Acquisition.
As mentioned above, in the U.S., Therasphere(R) is currently authorized by the FDA for use under an HDE as a radiation treatment for HCC. HDE marketing approvals are based on demonstrated safety and probable clinical benefit although efficacy in the designated indication has not been established in randomised controlled clinical trials. A HDE authorises marketing of a Humanitarian Use Device (HUD) that is intended for use in diseases or conditions affecting fewer than 4,000 patients per year in the U.S.
The following clinical Phase III trials are at an early stage of being conducted with a view to seeking pre-market approval (PMA) for Therasphere(R) from the FDA in the U.S. and expanding usage of the product:
(a) STOP-HCC, a trial focused on obtaining full approval in the U.S. for Therasphere(R) as a treatment for HCC;
(b) EPOCH, a trial intended to be used to obtain PMA in the U.S. for treatment of metastatic colorectal cancer to the liver; and
(c) YES-P, a Europe-focused trial in a subset of primary liver cancer patients with portal vein thrombosis. Activation of sites in Europe for the YES-P trial is anticipated to take place in 2013.
The Targeted Therapies business has a track record of fast growth, with sales having increased by 29 per cent compound annual growth rate over its previous three financial years. In addition, Nordion has increased investment to fund the three clinical trials set out above.
Under a Manufacturing and Support Agreement (further details of which are set out below), a subsidiary of Nordion will supply to the BTG Group, for a period of up to five years, the finished Therasphere(R) product and will be paid a manufacturing margin for this by the BTG Group. The BTG Group has the right to require the technology for the manufacturing process to be transferred to it or a third party manufacturer.
The table below sets out summary financial information for the Targeted Therapies business for the periods indicated and which has been prepared, in accordance with BTG's IFRS accounting policies, on an unaudited basis.
Year ended 31 October 2010 Year ended 31 October 2011 Year ended 31 October 2012
US$ million US$ million US$ million
(unaudited) (unaudited) (unaudited)
Revenue 29 43 48
Gross profit 22 30 35
Operating profit 8 11 13
The unaudited gross assets which are the subject of the transaction are US$9.4 million as at 31 October 2012.
Background to and reasons for the Acquisition
Overview
BTG has established two U.S. field forces to support its Specialty Pharmaceuticals and Interventional Medicine businesses, and has been following a strategy to leverage its commercial infrastructure by acquiring and developing additional products and late-stage programmes it can market itself in the U.S. to specialist physicians.
The Board believes that the acquisition of the Targeted Therapies business is an opportunity to add a profitable, growing and complementary product to BTG's existing Interventional Medicine business, creating a leader in interventional oncology and accelerating BTG's Interventional Medicine strategy.
Complementary transaction in line with strategy
The Board believes that the Therasphere(R) product and BTG's Interventional Medicine products are complementary. They constitute different procedures and have different mechanisms of action, as summarised in the table below. The Board believes that the future development of BTG's beads in HCC and colorectal cancer that has metastasised to the liver (mCRC) will be complemented by the addition of the Therasphere(R) product, enabling BTG to offer a broader range of interventional oncology products to physicians treating patients with liver cancer.
Therasphere(R) DC Bead(R)
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Procedure
* Internal radiation therapy * Trans Arterial Chemo Embolisation (TACE)
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Customers * Interventional radiologists
* Interventional radiologists
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Size * 70-900um
* 20-30um
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Mechanism of
action * Radiation * Embolisation (occlusion) with chemotherapy
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Main clinical
use today * Advanced Stage HCC * Intermediate stage HCC
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Growth Drivers
* mCRC * mCRC& early stage HCC disease
* Asia Pacific * Asia Pacific
* Europe & US * Phase III trials
* Phase III trials * Other metastatic tumours
* Combination with DC Bead(R) * Combination with Therasphere(R)
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Creates a leader in interventional oncology
Following the Acquisition, the Board expects that annual sales of interventional oncology products by BTG and the Targeted Therapies business (together, the Enlarged Group) will be over US$100 million.
Liver cancer is one of the biggest cancer-related killers of adults globally, and primary liver cancer alone is the third most common cause of death worldwide. There are over 1.2 million new cases of primary liver cancer and secondary liver cancer due to mCRC each year globally. By expanding its product offering within the overall liver cancer treatment sector through the Acquisition, the Board believes that the Enlarged Group will be well positioned for long term sustainable growth.
The Board anticipates that the addition of the Targeted Therapies business to BTG will create the opportunity to continue to drive growth through sales and marketing across BTG's major geographic regions of the U.S. and Europe, with enhanced potential in the medium term to gain traction in Asia-Pacific markets, and through continued investment in clinical studies designed to support expanded approval and uses of its products.
The Board expects that the interventional oncology liver cancer treatments sector will grow in sales value to approximately US$400 million by 2021, equating to a compound annual growth rate of eight per cent. The Board believes that total sales value in this sector has the potential to reach over US$800 million by 2021 when taking account of potential investments in clinical trials, geographic expansions and product innovation. The Board believes the annual sales of interventional oncology products by the Enlarged Group have the potential to reach US$300 million - US$400 million.
Scale benefits of an enlarged platform
The Board expects that there will be revenue enhancement opportunities through the combination of BTG's and the Targeted Therapies business's field forces in the U.S. The total US field force of the Enlarged Group is expected to increase from 32 to 43 representatives, selling two complementary product offerings to the same group of physicians.
Operating benefits
The Board expects that there will be a reduction in the annualised operating costs of Targeted Therapies of approximately US$3 million by the end of financial year ended 31 March 2014.
BTG has a strong history of successfully integrating its acquisitions. Protherics was acquired in December 2008 and GBP20 million of synergies were forecast and subsequently delivered by 31 March 2011. Biocompatibles was acquired in January 2011 and GBP3 million of synergies were forecast and delivered by the end of March 2012.
Attractive financial impact
Notwithstanding that the Board expects that ongoing margins for the Targeted Therapies business will be impacted by costs associated with the Manufacturing and Support Agreement and investment in R&D, the Board expects that the Acquisition will have an attractive financial impact. The Board anticipates that Therasphere(R) Phase III clinical trials will be self-funded by the revenues generated by Therasphere(R) sales, at an expected investment of GBP10 million per year for the initial trial period of five years. The existing and planned R&D expenditure for the Enlarged Group will be reviewed in light of the combination of the BTG Group and the Targeted Therapies business.
The Board expects ongoing double-digit growth in the demand for interventional oncology products and operational cost savings will drive an estimated ROI in line with BTG's target for this type of acquisition of 15 per cent to 20 per cent in year five. Further to this, the Board anticipates that the financial impact of the Acquisition could be further enhanced if the PMA results for the Targeted Therapies business's clinical trials are successful.
Principal terms of the Acquisition
On 23 May 2013, BTG and Nordion entered into the Share Purchase Agreement in respect of the Acquisition, pursuant to which a subsidiary of BTG (the Purchaser) will acquire the Targeted Therapies Business from Nordion (Canada) Inc. (the Seller), a subsidiary of Nordion. The Acquisition is structured as follows:
-- under an Asset Purchase Agreement, the Seller will transfer the assets and rights used to conduct the operations of the Targeted Therapies business to a newly-incorporated, wholly-owned subsidiary of the Seller (Newco). Such transfer will take place immediately before completion of the Share Purchase Agreement;
-- under the Share Purchase Agreement, the Purchaser will acquire the entire issued share capital of Newco from the Seller; and
-- the Seller will continue to manufacture Therasphere(R) for the BTG Group pursuant to a manufacturing and support agreement (the Manufacturing and Support Agreement).
The consideration payable for the Acquisition will be US$200 million (GBP133 million)(3) and will be subject to a post-closing adjustment to the extent that the working capital of Newco as at completion of the Share Purchase Agreement is greater or less than an agreed target working capital for Newco.
BTG will offer employment to 45 current employees of the Targeted Therapies business, which the Board believes will be sufficient to enable the Targeted Therapies business to continue to operate as part of the Enlarged Group following completion of the Acquisition.
Completion of the Share Purchase Agreement is conditional upon the fulfilment (or, where applicable, waiver) of the conditions set out in the Share Purchase Agreement, which include, amongst other things, the approval of the Targeted Therapies Acquisition by the Shareholders.
The Seller and Biocompatibles UK Limited (a member of the BTG Group) have entered into a Manufacturing and Support Agreement pursuant to which the Seller will manufacture and supply Therasphere(R) for the BTG Group at the Seller's facility in Ottawa, Canada, and coordinate the distribution of Therasphere(R). The BTG Group has the right to require the technology for the manufacturing process to be transferred to it or a third party manufacturer. The Manufacturing and Support Agreement is for an initial term of three years. Biocompatibles UK Limited may extend the agreement for up to an additional two years beyond the initial term.
Further information
Targeted Therapies is of sufficient size relative to BTG to constitute a Class 1 transaction under the Listing Rules and the Acquisition is, therefore, conditional upon the approval of Shareholders.
Further details of the Acquisition, together with a notice convening a General Meeting to approve the Acquisition, will be contained in the Circular to be sent to Shareholders. BTG will publish a further announcement upon the publication of the Circular.
BTG was advised by J.P. Morgan Limited, Osler, Hoskin & Harcourt LLP and Allen & Overy LLP on the Acquisition. N. M. Rothschild provided general corporate advice to BTG.
In addition to the Targeted Therapies Acquisition announced today, BTG announced separately today the acquisition of the EKOS Corporation.
(1) Converted at an exchange rate of 1.506 as at 22 May 2013.
(2) This statement is not intended as a profit forecast or profit estimate and relates to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. This statement should not be interpreted to mean that the future earnings per share of the Enlarged Group for current or future financial years will necessarily match or exceed historical or published earnings per share of BTG.
(3) Converted at exchange rate of 1.506 as at 22 May 2013.
Disclaimer
This announcement and the information contained in it is not for publication, release or distribution, in whole or in part, directly or indirectly, in or into the United States, Australia, Canada, Japan or South Africa or any other state or jurisdiction in which publication, release or distribution would be unlawful. This announcement is for information purposes only and does not constitute an offer to sell or issue, or the solicitation of an offer to buy, acquire or subscribe for shares in the capital of BTG plc (the Company) in the United States, Australia, Canada, Japan or South Africa or any other state or jurisdiction in which such offer or solicitation is not authorised or to any person who whom it is unlawful to make such offer or solicitation. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions. The shares to be issued by the Company under the Placing (the Placing Shares) have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act) or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. The Placing Shares are being offered and sold outside the United States in accordance with Regulation S under the Securities Act. No public offering of the shares referred to in this announcement is being made in the United States, United Kingdom or elsewhere.
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