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Acquiring a peer across the Atlantic
April 2012
by Jeffrey Bouley  |  Email the author


CAMBRIDGE, U.K.— Early March saw British biotech Abcam PLC, which supplies protein research tools, release its interim results for the six months ended Dec. 31, 2011, and announce that it had entered into a definitive agreement to buy San Francisco-based Epitomics International Inc., an antibody company with extensive operations in China, for a gross amount of $170 million in cash and shares.  
At completion of the acquisition, which is expected to occur no later than May 2012, Epitomics should have net cash of $15 million, resulting in net consideration for the acquisition in the amount of $155 million. Of that, half is payable in cash and the remainder in new Abcam shares—with the acquiring company issuing 14.5 million new shares, or about 7.3 percent of Abcam's enlarged issued share capital, to make that happen.  
The new Abcam shares will be subject to a lock-up on resale that expires six months after the tender offer closes and on other restrictions on resale imposed by U.S. securities laws. Abcam and Epitomics have agreed to a $10 million mutual break fee payable in certain circumstances if acquisition doesn't complete.  
According to Abcam CEO Jonathan Milner, the acquisition should be earnings neutral in the first full year of ownership as Abcam invests funds into the new business to expand production and accelerate growth. Epitomics' acquisition is expected to be accretive to earnings in the second full year of ownership.  
The main reasons for the acquisition, Milner has noted, are to boost Abcam's own antibody technology and gain a significant presence in the Chinese market. Epitomics develops and distributes rabbit monoclonal antibodies—RabMAbs—to pharma and biotech developers seeking new monoclonal antibody therapies, and the company employs some 250 people, with roughly 80 of them based in San Francisco and another 170 in China. In addition to its antibody work, Epitomics also does work in reagents and in-vitro diagnostics.  
Epitomics is currently led by Dr. Guo-Liang Yu, who serves as president, CEO and chairman of the board. Yu received his undergraduate education at Fudan University in Shanghai before immigrating to the United States and did his graduate work at the University of California, Berkeley and Harvard Medical School.  
Abcam's products are used in cancer, cardiovascular, immunology, neuroscience and stem cell research, and it says it looks forward to the addition of the U.S. company as that will allow it to provide custom-made antibodies and gain access to the fast-growing in-vitro diagnostic market.  
This acquisition would make the second in a six-month period for Abcam and would be its largest purchase to date. In September 2011, Abcam agreed to acquire Ascent Scientific Ltd., a specialist provider of biochemical reagents—a purchase that extended Abcam's product portfolio into small molecules and is consistent, Abcam says, with its vision of becoming the world's leading supplier of protein research tools.  
Ascent Scientific brought with it a "diverse and rapidly growing range" of more than 400 bioactive small molecules, manufactured both in-house and through outsourcing. Ascent has a specialist production and analytical facility based in Bristol, U.K., which also serves as the primary distribution outlet and customer support base.
Nearly a year ago, in May 2011, Abcam agreed to acquire Eugene, Ore.-based MitoSciences Inc., a provider of mitochondrial research tools—also stated as being part of the mission to become the leading supplier of protein research and detection tools. Commenting on the half-year result announced in March—which saw sales increase 13.5 percent and profit before tax, after adding back acquisition costs of Ascent, increase 15.9 percent—Milner said, "We are particularly pleased that, despite a tough macro-economic climate, Abcam has delivered revenue growth ahead of our peers whilst also delivering strong profits growth and cash generation. Once again these results demonstrate the strength of our business model and the scalability of our eCommerce platform."
Clearly, with Abcam's lofty proteomic goals, the Epitomics acquisition and the two that preceded it should not be viewed as anything near the end of the line for its M&A activities.  
"These are exciting times for Abcam as we continue to source new products to add to our catalogue whilst also searching for M&A opportunities to create the world's leading life-science reagents company," Milner says, adding that he is "delighted" to add Epitomic, "which marks a gigantic step towards our ambition of creating the world's leading life-science reagents company."  
Reporting by Reuters has revealed opinions among analysts that the fit between Abcam and Epitomics is good, but that the size of the acquisition might pose difficulties. Investec analyst Sebastien Jantet called the acquisition "sensible" while adding that it is a big step financially and logistically, "with the earnings enhancement back-end loaded." Keith Redpath, an analyst with finnCap Ltd., thinks earning enhancement within the next few years will have to be "significant" to justify the purchase price.  

Rabbit Monoclonal Technology  
Epitomics has developed a proprietary method for making monoclonal antibodies from rabbits rather than the conventional method of beginning with mice, which it says offers such advantages as more diverse epitope recognition, improved immune response to small-size epitopes, high specificity and affinity, and greatly improved response compared to mouse antigens.
"To put it simply," the company says on its website, "rabbits offer better antigen recognition," with Epitome adding, "The rabbit immune system generates antibody diversity and optimizes affinity by mechanisms that are more efficient than those of mice and other rodents. This increases the possibility of obtaining a functional antibody that will work in a variety of applications. Additionally, many small compounds and peptides do not elicit a good immune response in mice but do so in rabbits."  
Epitomics' RabMAb technology is reportedly the only currently available hybridoma-based technology for making rabbit monoclonals, with broad patents that cover not only the rabbit fusion partner cell line but also the method for generating rabbit fusion partner cell line and the antibodies produced from the cell line.

Epitomics, Leica Microsystems in pact to supply rabbit monoclonal antibodies
NEWCASTLE-UPON-TYNE, England—Epitomics Inc. and Leica Microsystems announced at the end of February that they have signed an agreement for the supply of proprietary rabbit monoclonal antibodies to Leica Microsystems based on Epitomics' RabMAb technology.  
The agreement also provides long-term support for Leica's incorporation of Epitomics' products into higher regulatory classifications of in-vitro diagnostic products.  
In December, Leica released its one-step, double-staining detection system, Leica ChromoPlex 1 Dual Detection for BOND, and the agreement with Epitomics will allow the company to build a supporting range of antibody cocktails based on Novocastra mouse monoclonal antibodies and RabMAb rabbit monoclonal antibodies, says Dr. Konstantin Fiedler, vice president of advanced staining for Leica's Biosystems division.
"Additionally, with a selection of Epitomics' rabbit monoclonal antibodies, we will also be able to further strengthen our portfolio of Novocastra concentrated and Bond Ready-to-Use antibody selection for our BOND instruments," says Fiedler.
The agreement is an "important endorsement of the quality of Epitomics products in the rapidly growing field of IHC for anatomic pathology," says Dr. Guo-Liang Yu, president and CEO of Epitomics.  
"Epitomics has accumulated a collection of candidate antibodies for potential future incorporation into companion diagnostics products in recent years. This strategic relationship will take us to the next level," says Yu.
Code: E041217



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