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Eyebrows are raised over Paion’s move on the MG6 pharma
by Susanna Twidale
The latest takeover deal in the biotech sector has left investors scratching their heads as to how management could recommend an offer valuing Cenes Pharmaceuticals at a 16% discount to its 58p 2008 high. Germany’s Paion has made a share swap offer equating to £10.9 million or 48.9p a share, but Cenes chairman Allan Goodman argues it is a good deal. ‘There is more to the combination than our valuation; you also have to look at the valuation of Paion.’ He argues that with a market cap of just E27.7 million, Paion, with a cash balance of around E45 million, is also extremely undervalued, and that as a result Cenes shareholders are also getting a good deal. ‘Both companies are at a discount to assets but there are advantages for both sets of shareholders going forward.’ He also notes that it represents a 53% premium to the company’s 32p closing price on the day before the bid.
But it still seems curious given the company’s previous statements. As recently as September last year Cenes management was trumpeting the deal it had secured with Ono for the Japanese rights to its sedative/anaesthetic drug CNS 7056. ‘This deal alone underpins the valuation of the company,’ the interims said, when the shares were trading around 75p-80p. Since then, however, the company has failed to find a licensing partner for its lead product, pain relief drug M6G and, with just £4.3 million cash in the bank at the end of 2007, looked to be running out of options.
Without the deal the company would have been ‘desperately looking for upfront cash payment,’ Goodman says, which would have led to it giving away royalties and milestones further down the line: more lucrative in the long term he argues.
Collins Stewart analyst Navid Malik says Paion and Cenes are an unlikely combination, calling it a ‘chalk and cheese’ situation. Yet he also says it is probably a good deal for Cenes, as the combined company’s cash pile will give it some breathing space to secure a deal
for M6G. ‘I wouldn’t say it de-risks the story but it does lengthen the runway.’
The aim is still to find a licensing partner for MG6, currently in Phase III trials. ‘Discussions are ongoing and we would still look to do a partnering deal,’ Goodman says, although he also says the deal with Paion will enable the company to negotiate more favourable terms.
Three of the company’s major shareholders have already indicated they will accept, the bid, according to Goodman, which along with management makes up around 37% of the shares.