Takeover bid made for Sirtex

US company Cephalon has made a $AUD271 million takeover offer for Sydney-based cancer treatment company Sirtex Medical.

Under the terms of the bid, announced today, Cephalon has offered to pay $AUD4.85 cash for each ordinary Sirtex share.

Cephalon, a Pennsylvania-based company with a market capitalisation of $US2.5 billion, describes itself as a biopharmaceutical company involved in R&D of products to treat sleep and neurological disorders, cancer and pain.

In a statement, Sirtex directors said they intended to recommend to shareholders that they accept the offer.

Sirtex's key product is SIR-Spheres, a cancer treatment by which biocompatible radioactive microspheres are implanted in a catheter that delivers them to the hepatic artery, which feeds the liver, and are trapped in the small blood vessels of tumours.

Dr Bruce Gray, Sirtex's founder and the company's largest shareholder with more than 35 per cent of shares, said in a statement that Sirtex required "significant additional resources" to make SIR-Spheres available to cancer patients. "Cephalon has the resources and experience to make this goal a reality and is an ideal partner for us."

Gray told Australian Biotechnology News that Sirtex had been actively seeking strategic opportunities, and had considered either a distribution deal or acquisition. "Distribution [deals] never quite gelled," he said. "They're fairly expensive and not an attractive proposition."

Market darling

Sirtex has been a market darling over the last 12 months, its share price rising steadily as it successfully rolled out the SIR-Spheres treatment into a growing number of hospitals in the US and Europe.

A February 10 report by Sydney specialist investment bank eG Capital forecast a 12-month price target of $8.75 and a 'strong buy' recommendation. Rumours circulating before today's announcement put Cephalon's takeover offer as high as $7.40 a share.

Gray said the company had never authorised such projections. "If it's all smooth sailing, that's what it is," he said. "But now we're starting to face growing pains."

Gray said the most important issues facing Sirtex were manufacture and supply (SIR-Spheres are made at Sydney's Lucas Heights reactor and shipped worldwide). He said the company also saw competitors coming.

"Then when someone makes a bid for $4.85, you ask yourself is that good value? Yes it is," he said. "Five months ago we were at $2.50, and now we're looking at a bid of almost $5."

SIR-Spheres' sales revenue for 2003 is expected to be more than $US10 million. Cephalon said that from early 2005 it expected to make "substantial investments" in manufacturing and commercialisation to drive the company's growth.

eG Capital director Alison Coutts said she thought the offer was a "disappointing result", especially for those Sirtex shareholders who had paid upwards of $5 a share, "considering the valuations of the company that are abounding in the marketplace."

Under the takeover conditions, Sirtex today entered into a pre-bid agreement with Cephalon under which Sirtex agreed to compensate Cephalon up to $AUD2.7 million if the bid was unsuccessful. The success of the bid will depend on 90 per cent acceptance from shareholders.

eG Capital's Coutts said it wasn't unusual for a company that was seeking to be acquired to agree to pay a cost.

At the time of writing, Sirtex (ASX: SRT) shares were at $4.82, after reaching a high today of $4.99.