Emergent BioSolutions said it is acquiring Cangene for $222 million in an all-cash deal that strengthens the acquiring company’s biodefense portfolio, increases its profitability through commercial product sales, and broadens its manufacturing capabilities.

The deal creates a combined company with more than $430 million in pro forma total revenues and pre-tax operating income of about $55 million.

“This acquisition represents an important step in advancing Emergent’s leadership in specialty pharmaceuticals and positions us to drive significant growth in shareholder value,” Daniel J. Abdun-Nabi, Emergent’s president and CEO, said in a statement. “The acquisition of Cangene is consistent with our stated growth plan to acquire revenue-generating products that leverage our core capabilities.”

The deal would bring into Emergent’s portfolio Congene’s biodefense business, which generated $50 million in revenue for the fiscal year ending July 31. The business consists of three medical countermeasures (MCMs) targeting botulinum, smallpox, and anthrax, each with its own existing multiyear U.S. government contract:

  • BAT® (Botulism Antitoxin [Equine] Heptavalent)—the only FDA-licensed therapeutic for symptomatic botulism following suspected or documented exposure to botulinum neurotoxin serotypes A, B, C, D, E, F, or G. Upon winning FDA approval in March, Cangene received about $18.5 million held back by the Biomedical Advanced Research and Development Authority (BARDA), which awarded the company a $427 million contract in 2006 to develop the drug. Cangene agreed to deliver 200,000 doses of BAT to the U.S. Strategic National Stockpile by 2018.
  • VIGIV® (Vaccinia Immune Globulin Intravenous [Human])—an FDA-licensed therapeutic for complications due to smallpox vaccination, including eczema vaccinatum, progressive vaccinia, severe generalized vaccinia, and vaccinia infections in individuals who have skin conditions, and aberrant infections induced by vaccinia virus, except in cases of isolated keratitis. Cangene’s contract, renewed in September, could generate about $6.9 million over 18 months, with option periods that could draw between $45 million and $77 million.
  • AIGIV (Anthrax Immune Globulin Intravenous)—an investigational therapeutic designed for the treatment of toxemia associated with symptomatic inhalational anthrax. Cangene’s contract, awarded in September, has a total potential maximum value of approximately $264 million.

Emergent said the deal advances its biosciences division toward profitability through the addition of Cangene’s commercial product portfolio. That consists of four FDA-licensed, hospital-based specialty therapeutics targeting infectious diseases, hematology, and transplantation—WinRho® SDF (Rho(D) Immune Globulin Intravenous [Human]), for hemolytic disease of the newborn; HepaGam B® (Hepatitis B Immune Globulin [Human] Injection); VARIZIG® (Varicella Zoster Immune Globulin [Human]), intended to reduce the severity of chickenpox infections; and episil®, a device to manage and relieve pain associated with oral mucositis/stomatitis caused by chemotherapy or radiotherapy.

Cangene racked up $44 million from commercial product revenue and about $33 million from contract manufacturing. Emergent reaffirmed its investor guidance for 2014 of $300 to $310 million in total revenues, and net income of $25 to $30 million.

Cangene, which began marketing its first drug in 1980, maintains manufacturing and plasma collection facilities in Winnipeg, MB; contract manufacturing facilities in Baltimore; and a sales and marketing office in Philadelphia.

The boards of both companies have approved the acquisition, which is expected to be completed in the first quarter of 2014. Shareholders with direct or indirect control of about 61% of Cangene’s outstanding common shares have agreed to vote for the deal, the companies added.

Completion of the deal is subject to approval by 66 2/3% of votes cast by Cangene shareholders, as well as approval by the Ontario Superior Court of Justice, regulatory approvals, and customary closing conditions. At $3.24, the deal’s per-share price represents a 27% premium to Cangene’s closing stock price of C$2.70 ($2.54) on December 10, and a 45% premium to its 90-day volume-weighted average price.

Emergent secured a total $225 million in committed debt financing from Bank of America Merrill Lynch along with PNC Bank and J.P. Morgan Chase Bank, N.A., which will be combined with existing cash reserves and about $35 million of Cangene cash to finance the acquisition and repay existing indebtedness.

“Our diversified business across biodefense, specialty pharmaceuticals, and contract manufacturing is strategically consistent with Emergent’s infrastructure and vision for the future,” John Sedor, Cangene’s president and CEO, said. “We are confident the Emergent team believes in what we do, in our products, in our people, and in our potential. We look forward to building a highly successful future together.”

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