Bristol-Myers Squibb to Acquire ZymoGenetics

BMS to Pick Up ZymoGenetics for $885M
NEW YORK & SEATTLE, Sep 07, 2010 (BUSINESS WIRE) -- --Gains Full Rights to Promising Phase II Hepatitis C Biologic, Pegylated-Interferon Lambda

--Obtains FDA-Approved Specialty Surgical Biologic, RECOTHROM(R)

--Attains Early Clinical and Pre-clinical Programs in Oncology and Immunoscience

Bristol-Myers Squibb Company (BMY 26.78, +0.17, +0.64%) and ZymoGenetics, Inc.(ZGEN 9.76, +4.46, +84.06%) announced today that the companies have signed a definitive agreement providing for the acquisition of ZymoGenetics by Bristol-Myers Squibb, for $9.75 per share in cash. The transaction, with an aggregate purchase price of approximately $885 million, or approximately $735 million net of cash acquired, has been unanimously approved by the boards of directors of both companies. The board of directors of ZymoGenetics intends to recommend that ZymoGenetics' shareholders tender their shares in the tender offer. In addition, shareholders holding approximately 37% of the outstanding shares of ZymoGenetics' common stock have entered into agreements with Bristol-Myers Squibb to support the transaction and to tender their shares in the offer.

"The acquisition of ZymoGenetics brings us full ownership of a promising investigational biologic that strengthens our very diversified Hepatitis C portfolio. Building on our leadership in virology, we are developing a strong portfolio to help patients with Hepatitis C," said Lamberto Andreotti, chief executive officer, Bristol-Myers Squibb. "In addition, ZymoGenetics brings proven capabilities with therapeutic proteins and revenue from a marketed specialty surgical biologic. This acquisition is another example of our strategic, targeted approach to business development."

"By joining forces with Bristol-Myers Squibb, we believe we will enhance the long-term potential of ZymoGenetics' portfolio of assets, while providing a compelling valuation for our shareholders," said Douglas E. Williams, Ph.D., chief executive officer of ZymoGenetics. "Our collaboration with Bristol-Myers Squibb in the development of PEG-Interferon lambda has been extremely positive and it has given us an opportunity to fully appreciate their capabilities. We believe that this transaction will maximize the potential for our products and product candidates to make a meaningful difference for patients in need."

Bristol-Myers Squibb gains the following as a result of the acquisition:

-- Full ownership of pegylated-interferon lambda, a novel interferon in Phase IIb development for the treatment of Hepatitis C infection, which, if approved, could be an important contributor to Bristol-Myers Squibb's future growth. The companies have collaborated on the development of pegylated-interferon lambda since January 2009. Four-week and 12-week results from a Phase IIa study will be presented at the American Association for the Study of Liver Diseases meeting later this year.

-- RECOTHROM(R), a recombinant thrombin approved by the U.S. Food and Drug Administration for use as a topical hemostat to control non-arterial bleeding during surgical procedures.

-- IL-21 protein, a cytokine currently being tested in an open-label, Phase II clinical study as a potential immunotherapy treatment for metastatic melanoma.

-- An earlier-stage pipeline of six biologic drug candidates, including an anti-IL-31 antibody, currently in pre-clinical development for atopic dermatitis.

-- Potential milestone and royalty payments from six partnered programs in various stages of clinical development by EMD Serono, Inc., an affiliate of Merck KGaA, and Novo Nordisk.

"ZymoGenetics is a leader in advancing novel biologics, particularly genomics-based therapies," said Elliott Sigal, M.D., Ph.D., executive vice president and chief scientific officer, Bristol-Myers Squibb. "We expect ZymoGenetics' pipeline and biologics capabilities to complement and enhance our existing efforts in Hepatitis C, oncology and immunoscience."

Initially, the transaction is expected to be modestly dilutive to earnings per share (EPS) for Bristol-Myers Squibb. In 2010, the transaction is expected to be dilutive to EPS by approximately $0.03. In 2011, the transaction is expected to be dilutive to EPS by approximately $0.07.

Under the terms of the definitive agreement, Bristol-Myers Squibb will commence a cash tender offer on or about September 9, 2010 to purchase all of the outstanding shares of ZymoGenetics' common stock for $9.75 per share. The closing of the tender offer is subject to customary terms and conditions, including the tender of a number of shares which is equal to or greater than 48,282,192 shares (which represents approximately 56% of the outstanding shares as of August 31, 2010, which represent a majority of the shares on a fully-diluted basis, excluding certain shares underlying derivative securities that are significantly out-of-the-money), and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. The agreement also provides for the parties to effect, subject to customary conditions, a merger to be completed following the completion of the tender offer which would result in all shares not tendered in the tender offer being converted into the right to receive $9.75 per share in cash. The merger agreement contains a provision under which ZymoGenetics has agreed not to solicit any competing offers for the company. Bristol-Myers Squibb will finance the acquisition from its existing cash resources. The companies expect the tender offer to close approximately thirty days after commencement of the tender offer.

Morgan Stanley & Co. Incorporated is serving as financial advisor to Bristol-Myers Squibb in connection with the acquisition, and Bristol-Myers Squibb is represented by Kirkland & Ellis LLP. Goldman, Sachs & Co. is serving as financial advisor to ZymoGenetics in connection with the acquisition, and ZymoGenetics is represented by Latham & Watkins LLP and Fenwick & West LLP.

Vascular Closure Devices’ Sharp Rise in Unit Sales Drives the Overall U.S. Peripheral Vascular Device Market

Vascular closure devices, which include both invasive and non-invasive products, are rapidly being adopted by the medical community. The market for VCDs is expected to exhibit strong growth through to 2016, thus driving the total U.S. market for peripheral vascular devices.

Vascular Closure Devices

VCDs are used in both coronary and peripheral vascular procedures, particularly if a catheter is used during an endovascular treatment. The traditional method for achieving vascular closure is manual compression, where a healthcare worker applies pressure to the site in order to achieve hemostasis. However, manual compression is not only time consuming for healthcare employees, but also requires the patient to remain immobile for an extended period of time.

With the rise of for-profit medical centers and a shortage of available nursing labor, the medical industry has sought a safe and effective alternative to manual compression. Since VCDs were approved for use in the U.S. in the 1990s, two types of devices have been developed: invasive and non-invasive. Invasive VCDs are used percutaneously and achieve hemostasis through the use of sealants, sutures or specialized sponges, while non-invasive VCDs involve the use of a compression pad or inflatable bulb at the surface of the site to mimic the effects of manual compression. In 2009, invasive VCDs represented 85.5% of the total VCD market revenues, while non-invasive devices comprised the remaining 14.2%. While the use of both types of VCDs is expected to rise, growth in non-invasive devices will outpace, but not overtake, invasive devices by 2016.

VCDs Are Cost-Effective and Time-Efficient

VCDs offer healthcare facilities a cost-effective option for vascular closure. While price was a limiter when the devices were launched, the average selling price of the devices has decreased dramatically in recent years, and will continue to decline. Furthermore,
non-invasive VCDs are, on average, four times less expensive than their invasive counterparts, boosting their popularity.

With the general shortage of nursing labor, many hospitals are finding it cost-effective and time-efficient to employ VCDs. Non-invasive VCDs remove the need for manual pressure by a healthcare worker and therefore also lessens labor costs. In addition, the use of invasive VCDs further reduces the time necessary to perform vascular closure. Interventional cardiologists are performing peripheral procedures at an increasing rate and are opting to use VCDs in order to reduce operation times and thereby maximize the number of procedures that can be performed per day. Furthermore, the use of VCDs has the potential to allow more procedures to be performed in outpatient settings, significantly increasing patient turnaround times and decreasing costs. The cost savings and reduced times will continue to encourage healthcare facilities to adopt VCDs, especially as hospital budgets become more constrained.

Device Improvements

The relative complexity of VCDs, particularly invasive products, was initially the source of complications due to improper use. However, VCDs have gone through many design configurations since their introduction and different closure methods have been developed. Abbott Laboratories’ StarClose™ and Perclose® invasive VCDs have reduced rates of complications, such as the migration of closure agents through the vascular system. These devices close the arterial hole with a nitinol clip on the exterior of the vessel, meaning that nothing remains in the artery after the procedure.

AccessClosure’s Mynx™ invasive VCD is another device that is designed to reduce procedural complications, such as trauma to the vessel and expansion of the tissue tract. The device applies a bio-inert sealant to the surface of the artery, closing both the arterial opening and the tissue tract. In addition, the Mynx™ can be deployed through an existing procedural sheath, which further eliminates the need for a sheath exchange. The device has increased its adoption rate in recent years and shows great potential.
As manufacturers, continue to address the concerns associated with using VCDs and develop innovative solutions, these devices will account for an ever increasing proportion of vascular closure procedures.

Growth Drivers

The aging population of the U.S. has led to an increase in the number of patients with peripheral arterial disease (PAD), resulting in increasing demand for peripheral vascular procedures. Furthermore, this increase in procedure demand coincides with the rise in the number of for-profit medical centers that have lower staffing levels and a higher preference for VCDs. Between 2005 and 2010, the number of VCDs used has risen more rapidly than the number of peripheral catheterization procedures. Growth of VCD use exceeded that of catheterization procedures due to the continuing shift from manual compression to VCD use. As a result of this growth, by 2016, it is expected that over one million VCDs will be used for peripheral vascular procedures, representing an approximately 50% increase in unit volume from 2009.