BTG PLC Acquires Pnemrx
BTG Plc (BTG or the Company), the specialist healthcare company, is pleased to announce that it has entered into an agreement to acquire PneumRx Inc (PneumRx), a growing interventional pulmonology business, on a debt free cash free basis for an initial cash consideration of US$230 million (approximately £1471 million) and up to US$245 million (approximately £1561 million) in performance-related future milestone payments (the Acquisition).
The Acquisition will be funded in part by a cashbox placing with gross proceeds of approximately £150 million, representing approximately 5 per cent of the Company's market capitalisation based on 03 December 2014 closing share price, announced separately today (the Placing).
PneumRx is headquartered in Mountain View, California. It owns, manufactures and distributes the RePneu® Coil System (RePneu®), a minimally invasive treatment for advanced emphysema, which seeks to enhance patients' quality of life by improving lung function and exercise capacity. RePneu® is sold in 11 European countries including Germany, Switzerland, Italy and Spain and has a fully recruited US pivotal clinical trial currently underway. US approval is anticipated during 2016.
The rationale for the acquisition of PneumRx is that it:
- complements BTG's Interventional Medicine platform expanding it into the emerging area of interventional pulmonology, a developing medical discipline;
- adds RePneu®, a minimally invasive product backed by clinical evidence, which provides access to a specialty physician base and a market with high unmet need and significant growth potential;
- adds a fast-growing business that enhances BTG's European commercial platform and provides a significant US opportunity;
- has an attractive financial impact: annual sales potential over US$250 million, estimated ROI2 greater than 20% post US reimbursement3 and expected to be accretive to earnings from Year 4 onwards.
Louise Makin, CEO of BTG, said:
"PneumRx brings a differentiated, clinically proven product that can make a real difference to the lives of people with advanced emphysema, for which there are limited current treatment options. It also gives us access to a third potentially high-growth area of interventional medicine, interventional pulmonology. With an annual sales potential of over $250 million, PneumRx is a significant addition to BTG that enhances our portfolio and leadership in Interventional Medicine."
Market opportunity for the interventional treatment of advanced emphysema
Emphysema is a progressive disease in which the natural architecture of the lungs is damaged and lung function is degraded. There are more than 10 million people in the US and EU5 with emphysema and there is a significant economic burden placed on healthcare systems relating to both inpatient and outpatient care costs. There is no cure, with the current standard of care seeking to relieve symptoms through drug therapy and pulmonary rehabilitation.
In light of the limited treatment options for patients with advanced emphysema (Gold stages III and IV) there is a high unmet need for technologies that improve patients' quality of life. RePneu® is an implantable shape memory Nitinol4 coil device that is designed to improve lung function in patients with emphysema. The coil restores the lung's elasticity while holding small airways open, preventing airway collapse during exhalation. Treatment with RePneu® has been shown in European clinical studies to improve the quality of life of emphysema patients, demonstrated by clinically meaningful improvements in the St George's Respiratory Questionnaire response and in the 6-minute walk test5.
RePneu® is currently approved to treat both homogenous emphysema (distributed more diffusely throughout the lungs) and heterogeneous emphysema (isolated in more focal areas of the lung) in Europe, receiving CE mark approval in October 2010. It is currently only available for investigational use in the US, where a fully recruited pivotal trial could lead to regulatory approval in 2016.
The RePneu® product and its method of reducing the volume of lung tissue are covered by granted US patents to 2029 and an EU patent to 2027 upon grant of the existing patent application.
BTG believes that, subject to US approval and reimbursement, RePneu® has the potential to achieve revenues of over US$250 million by 2020, assuming less than 1% penetration of Gold Stages III and IV patients.
Information on PneumRx
PneumRx is a private US corporation owned by employees and certain venture capital investors. PneumRx has 80 employees, of which 56 are based in the US and 24 based in Europe.
In 2013, PneumRx achieved revenues of approximately US$16 million, a gross profit of approximately US$14 million and generated a loss before tax of US$4 million. As of 31st December 2013, the gross assets of PneumRx were US$22 million (approximately £141 million). Revenue in 2014 is expected to be approximately US$25 million.
BTG intends to support sales of RePneu® with a direct sales strategy in key European territories. The sales force will call on interventional pulmonologists and BTG believes that the acquisition will have scale benefits in Europe as BTG's go-direct Interventional Oncology strategy is fully implemented in Q2 2015.
Principal terms of the Acquisition
On 3 December 2014, BTG International Inc, a subsidiary of BTG, and PneumRx entered into an agreement in respect of the Acquisition.
The initial consideration payable for the Acquisition will be US$230 million (approximately £1471 million) on a debt free cash free basis.
BTG will make further contingent payments dependent on the achievement of performance-related targets. This comprises a milestone of US$20 million payable if PneumRx meets a revenue target in 2015 and a milestone of US$60 million if FDA approval is received before 31 December 2017. BTG may also pay tiered sales milestones of up to an additional US$165 million, the last of which is payable if annual sales reach US$500 million. Total contingent payments will not exceed US$245 million (approximately £1561 million) and will be funded from BTG's cash resources.
Closing of the acquisition is conditional on Hart-Scott Rodino approval in the US. That is expected to be received in early January 2015.
Rothschild is acting as financial adviser to BTG. Deutsche Bank AG, London Branch and J.P. Morgan Cazenove are acting as Joint Bookrunners in respect of the placing. Stephenson Harwood and Morgan Lewis & Bockius provided legal advice to BTG.