Brittle bone drug firms in £200m merger

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The Independent Online

Strakan, the privately owned Scottish pharmaceuticals company, is to merge with a French biotech spun out of the drugs giant Aventis, in a deal that may lead to the group's flotation.

Strakan, the privately owned Scottish pharmaceuticals company, is to merge with a French biotech spun out of the drugs giant Aventis, in a deal that may lead to the group's flotation.

The merger, which values the combined business at about £200m, has been fashioned to create a company with sufficient critical mass and revenues to attract stock market investors.

The venture capitalists Warbug Pincus, a common shareholder, will own 50 per cent of the combined group, which is likely to float early next year.

Investors in the two loss-making companies believe Strakan's marketing expertise and existing drugs will help fund research and development on its own new products and those of the more research-focused ProSkelia. Both companies are focused on osteoporosis.

The headquarters will be in Scotland, and Strakan's chief executive, Harry Stratford, the founder of Shire Pharmaceuticals, will take on the same role at the combined company. Strakan, founded in 1995, had revenues of £7.6m in 2003 from a range of products in the UK including treatments for osteoporosis, angina and acne.

The market for biotech IPOs has reopened in Europe after a three-year drought. However, shares in the first two companies to list - Ark Therapeutics in the UK and Switzerland's Basilea - have fallen since coming to market in March and there are concerns that these early disappointments could make further fund raisings more difficult.

The merged Strakan-ProSkelia will have €60m (£40m) cash and will consider further acquisitions before an initial public offering.

Andy Smith, of 3i Bioscience investment trust, a shareholder in Strakan, said: "Private equity investors in Europe are being more circumspect than in the US.... We are saving Strakan until the market really is receptive to these stories."

The driving force behind the merger is Warburg Pincus, the venture capitalist group which is the largest shareholder in both businesses.

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