Vectura and Novartis sign landmark £200m deal

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The Independent Online

Vectura, the AIM-listed maker of novel inhalers, has signed the European biotech sector's biggest deal in four years with Novartis, the Swiss pharmaceuticals giant.

Vectura, the AIM-listed maker of novel inhalers, has signed the European biotech sector's biggest deal in four years with Novartis, the Swiss pharmaceuticals giant.

Novartis is paying up to $375m (£200m) to license a new drug for chronic lung disease from Vectura and its development partner Arakis, a private UK biotech firm. The money - including a $30m upfront payment - will be split equally between the two firms, and Novartis will take over the trials, regulatory filing and marketing costs of the drug.

The signing marked a significant milestone for Cambridge-based Arakis, which means the company will now consider a flotation on the stock market, and is expected to be valued at £100m. Arakis appointed Dresdner Kleinwort Wasserstein as a financial adviser yesterday to advise it on its options.

Vectura's potential income from the tie-up is more than the market value of the company. Its shares rose 5.5p to 81.5p yesterday. The company floated at 56p-per-share in June.

The drug, codenamed AD237, was discovered by Arakis in 2000 and has been developed for use with Vectura's PowderHale inhaler in a collaboration between the two companies - both of whom were founded with venture capital from Sir Christopher Evans' Merlin Biosciences. It works by relaxing muscles in the lung to allow patients to breath more easily.

Chronic obstructive pulmonary disease (COPD) - sometimes called smoker's lung - is an umbrella term conditions including chronic bronchitis and emphysema which are most commonly caused by smoking. The companies say it is the world's fourth largest cause of death, but is still under-diagnosed. Novartis said respiratory disease was now one of its main areas of focus and it would develop AD237 on its own and in combination with an in-house drug.

The UK firms will earn milestone payments as the drug succeeds in clinical trials and passes through regulatory approval processes, with royalties on sales if it reaches the market, currently projected for 2010.

Chris Blackwell, Vectura's chief executive, predicted the market for COPD treatments would grow from $4bn currently to $10bn within a decade. "We believe that AD237 will play a major role in the expansion of the COPD market," he said. Ken Cunningham, the chief executive of Arakis, said: "We have money through to the end of 2007, but we will be looking for the opportunity to IPO. We hope that this deal - one of the biggest in Europe - does something to improve the general feeling towards biotechs."

Sam Fazelli, an analyst at Nomura, Vectura's broker, told clients the deal was "a ringing endorsement of the two companies' technology platforms."

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