Baxter set to purchase N. American

Columbia-based firm would help buyer expand vaccine trade

`A very good deal'

Area company, strapped for cash, was seeking a suitor


November 19, 1999|By Mark Guidera | Mark Guidera,SUN STAFF


An article published Nov. 19 about Baxter International Inc.'s agreement to purchase North American Vaccine Inc. of Columbia stated that North American Vaccine's chief executive officer, Randal Chase, would receive a bonus as a result of the sale. The article failed to note that under his compensation plan, Chase is entitled to a bonus only if North American Vaccine is sold for at least $20 a share. North American is being sold for $7 a share; therefore, a bonus for Chase is not guaranteed. The Sun regrets the omission.

Medical supplies giant Baxter International Inc. said yesterday that it has agreed to buy cash-strapped North American Vaccine Inc. for $390 million, or $7 a share.

Baxter executives said the company wants to acquire the Columbia-based company to broaden its small, niche-oriented vaccine business, launched three years ago with the purchase of a struggling German vaccine developer.

Early this month, North American announced it was negotiating with a potential buyer but declined to identify the suitor.

The proposed deal puts to rest long-running speculation about whether the vaccine maker, which employs 300, would find a buyer before it ran out of money to keep operating.

"Baxter is getting a very good deal," said Vandana K. Bapna, a biotechnology analyst with Offutt Securities in Hunt Valley. She values the company at $11 a share.

"It has a rich pipeline. Its problems have been one of execution and management. They got caught in a [cash] squeeze," said Bapna.

Wall Street's reaction was muted. Shares in North American rose 37.50 cents to close at $6.1875. Baxter shares closed at $67, down 62.5 cents.

Deerfield, Ill.-based Baxter, best known for surgical equipment and other hospital supplies, is a new player in the vaccine arena, dominated largely by Merck & Co., SmithKline Beecham PLC, Chiron Corp., and Pasteur-Merieux Connaught.

Baxter has one vaccine on the market -- in Europe -- for tick-borne encephalitis. It is developing vaccines for Lyme Disease, the flu and Hepatitis A.

Thomas Glanzmann, president of Baxter's vaccine division, said the company hopes to capitalize on North American's product pipeline, which includes experimental vaccines for strains of meningitis and hepatitis.

"By integrating Baxter's capabilities with North American Vaccine, we hope to capture the vast market opportunities by bringing a steady flow of new vaccines to market," said Glanzmann.

The company has its eye on the expanding global market for vaccines, estimated to generate $13 billion in sales by 2005, up from $7 billion today.

Marketing opportunities

If approved by shareholders, Baxter gains a 10-year-old biotechnology company that analysts say has failed to capitalize on its promise despite its extensive vaccine technology. it also gets marketing opportunities for North American's one approved vaccine, Certiva, a combination vaccine for children.

Mary Thomas, a Baxter spokeswoman, said the company initially plans to keep North American Vaccine's Columbia offices operating.

But the future of administrative, legal and other support staff is murky. Analysts said such posts are usually considered redundant by the acquiring company.

Neil Flanzraich, North American Vaccine's chairman, said the Baxter sale made sense because the company had the capability to "significantly increase the commercial potential" of the vaccine technology and "represents the best alternative available to shareholders."

Under the agreement, North American Vaccine shareholders would receive $6.97 in Baxter common stock and 3 cents in cash for each of North American's 37 million outstanding shares, Baxter said. Baxter also will assume North American Vaccine's $133 million in debt.

Credit line extended

Baxter also said it would guarantee an additional $25 million credit line to the Columbia company. Earlier this month it extended a $5 million credit line.

The companies said the transaction would close April 2000 if all conditions are met.

The deal comes at the 11th hour for North American.

For its third quarter, which ended Sept. 30, the company reported a $10.8 million loss and less than $2 million in cash available. The company spent $13 million in the quarter on operating expenses.

Randall Chase, the 50-year-old chief executive officer brought in early this year to replace fired CEO Sharon Mates, stands to gain from the deal. His employment contract calls for a $1 million bonus if he successfully lands a buyer for the company.

Approval is needed

The deal is subject to shareholder approval. Also, North American Vaccine must obtain regulatory approval in the United Kingdom for its experimental meningitis vaccine.

Health authorities in Britain have said they might buy up to $65 million of the vaccine for a mass vaccination program they've launched to curb an outbreak among teens and college students.

North American said yesterday that it expects to file next month for U.K. approval to market the vaccine.

Two competitors, Wyeth-Lederle and Chiron, already have won U.K. approvals and are shipping vaccines for the immunization program.

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