Cangene finishes takeover of local lab

Chesapeake Biological is sold to Canada firm for $42 million

January 05, 2001|By Julie Bell | Julie Bell,SUN STAFF

Cangene Corp. of Winnipeg, Manitoba, has completed its tender offer for Chesapeake Biological Laboratories Inc., clearing the way for an infusion of capital that will allow the Baltimore contract manufacturer of drugs and sterilized medical products to expand.

Shareholders tendered about 93 percent of Chesapeake's outstanding shares in favor of the deal, which values the Baltimore company at $4.60 a share, or about $42 million, Cangene said. The price includes $7.2 million in Chesapeake debt, which Cangene is acquiring.

The Canadian biopharmaceutical company will mail shareholders' checks immediately, but the deal isn't scheduled to be officially completed until Feb. 9, when Chesapeake becomes a wholly owned subsidiary of Cangene.

Chesapeake Biological stockholders will not vote on the acquisition, and stockholders who did not tender their stock also will get $4.60 per share in cash.

The deal caps a turnaround at Chesapeake, which had a new Baltimore plant but widening losses when it hired former pharmaceutical industry executive Thomas P. Rice as chief executive officer in December 1998.

Rice, who couldn't be reached for comment yesterday, closed the company's Seton experimental facility in fiscal 1999 and consolidated operations at its Camden plant. An unspecified number of layoffs resulted, according to company filings with the Securities and Exchange Commission.

But the company soon began growing again and now has more than 100 employees.

Chesapeake succeeded in part by broadening its market beyond small biotech companies to large pharmaceutical companies such as G. D. Searle & Co.

But Nasdaq-traded Chesapeake, with a small market capitalization of about $26.5 million, could only do so much without an infusion of capital.

Its investment bankers contacted Cangene as part of a search for a deal, and the Winnipeg company jumped at the chance to expand its own contract manufacturing operations. Cangene said Rice will stay on to run Chesapeake.

Alex Glasenberg, Cangene's chief financial officer, said the company likely will put at least $6 million into Chesapeake over the next 24 months to expand its equipment and ability to handle larger contracts.

The expansion plans come at a time when the sequencing of the human genome is leading to new discoveries, pushing more experimental drugs into testing and straining available biotech manufacturing space.

Many young biopharmaceutical companies without manufacturing operations are looking to contract manufacturers for help.

Cangene, which trades on the Toronto Stock Exchange, describes itself as one of Canada's largest and most profitable biotechnology companies, is coming off a troubled fiscal first quarter.

The company's sales were down 52 percent, and profits crimped, after the Food and Drug Administration imposed longer inspections on certain of Cangene's drug shipments.

The inspections, required because the company had begun manufacturing a new drug using the same equipment it previously had used for another one, resulted in shipment delays.

Cangene is 83 percent held by Apotex Holdings Inc., also the parent company of Apotex, a Canadian generic drug company.

Bloomberg News contributed to this article.

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