AnorMED zooms after picking Millennium bid over Genzyme, but still seen firmly in play

By Ronda Fears

Memphis, Sept. 26 - AnorMED, Inc. shares gained more than 28% Tuesday after saying it has agreed to support a merger bid of $12 a share from Millennium Pharmaceuticals, Inc., which trumped an offer from long-time unwanted suitor Genzyme Corp. that AnorMED had snubbed repeatedly. The stock zoomed past the offer level as players widely expect a bidding war to unfold.

Genzyme was mum on the event, but AnorMED has left the door open for higher offers, from Genzyme or anyone else interested in the Canadian biotech. Mozobil is the big draw for AnorMED. It is a therapy to be used in stem cell transplants for cancer patients, currently in phase 3 clinical trials for multiple myeloma, a blood cancer, and non-Hodgkin's lymphoma

Millennium is paying cash for the $515 million merger offer, which would leave its cash coffers at $100 million, but it has roughly $100 million of convertible debt coming due next year so it inferred that it will be tapping the capital markets in some way after the deal is consummated.

After being halted briefly Tuesday morning ahead of the news hitting the tape, which occurred at 9:45 a.m. ET, AnorMED shares (Nasdaq: ANOR) rocketed past the $12-per-share offer level on speculation that a bidding war may ensue, traders said. The stock settled Tuesday higher by $2.79, or 28.04%, at $12.74.

Both AnorMED's largest shareholder - affiliates of Baker Brothers Advisors, LLC - and its chairman, who collectively hold about 21.5% of AnorMED shares on a fully diluted basis, have agreed to tender their shares to Millennium.

AnorMED clearly in play

But Langley, B.C.-based AnorMED left itself an out for competing bids, which traders said fueled the rise past the Millennium offer.

"The feeling in the market is that they [AnorMED] have already been approached," said a sellside trader.

In a prepared statement AnorMED said, "The support agreement also provides the AnorMED board with the ability to withdraw, modify or change its support regarding a Millennium tender offer if the board receives a superior competing proposal prior to the expiry of a Millennium tender offer. Millennium has the right to match any such superior proposal made by another bidder."

The tender offer will last for 35 days, which many onlookers thought was longer than Millennium would want. In the event that the transaction does not close successfully, however, Millennium would be entitled to a termination fee of $19.5 million.

The planned tender offer by Cambridge, Mass.-based Millennium represents a 21% premium to the closing price of AnorMED's common shares on Monday and a 40% premium to the hostile bid of $8.55 a share, or roughly $380 million, by Cambridge, Mass.-based Genzyme on Sept. 1.

Millennium officials seemed confident of their offer.

"We can't really speculate" as to whether another bid for AnorMED wills surface, said Millennium chief executive Deborah Dunsire in a conference call. She added, "We have valuated the assets. We made a really strong valuation of this company."

Will Genzyme contend?

The question on everyone's lips watching the AnorMED situation was whether Genzyme will come back with another bid, as the Cambridge, Mass.-based biotech has been trying to work a deal to buy AnorMED for nearly a year. But, it was quiet in the Genzyme camp.

Genzyme originally submitted an official acquisition proposal in early April to acquire AnorMED for $7.75 per share, which was a 14% premium over the then-current stock price and propelled AnorMED shares significantly. Earlier this month, Genzyme submitted another offer at $8.55 per share - a 24% premium to the going stock price at that time.

"But Genzyme has been talking with AnorMED since October 2005 on what looks like a good deal of persistence, so they likely will not just throw in the towel just because another bidder showed up," said the sellside trader.

Still, Genzyme officials were unavailable for comment about the Millennium offer, and the company made no public statement about the event.

Genzyme shares (Nasdaq: GENZ) were slightly lower for much of the session but ended the day higher by 37 cents, or 0.56%, at $66.

Millennium needs boost: analyst

Some onlookers argued that a boost to its oncology program would come none too soon for Millennium, but since the deal has an open door for a bigger offer, traders said the reaction was somewhat muted for Millennium.

Millennium shares (Nasdaq: MLNM) traded in a band of $9.81 to $10.34 but settled the day unchanged at $10.15.

Mozobil is the big draw for Millennium as it would add to its hematology/oncology franchise, currently headed by the cancer drug Velcade. Like AnorMED's Mozobil, Velcade is used to treat multiple myeloma, a blood cancer, and non-Hodgkin's lymphoma. Millennium also had been testing Velcade in lung cancer but recently abandoned that avenue.

"Mozobil is an excellent strategic fit with Millennium's focus in hematology/oncology, where our product Velcade leads the market in treating patients with relapsed multiple myeloma," said Millennium's Dunsire.

Also of note, analysts observed that Velcade sales have been dropping. In a research report Tuesday, Merrill Lynch & Co. analyst Tom McGahren reduced revenue estimates for Millennium based on Velcade sales "looking light" and the company not going forward with clinical trials of Velcade in lung cancer as the data did not justify continued investment.

Millennium expects the AnorMED transaction will be mildly dilutive in 2007, then modestly accretive in 2008 and significantly accretive in 2009 and beyond assuming a successful commercial launch of Mozobil in 2008.

Millennium confident of market

While Millennium has more than enough cash to cover the transaction, it would leave its balance sheet thin in the way of cash at about $100 million but with some $100 million of convertible debt coming due in early 2007. The company said it has not made permanent plans to finance the deal but inferred that a capital markets deal would soon follow completion of the merger.

"We are in a strong position to go to the capital markets to supplement our balance sheet" after the AnorMED purchase, said Millennium chief financial officer Marsha Fanucci on the conference call.

"We have not been specific about how we are going to finance this transaction in the capital markets."

At June 30, Millennium had $83.3 million of 5.5% convertible subordinated notes due Jan. 15, 2007, outstanding - convertible at $42.07 per share - and $16.3 million of principal of 5% convertible subordinated notes due March 1, 2007 - convertible at $34.21 per share.

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