VC-backed Biolipox acquired for $134 million

Venture capital-backed Swedish pharmaceutical company Biolipox AB is being acquired by fellow Swedish drug maker Orexo AB in an all-stock deal that values the startup at roughly $134 million.

The transaction, which will be made through an issuance of up to 8.56 million new Orexo shares, wasn't welcomed with open arms by the company's shareholders. Orexo's stock, which trades on the Stockholm exchange, tumbled about 11.85% on the news to close at SEK80.00.

Since it went public two years ago, Orexo has been looking to grow by acquisition, according to Zsolt Lavotha, president and CEO.

"Since its listing in 2005, Orexo has actively been working on identifying and evaluating a number of acquisition candidates," said Lavotha in statement. "We see this deal as an important step forward in achieving a broader product pipeline that will bring us closer to our vision of creating a formidable specialty pharma company."

Calls to Stockholm-based Biolipox and Uppsala, Sweden-based Orexo were not returned by press time.

The final structure of the transaction is dependent on Orexo's completion of due diligence of Biolipox, regulatory approvals and approval of the new issue at a general meeting of Orexo shareholders set for Nov. 1. The acquisition is expected to be completed in November.

Taken together, the two companies have approximately 120 employees with nearly 90 engaged in drug development. Following the acquisition, Biolipox's president and CEO, Torbjšrn Bjerke, will take the reins of the new company, serving as president and CEO. Lavotha will be leaving his operational responsibilities for personal reasons and serve as senior advisor to Orexo's board.

After the deal closes, Biolipox's shareholders will own 38% of the combined company and are committed to a three-month lockup period. ABG Sundal Collier served as financial advisor to Orexo, while HDR Partners AB was financial advisor to Biolipox.

Through the first three quarters of 2007, Biolipox reported sales of SEK15.6 million ($2.4 million) and recorded an operating loss of SEK56.6 million ($8.8 million). For its part, Orexo revenue in the first three quarters came in at SEK15.2 million ($2.3 million), with an operating loss of SEK98.6 million ($15.3 million).

As of Sept. 30, Orexo and Biolipox had combined cash and short-term investments worth SEK 242 million ($37.6 million) and expect to receive cash payments of approximately SEK171 million ($26.6 million )through the remainder of 2007.

The deal was a win for Biolipox's venture capital investors, who had poured approximately $60 million into the company since its founding in 2000. The bulk of Biolipox's private financing came in a $41 million Series C announced in January 2005, which gave the startup a post-money valuation of $89.5 million. The third round was led by Scandinavian Life Science Venture of Stockholm, joined by insiders HealthCap of Stockholm, Apax Partners of London and Paris-based venture firms Sofinnova Partners, Auriga Partners and Credit Agricole Private Equity.

Biolipox is developing therapies for treatment of inflammatory diseases, including pain management and respiratory diseases such as asthma and chronic obstructive pulmonary disease. Its lead drug program is for a prostaglandin E2 inhibitor, which is aimed to be an alternative with fewer side effects than Cox 2 inhibitors like Celebrex.

A Coc-2 inhibitor is a non-steroidal anti-inflammatory drug that directly targets Cox-2, an enzyme responsible for inflammation and pain. They are most often used in treatment for pain associated with arthritis and other chronic inflammation conditions.

In September 2004 Merck & Co. withdrew its Cox-2 inhibitor Rofecoxib, better known as Vioxx, because of concerns that it increased the risk of heart attacks and stroke. The move has resulted in Merck fighting a litany of lawsuits from former users of the drug.

Orexo is itself pushing a set of candidates through clinical trials in Europe and the U.S. It recently completed a pharmocological profile study for insomnia treatment drug Sublinox, which will serve as the basis for the registration application that Orexo plans to submit to the FDA later this year. Its Rapinyl product for treatment of acute pain caused by cancer, meanwhile, is being reviewed by the Committee for Medicinal Products for Human Use of the European Medicines Agency.