Innocoll Holdings PLC (NASDAQ:INNL) investors are overwhelmingly excited today after the drug maker along with healthcare investment fund Gurnet Point L.P. announced Gurnet Point will acquire Innocoll for $1.75 per share in cash, and up to $4.90 in cash from a contingent value right (CVR), for a total potential per share value of up to $6.65 or up to approximately $209 million in aggregate.
Reacting to the news, Innocoll shares rose 25% to $2.27 in early trading Wednesday.
During the offer period, Gurnet Point plans to provide a term loan of $10 million to give Innocoll additional resources needed for the continued development of XARACOLL within the post-operative pain market. Innocoll believes that the loan will provide it with the additional capital needed to prepare for the re-submission of the XARACOLL new drug application (“NDA”) to the U.S. Federal Drug Administration (“FDA”) in order to achieve the milestones related to the CVR.
This transaction builds on Gurnet Point’s strategy of investing in life science, medical technology and healthcare service companies. Since its initial NASDAQ public offering in 2014, Innocoll has leveraged its proprietary collagen-based technology to successfully complete two Phase 3 studies for XARACOLL, Innocoll’s late-stage surgically implantable and bioresorbable collagen matrix. XARACOLL was developed to provide sustained post-operative pain relief through controlled delivery of bupivacaine at the surgical site.
Innocoll noted that its Board had explored a sale of the company, to achieve its goal of bringing XARACOLL to market, as well as keeping the company independent and funding the over $100 million required to fund operations through 2019 from raising equity or debt. The “go-it-alone” option was dismissed due to the potential for significant shareholder dilution and execution risk. A potential license for XARACOLL in the United States was also investigated, but no suitable partner has been found.
“Having studied a number of strategic options over the past several months, our Board and management team believe this strategic transaction will give Innocoll access to the financial resources it needs to pursue its goals of bringing XARACOLL through its development to commercialization, and address important unmet medical needs in the post-operative pain market. We believe that the combined leadership of the two companies, supported by Gurnet Point’s financial strength, will better position Innocoll to pursue a successful filing and subsequent commercialization of XARACOLL,” said Jonathan Symonds, Chairperson of Innocoll. “The Innocoll directors unanimously support the offer, which represents a significant premium to the recent share price. In addition, the CVR allows shareholders to participate in the continued development of XARACOLL without further investment.”
The directors of Innocoll and major shareholders, including holdings managed by Fortress, Morgan Stanley, Sofinnova and Unique Technologies, have provided irrevocable undertakings to vote in favor of the scheme. In total, management, directors and shareholders have provided irrevocable undertakings representing 46% of the issued ordinary share capital of Innocoll. Details of these irrevocable undertakings, including the circumstances in which they cease to be binding, are set out in the announcement pursuant to Rule 2.5 of the Irish Takeover Rules made by Gurnet Point, Gurnet Bidco and Innocoll today.
“Gurnet Point intends to work with Innocoll’s team to help bring XARACOLL to market by infusing substantial additional capital for its continued development and regulatory approval. We have great respect for Tony Zook and his team at Innocoll and look forward to investing in the business and assisting with the approval of XARACOLL and its commercialization,” said Christopher Viehbacher, Managing Partner at Gurnet Point Capital.
Innocoll had expected to receive FDA approval of XARACOLL this year. On December 29, 2016, Innocoll announced that it had received a Refusal to File Letter from the FDA for XARACOLL. Among other points, the FDA indicated that XARACOLL should be characterized as a drug-device combination product and that additional clinical and nonclinical information on XARACOLL may be required. To provide this information, Innocoll proposes to conduct an additional short-term pharmacokinetic study and several short-term non-clinical toxicology and biocompatibility studies.
The Innocoll directors believe that, if adequately financed and successful, such studies may be completed in time for an end of year re-submission of the XARACOLL NDA. Data from these studies, along with additional manufacturing information required to address the new combination product designation by the FDA and other chemistry, manufacturing and control activities, are also expected to be included in the re-submission.
If the re-submitted NDA is accepted by the FDA, thereby allowing XARACOLL to ultimately be approved, the Innocoll directors believe that Innocoll could be in a position to commercialize XARACOLL by the end of 2018.
Terms of the Transaction
The transaction, which is valued at up to approximately $209 million (including the maximum amount payable upon achievement of the CVR milestones listed below), is expected to be implemented by means of a court-sanctioned scheme of arrangement under Irish law or, with the consent of the Irish Takeover Panel, a takeover offer if Gurnet Bidco so chooses. Innocoll’s Board of Directors intends to recommend unanimously that Innocoll shareholders vote or procure votes in favor of the Transaction.
Under the terms of the acquisition, each CVR represents the right to receive a specified amount of cash payments, with each payment conditioned upon the achievement of certain events, called CVR Payment Events.
These CVR Payment Events are:
- First CVR Payment Event: Gurnet Bidco will pay $0.70 in cash per CVR if on or before December 31, 2018, XARACOLL is approved by the FDA with a label covering indications for the treatment of postsurgical pain immediately following open abdominal Hernia repair.
- Second CVR Payment Event: Gurnet Bidco will pay an additional $1.33 in cash per CVR if, on or before December 31, 2018, XARACOLL is approved by the FDA with a label covering indications for the treatment of postsurgical pain immediately following Soft Tissue repair (and not limited to hernia repair).
- Third CVR Payment Event: If the milestone is met, Gurnet Bidco will either pay: $1.00 in cash per CVR if, on or before December 31, 2019, XARACOLL is approved by the FDA with a label covering indications for the treatment of postsurgical pain immediately following Hard Tissue repair; or, if not
$0.60 in cash per CVR if, after December 31, 2019 but on or before June 30, 2020, XARACOLL is approved by the FDA with a label covering indications for the treatment of postsurgical pain immediately following Hard Tissue repair.
- Fourth CVR Payment Event: If the milestone is met, Gurnet Bidco will either pay: $1.87 in cash per CVR if global net sales of XARACOLL exceed $60 million in any four consecutive Calendar Quarters ending on or prior to December 31, 2019; or, if not, $1.00 in cash per CVR if global net sales of XARACOLL exceed $60 million in any four consecutive Calendar Quarters ending on or prior to March 31, 2020.
In the event that none of the CVR Payment Events occur by the relevant dates, then the CVR will have no value. The minimum payment of the CVR is zero and the maximum payment is $4.90 in cash per Innocoll Share.
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