Morphotek sold to Japanese firm, but won’t move

The $325 million acquisition of Morphotek Inc. announced yesterday by a major Japanese pharmaceutical manufacturer means the small Exton company will become the global biologics division of Eisai Co. Ltd. and will continue to grow in the Philadelphia area.

"It's great for the region and a feather in the cap of all of us in Pennsylvania to have Eisai attracted to a company like Morphotek," said Dennis M. "Mickey" Flynn, president of Pennsylvania Bio, a statewide trade association.

Tokyo-based Eisai, Japan's fourth-largest drugmaker, is a small-molecule, chemical-based pharmaceutical company that wants to expand into biotechnology and biologics-based medicines.

Morphotek, founded in 2000, discovers and develops human monoclonal antibodies for cancer and inflammatory and infectious diseases.

"The total deal is going to be in the range of about $350 million," said Nicholas Nicolaides, Morphotek's chief executive officer, who will be president of the subsidiary in Exton. Eisai is paying $325 million, and an additional $25 million in cash on Morphotek's balance sheet will be returned to its shareholders.

Founded on technology developed initially by Nicolaides and two others at Johns Hopkins University, Morphotek will become Eisai's lead global biologics development division, Nicolaides said in an interview.

"We will stay here. We will expand, and we will serve Eisai globally as their biologics development subsidiary," he said.

The acquisition, already approved by the boards of directors of both companies, is expected to close after April 1.

"It's not out of the realm of possibility that the number of employees in Exton could triple," Nicolaides said. "What we're doing now is mapping out what the next three- to five-year plan looks like: how many products we expect to develop, how many we expect to put into clinical trials, and how many we hope to make to the marketplace after successful clinical trials."

"We're clearly going to staff up in research and development to develop more therapeutic leads to go into the clinic," he said.

Eisai has U.S. research operations in Andover, Mass.; Ridgefield Park, N.J.; and Research Triangle Park, N.C. The company employs more than 9,000 worldwide and has projected fiscal 2006 sales of $5.7 billion for the year that ends March 31.

Eisai Inc., the company's sales and marketing business, is based in Woodcliff Lake, N.J.

Unlike some big U.S. drugmakers that acquire small companies, absorb the technology, and then make the little companies disappear, foreign-based pharmaceutical companies often leave the small companies intact because "they want that footprint in the United States," Flynn said.

"From Eisai's standpoint, just by establishing in Pennsylvania, they overnight have a presence in the pharmaceutical corridor, right in the backyard of all the large pharmaceutical companies," Flynn said. "I'd say nine out of 10 of the foreign-based companies that make an acquisition keep the company wherever it is."

For instance, in 1998, Fujirebio Inc., of Tokyo, bought Centocor Diagnostics, of Malvern, which is now Fujirebio Diagnostics Inc. And, in 2003, CSL Ltd., a global biopharmaceutical firm in Australia, bought ZLB Behring, formerly Aventis Behring, a maker of blood-protein therapies to treat rare diseases. CSL Behring is still in King of Prussia.

Merrill Lynch & Co. Inc. analyst Masatake Miyoshi said in a research note to clients that the Morphotek acquisition was "beneficial" and "should bolster Eisai's pipeline, particularly in cancer treatments."

He noted that Morphotek's "manufacturing platform" is capable of creating human monoclonal antibodies and its "specialist technology" consists of "a library of several thousand types of hybridoma cells."

Miyoshi wrote that "Eisai's policy is to respect the existing management post-acquisition, and researchers that support Morphotek are expected to remain with the company."

In October, Morphotek raised $40 million in venture financing. Since it was founded at the Science Center in University City, it has raised $78 million.

Morphotek's most advanced product is in midstage Phase 2 clinical trials to treat ovarian cancer. Another compound is in early-stage Phase 1 human studies to treat pancreatic and lung cancer.

In addition, Morphotek has five experimental drugs in preclinical studies for cancer, rheumatoid arthritis and infectious diseases.

Headquarters: Exton.

Founded: May 2000.

Founders: Drs. Luigi Grasso, Nicholas Nicolaides and Phillip Sass.

Business: Developing antibodies to treat cancer, inflammatory and infectious diseases.

Venture capital funding: $78 million through October 2006.

Employees: 45.

SOURCE: Morphotek

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