Transkaryotic Therapies (NASDAQ:TKTX)
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TKT Issues Open Letter to Stockholders
Board of Directors Urges TKT Stockholders to Vote 'FOR' Shire Transaction
CAMBRIDGE, Mass., July 12 /PRNewswire-FirstCall/ -- Transkaryotic Therapies,
Inc. (NASDAQ:TKTX) today issued an open letter to its stockholders urging them
to vote "FOR" the proposed transaction with Shire Pharmaceuticals Group plc.
On April 21, 2005 TKT and Shire entered into an agreement under which Shire has
agreed to pay $37 in cash for each share of TKT common stock, or approximately
$1.6 billion in aggregate value. As previously announced, the TKT stockholder
vote will be held at a special meeting on July 27, 2005, at 9:00 a.m. ET.
Voting instructions for the special meeting are available at the end of the
letter to stockholders which follows:
Dear TKT Stockholders:
As you know, on July 27, 2005 stockholders of Transkaryotic Therapies, Inc.
will have the opportunity to vote on the merger agreement with Shire
Pharmaceuticals Group plc announced on April 21, 2005. This transaction is the
result of a rigorous process by the TKT Board of Directors designed to maximize
stockholder value, and we believe it represents the best possible price and
optimal timing for stockholders. Our Board of Directors strongly urges you to
vote in favor of the proposed merger.
Rigorous Board Process
The Board takes its fiduciary duty to deliver maximum value to our stockholders
with the utmost seriousness. We have worked diligently, carefully, and
deliberatively to maximize the value of your investment in TKT. Prior to
recommending this merger, we sought out the best professional advice available,
thoroughly considered the alternatives, and designed a transaction that we
believe fully serves and protects the interests of our stockholders.
At the time Shire approached us in October 2004, we were operating the company
to build value as an independent entity. We believed that we were unlikely to
be able to garner a significant acquisition premium for our stockholders,
because of our very unique and specialized business model. Only a handful of
major companies are interested in the types of rare genetic diseases that are
our focus. Of those, some could not easily pursue a merger with us for
anti-trust reasons. Of the very small number of companies that might remain as
potential acquirers, few, if any, would have the type of commercial presence
necessary to commercialize and fully value Dynepo(TM), TKT's Gene-Activated(R)
erythropoietin protein, which will compete directly with several of the world's
largest pharmaceutical and biotechnology companies. Thus, we felt that there
would be few, if any, buyers willing to pay a strategic premium for our entire
product portfolio.
When approached by Shire, a qualified buyer with a willingness and ability to
value the full breadth of our assets and capabilities, we recognized the
possibility of delivering an attractive acquisition premium to our
stockholders. Although we did not consider Shire's initial offer of $29-$31
per share to be adequate, we were determined to follow a careful and
deliberative process that would ascertain the best possible price available
from Shire and any other potentially interested parties, while maintaining the
ability of our company to thrive independently if we did not consummate a
merger.
With that goal in mind, we followed an extensive process that included more
than twenty meetings of our board and the transaction committee of our board to
plan our negotiations and deliberate on our decisions. We sought out the best
possible outside advisors, engaging three prominent law firms and two
nationally recognized investment banking firms. We took affirmative steps to
obtain unbiased advice, including negotiating fee arrangements with all three
of our law firms and one of the two investment banking firms that were not
linked in anyway to the completion of a transaction.
We negotiated hard with Shire to obtain its best price, rejecting Shire's first
two written offers as inadequate, suspending negotiations until Shire was
willing to commit to an attractive valuation, and staging access to diligence
information to protect our company's ability to execute its business throughout
this period. We aggressively pursued a potential out-licensing arrangement for
Dynepo (an integral part of our standalone business plan) with multiple third
parties, in parallel with our negotiations with Shire, creating a competitive
environment designed to maximize stockholder value. We performed a
pre-announcement market check of other potential acquirers, reaching out
directly to the two third parties that, based on the input of our financial
advisor, SG Cowen & Co., LLC and the views of our senior management, we judged
to be the most likely and qualified potential alternative buyers of our
business. Neither company indicated any interest in discussing a transaction
with us. And as discussed below, we designed the structure and timing of the
merger agreement to guarantee that any possible better acquisition offers would
be received and evaluated.
Our recommendation in favor of the merger with Shire reflects our confidence
that the process we have followed was set up to deliver stockholder value, and
we firmly believe the result we have obtained -- the value, timing, and
structure of the transaction -- is in the best interests of our stockholders.
Attractive Price
After careful deliberation and analysis, we believe that the acquisition price
of $37 per share in cash, or approximately $1.6 billion, represents a full and
fair value for our company. This conclusion is based on everything we know
about our business as of today, including the positive top-line results of
iduronate-2-sulfatase, or I2S, TKT's enzyme replacement therapy for Hunter
syndrome, reported on June 20, 2005. We base this assessment on a range of
widely-accepted valuation methodologies, performed not only by us and by our
management, but also by our financial advisor SG Cowen and by Banc of America
Securities, whom we retained to provide an independent fairness opinion.
It is imperative to note that all of the financial analyses upon which we
relied in making our original judgment that this transaction is in the best
interests of stockholders, and upon which we continue to rely today, were based
on our management's base case projections which assumed positive clinical trial
results for the I2S program for Hunter syndrome. On April 21, 2005, when we
approved the merger, we would not have accepted, nor recommended to our
stockholders that they accept, any price that did not provide full value for
I2S with the assumption of positive clinical trial results. Having approached
our deliberations and our decision in that manner, the recently announced
positive I2S clinical trial results simply serve to reinforce the basis upon
which our original decision and recommendation were made.
The financial analyses of both SG Cowen and Banc of America, including their
respective fairness opinions, are described in detail in our merger
proxy statement dated June 27, 2005. We encourage you to review these
descriptions carefully.
Here, we draw your attention to certain considerations that significantly
impacted our deliberations on value. We cite SG Cowen's analyses in the
discussion below. We also note that the analyses contained in Banc of
America's fairness opinion came to similar results.
-- Transaction premium. The $37 per share price provides a very
attractive premium to the recent trading values of TKT's stock prior
to the merger announcement. Of note, this price represents a 113%
premium to the price of our stock on October 13, 2004, the date of
initiation of discussions between TKT and Shire, and a 54% premium to
the price of our stock on March 29, 2005, the date of the Board
meeting where we determined that an offer of $37 per share from Shire
would be attractive to our stockholders, again, assuming positive I2S
clinical trial results.
-- Precedent Transactions Analyses to estimate potential acquisition
value. Using base case financial forecasts provided by our
management, which assume positive I2S clinical trial results as well
as the successful commercialization of all other pipeline programs, SG
Cowen estimated our company's potential acquisition value, based on
precedent acquisitions in our industry. SG Cowen arrived at an
acquisition value range of $15.78 to $28.27 per share.
-- Discounted Cash Flow ("DCF") analyses to estimate standalone company
value. Again using management's base case forecasts, and again
assuming positive I2S clinical trial results and the successful
commercialization of all other pipeline programs, SG Cowen performed a
discounted cash flow analysis of our company as an independent entity
which yielded a range of standalone value for our company of $21.56 to
$36.76 per share.
It is important to note that the Board relied most heavily on management's base
case projections, which assume positive I2S clinical trial results and the
successful commercialization of all pipeline programs -- including GA-GCB
(Gene-Activated(R) glucocerebrosidase for the treatment of Gaucher disease) and
the early-stage research programs. Our management's base case projections, and
the financial analyses performed based on those projections, indicate that this
acquisition will deliver an attractive premium to the value of the company on a
standalone basis and fully reflects the value that one might have expected to
receive in an acquisition of the company, based on an analysis of precedent
transactions.
Optimal Timing
We believe that we executed the merger agreement at precisely the right time --
in fact at the only time when this attractive acquisition premium could have
been delivered to our stockholders. The merger price of $37 per share fully
values our business, including Dynepo and I2S (with the clinical trial results
assumed to be positive). Because of the immediate need to secure a commercial
partnership for Dynepo, such full value would have been less likely to be
available through an acquisition of the company in the future, as discussed
below.
As the Board deliberated on the merits of an all-cash acquisition versus
remaining independent, we were acutely conscious of the challenges and risks
that we would face as an independent company, including, but not limited to,
significant ongoing financing requirements(1), the commercialization
requirements for Dynepo and I2S, the fact that most of our pipeline is at an
early preclinical stage, and active litigation in the form of a class action
lawsuit, patent litigation, and a formal investigation by the Securities and
Exchange Commission.
In particular, as of early 2005, our company faced an immediate need to find a
commercialization partner for Dynepo, one of our critical assets. We do not
have the commercial strength and resources to launch Dynepo as an independent
company. With entrenched competition from several far larger companies, we
need a commercialization partner with the right resources and capabilities.
The investment required to scale-up manufacturing of this product is
substantial, and until we find a partner, we are bearing that entire investment
ourselves. Additionally, the window in time to successfully launch this
product is narrow, as a number of companies intend to introduce "follow-on"
erythropoietin products into the European market in the near future. Simply
stated, we needed to find a partner in early 2005 and begin launch
preparations, or the value of our important Dynepo program would be reduced.
By April 2005, at the same time that we were engaged in final merger
negotiations with Shire, we had explored a full range of Dynepo partnering
alternatives and had advanced the most favorable of those alternatives to the
point where a Dynepo commercialization agreement was ready to be signed. Shire
informed us that if we were to license Dynepo to any third party, Shire would
no longer be interested in acquiring our company, as Dynepo was one of the key
assets that Shire sought to obtain by acquiring TKT. We recognized, and were
advised by SG Cowen, that if we licensed Dynepo to a partner, our value as a
potential strategic acquisition target not only to Shire, but also to most if
not all other companies in our industry, would be reduced. This stands to
reason: once we granted the Dynepo commercial rights to a partner, we would
then only collect milestones and royalties on the product, while our partner
would garner the majority of the future profits. The strategic value of
Dynepo, and a large portion of the profit stream, would no longer be available
to any potential acquirer of TKT, which would diminish the likelihood of anyone
being willing to pay a strategic premium for our business.
Neither Shire nor the potential Dynepo partner was willing to wait, and our own
stockholders' interests were not served by waiting. In short, we needed to
choose between the acquisition, and its attractive cash premium that afforded
full value for all of our assets including Dynepo and I2S (with the clinical
trial data assumed to be positive), or the Dynepo partnership, which could
serve to reduce the value available to our stockholders in any future
acquisition of our company. We could not do both, and we could not afford to
do neither.
In response to this challenge, we designed a process that we are convinced has
produced the best possible acquisition value for the company. We do not
believe that waiting would have led to a better acquisition value, because we
did not need to wait for positive clinical trial results to deliver to our
stockholders the full value of those results and an attractive strategic
acquisition premium. As discussed above, we believe that the Shire offer of
$37 per share represents a full and fair premium to our stockholders assuming
positive I2S clinical trial results. Throughout our negotiations with Shire,
they were well aware that we were evaluating a Dynepo partnership with a global
pharmaceutical company as an alternative to their merger proposal. We believe
Shire recognized that the situation was highly competitive, and that our Board
would accept nothing less than a full valuation reflecting an assumption of
positive I2S clinical trial results. Thus, we are convinced that our
negotiations, during which we twice rejected Shire's lower offers and once
suspended discussions altogether, succeeded in extracting what we believe to be
the best value for our company.
Moreover, by structuring and timing the merger agreement precisely as we did,
we preserved the opportunity to entertain offers from third parties that could
provide better value to our stockholders. We were fully aware that our
top-line I2S clinical trial results would be made public prior to the
consummation of the transaction, providing an opportunity for any third party
to come forward with a more favorable acquisition proposal with the full
benefit of knowledge of the I2S clinical trial results. If there is a
potential acquirer willing to make a proposal that is superior to Shire's,
subject to paying the break-up fee, we will be able to present and recommend
this alternative to our stockholders. To date, no such approaches have been
received.
As one final point on timing, some observers have noted that just as the timing
of the Shire transaction provides the opportunity for higher acquisition offers
for TKT to emerge following the announcement of positive top-line I2S clinical
trial results, it also provides the Shire stockholders the opportunity to vote
on the transaction after seeing the top-line I2S results. Had the results been
negative, the Shire stockholders could conceivably have voted down the
transaction for that reason. In fact, as a Board, we deliberated on this point
at great length, and took great care to design a transaction that protected our
stockholders against this (now purely hypothetical) contingency. Under the
agreed transaction, Shire not only committed to pay full value for the company
under the assumption of positive I2S results, but also committed to make very
substantial payments to TKT in the event the Shire stockholders were to vote
down the deal. If that were to happen, Shire would automatically be obligated
to pay us $490 million in cash -- $40 million as a break-up fee, and $450
million to license Dynepo, significantly more cash and greater value than we
believe we would have received from any alternative Dynepo partnership outside
of the context of the Shire acquisition.(2) Thus, we concluded that the Shire
transaction ensured that our stockholders would be better off for our having
entered into the merger agreement, no matter what happened with the I2S
clinical trial results.
We Urge You to Vote in Favor of the Merger
We are proud of what our company has accomplished and the value it has
delivered to stockholders, and we are proud of the transaction we have
constructed with Shire. We firmly believe it provides the best possible price
to our stockholders, with the right structure and at the right time. We
strongly urge you to vote in favor.
Sincerely,
TKT Board of Directors
Voting Instructions
If you have any questions or require assistance in voting your shares, please
call: INNISFREE M&A INCORPORATED TOLL-FREE, at 1-877-825-8619.
IMPORTANT NOTE: If you hold your shares through a bank or broker, you may be
able to vote by telephone, or via the Internet. Please call Innisfree for
assistance.
About TKT
Transkaryotic Therapies, Inc. is a biopharmaceutical company primarily focused
on researching, developing and commercializing treatments for rare diseases
caused by protein deficiencies. Within this focus, the company markets
Replagal(TM), an enzyme replacement therapy for Fabry disease, and is
developing treatments for Hunter syndrome and Gaucher disease. In addition to
its focus on rare diseases, TKT intends to commercialize Dynepo(TM), its
Gene-Activated(R) erythropoietin product for anemia related to kidney disease,
in the European Union. TKT was founded in 1988 and is headquartered in
Cambridge, Massachusetts, with additional operations in Europe, Canada and
South America. Additional information about TKT is available on the company's
website at http://www.tktx.com/.
Important Additional Information Has Been Filed with the SEC
This communication may be deemed to be soliciting material in respect of the
proposed transaction with Shire. In connection with the proposed transaction
with Shire, TKT has filed with the SEC and mailed to its stockholders a
definitive proxy statement. The definitive proxy statement contains important
information about TKT, the transaction and related matters. Investors and
security holders are urged to read carefully the definitive proxy statement.
Investors and security holders are able to obtain free copies of the definitive
proxy statement and other documents filed by TKT with the SEC through the web
site maintained by the SEC at http://www.sec.gov/.
In addition, investors and security holders may obtain free copies of the
definitive proxy statement from TKT by contacting Corporate Communications, 700
Main Street, Cambridge, Massachusetts 02139.
TKT, and its directors and executive officers, may be deemed to be participants
in the solicitation of proxies in respect of the proposed transactions with
Shire. Information regarding TKT's directors and executive officers is
contained in TKT's Annual Report on Form 10-K for the year ended December 31,
2004, as amended on May 2, 2005, its Quarterly Report on Form 10- Q for the
quarter ended March 31, 2005, its proxy statement for its 2004 Annual Meeting
of Stockholders dated April 27, 2004, its Current Reports on Form 8-K dated
March 30, 2005, April 15, 2005 and April 27, 2005 and its definitive proxy
statement relating to the proposed transaction with Shire dated June 27, 2005,
each of which is filed with the SEC. As of May 16, 2005, TKT's directors and
executive officers and their affiliates, including Warburg Pincus Equity
Partners, L.P., beneficially owned approximately 5,523,536 shares, or
approximately 15.3%, of TKT's common stock. All outstanding options for TKT
common stock, whether or not vested, including those held by current directors
and executive officers, will be cashed out in the merger based on the $37 per
share purchase price. In addition, Shire has committed to maintaining TKT's
2005 Management Bonus Plan, in which TKT executive officers participate, in
accordance with its current terms in respect of the 2005 performance year.
Following the merger, Shire has agreed to provide certain retention and
severance benefits to TKT's employees, including its executive officers.
Additional information regarding the interests of potential participants is
included in the definitive proxy statement related to the proposed transaction
and other documents filed by TKT with the SEC.
Safe Harbor for Forward-Looking Statements
This press release contains forward-looking statements regarding the proposed
transaction between Shire and TKT, and statements regarding the company's
financial outlook, as well as statements about future expectations, beliefs,
goals, plans or prospects, including statements containing the words
"believes," "anticipates," "plans," "expects," "estimates," "intends,"
"should," "could," "will," "may," and similar expressions. There are a number
of important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements, including the failure of
TKT and Shire to consummate the proposed merger for any reason, including the
failure of the TKT shareholders or Shire shareholders to approve the proposed
transaction, and including other factors set forth under the caption "Certain
Factors That May Affect Future Results" in the company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005, which are on file with the SEC
and which factors are incorporated herein by reference. While the company may
elect to update forward-looking statements at some point in the future, the
company specifically disclaims any obligation to do so, even if its
expectations change.
(1) TKT is currently generating substantial losses and expects to continue to
do so at least through 2006. We expect that, if we were to remain independent,
we would end 2005 with between $40 and $60 million in cash, not including the
impact of any break-up fee that might be payable in connection with the Shire
transaction. Consequently, if the merger is not consummated, we would
anticipate needing to complete a significant financing by the fourth quarter of
this year.
(2) It is important to note that the $40 million break fee and $450 million
Dynepo license ($84 million of which would be paid to Sanofi-Aventis) are
payable by Shire to TKT if Shire's stockholders vote down the merger, but not
if TKT stockholders vote down the merger. If TKT's stockholders vote down the
merger, TKT will retain rights to Dynepo and will receive no payments from
Shire.
Gene-Activated(R) is a registered trademark and Replagal(TM) is a trademark of
Transkaryotic Therapies, Inc. Dynepo(TM) is a trademark of Sanofi-Aventis SA.
For More Information Contact:
Justine E. Koenigsberg Daniella M. Lutz
Senior Director, Manager,
Corporate Communications Corporate Communications
(617) 349-0271 (617) 349-0205
http://www.newscom.com/cgi-bin/prnh/19990913/TKTLOGO
http://photoarchive.ap.org/
DATASOURCE: Transkaryotic Therapies, Inc.
CONTACT: Justine E. Koenigsberg, Senior Director, +1-617-349-0271
Daniella M. Lutz, Manager, +1-617-349-0205, both of Corporate Communications
for Transkaryotic Therapies
Web site: http://www.tktx.com/
Company News On-Call: http://www.prnewswire.com/comp/120657.html