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January 16, 2012 10:39 AM

Dealmaker of the Week: David Rosenthal of Dechert

Posted by Tom Huddleston Jr.

Rosenthal, David

DEALMAKER

David Rosenthal, 55, a corporate partner in Dechert's New York office.

THE DEAL

Bristol-Myers Squibb Company announced on January 7 that it will pay $2.5 billion to acquire Inhibitex, Inc.

THE CLIENT

Inhibitex, an Alpharetta, Georgia–based drugmaker specializing in products used to treat and prevent infectious diseases. The company's prime asset, INX-189, is an oral medication being developed to treat liver-destroying hepatitis C.

THE DETAILS

Terms of the all-cash deal calls for pharmaceutical giant Bristol-Myers to pay $26 per share for Inhibitex— a sum that represents a premium of nearly 163 percent over the company's January 6 closing price—for a total price of roughly $2.5 billion. The deal has already been approved by both companies' boards and is expected to close in the first quarter of the year, pending regulatory approval and the acceptance of a cash tender offer by a majority of Inhibitex shareholders.

The companies expect the tender offer to close within thirty days of commencement. Under the terms of the agreement, Inhibitex will not solicit competing offers from rival bidders. 

The transaction is expected to dilute Bristol-Myers' profits over the next four years, cutting into earnings by approximately 4 cents per share this year and 5 cents per share in 2013, according to the announcement.

THE BIG PICTURE

The 163 percent premium Bristol-Myers agreed to pay could be one of the largest ever in the pharmaceutical industry, Bloomberg notes, and reflects how fiercely competitive the market for hepatitis C drugs has become. Biotech company Gilead Sciences made its own big bet on on such drugs in November when it paid $11 billion—and an 89 percent premium—for Pharmasset, a company with three products in development for the treatment of hepatitis C. That deal came on the heels of Roche's $230 million purchase of Anadys Pharmaceuticals, another hepatitis C drug-developer, in October.

Other developers of hepatitis C drugs, including Idenix Pharmaceuticals and Achillion Pharmaceuticals, have seen their stocks spike amid speculation that they too could also be targeted for a takeover, according to Bloomberg.

Rosenthal says companies focused on developing hepatitis C treatments are attracting heightened interest because 170 million people worldwide are affected by the disease, which can be spread sexually and through the sharing of needles. "There's a potential for tremendous need for these drugs," he says.

The deal is part of Bristol-Myers's plan to reinvigorate its overall product pipeline. Patents on several of the company's top-selling drugs are due to expire in coming years, including the blood-thinner Plavix, which accounted for nearly one-third of the company's overall revenue in 2010 with $6.7 billion in sales, according to The Wall Street Journal.

The Inhibitex deal represents Bristol-Myers's largest acquisition since the drugmaker paid about $2.5 billion in 2009 for Medarex Inc. That deal also gained Bristol-Myers a product—the anticancer drug Yervoy—that it hopes will help offset the looming expiration of key patents.

THE BACKSTORY

Rosenthal's relationship with Inhibitex goes back more than a decade. He says it began in 2000, when current chief executive Russell Plumb joined the company as its chief financial officer. Plumb was the former CFO of Serologicals Corporation, a biotech outfit that Rosenthal had previously represented. "When [Plumb] moved, I got the opportunity to potentially get the Inhibitex business and that started in 2001," Rosenthal says.

That year, Rosenthal represented inhibitex on multiple rounds of venture capital financing, when it was still a fledgling biotechnology company. In 2004 he handled the company's initial public offering. Since then, Rosenthal and Dechert have worked on general corporate matters and financing work for the drug company, including various transactions—though this deal is by far the largest to date. Last year, the firm handled an underwritten public offering for Inhibitex that netted roughly $50 million last April.

ON CLOSING

In 2006 Inhibitex's drug development program hit a snag when the drug Veronate, which was meant to be used to prevent staph infections in premature infants, unexpectedly failed in the third phase of clinical trials. The failure of what was meant to be a major product helped push Inhibitex's stock to a low of 18 cents per share by December of 2008. It had been hovering around the $10 mark roughly three years earlier. (As Rosenthal notes, anyone who invested in Inhibitex stock at its nadir and held onto it long enough to take advangage of the Bristol-Myers offer is in-line for a big payday.)

Since hitting that low point, Inhibitex restocked its product pipeline and improved its outlook to the point that its share price had climbed to $9.89 just before the announcement of the Bristol-Myers deal. Rosenthal says in his experience such turnarounds are rare, and he's happy that he and Dechert have had the opportunity to help steer the company from its early attempts at financing through some significant setbacks to the successful negotiation of the Bristol-Myers acquisition. "It's been great to share the ride with this company," he says.

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