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
SOURCE Transkaryotic Therapies, Inc.
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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
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