BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) (“BioCryst” or the “Company”), a pharmaceutical company focused on the development and commercialization of treatments for rare diseases, today issued an open letter to stockholders in connection with the Company’s Special Meeting of Stockholders to be held on July 10, 2018.
The merger was announced in January of 2018 and investors were initially unenthused about the merger. However BioCryst shares are up 42% as of this writing from the low point after the merger was announced. Idera shares are roughly even with the low point after the merger was announced.
If the merger is approved, the combined company's pipeline will have nine rare disease programs. These include BioCryst's Ph III stage BCX7353 for hereditary andioedema and Idera’s PhIII stage IMO-2125 for melanoma that has not responded to treatment.
The full text of the letter follows:
Dear Fellow Stockholder,
BioCryst’s Special Meeting of Stockholders is scheduled for July 10, 2018. We urge you to vote today “FOR” the merger transaction with Idera Pharmaceuticals, Inc. (“Idera”) using the enclosed proxy card. The BioCryst Board of Directors believes this transaction represents a significant opportunity to enhance the value of your investment in BioCryst and unanimously recommends that stockholders vote “FOR” the transaction, which will create a new company to be called Valenscion Incorporated (“Valenscion” or the “combined company”).
We scheduled our Special Meeting for July 10, 2018 to allow sufficient time prior to the meeting date for our stockholders to consider additional data for IMO-2125, which was presented by Idera on June 4, 2018 at the American Society of Clinical Oncology (“ASCO”) Annual Meeting. The additional data reinforces the clinical attractiveness of this treatment option and supports IMO-2125 as a Phase 3 asset that will have real utility in the array of potential immuno-oncology treatments for cancer patients with very few options.
We recognize that some investors have questioned the value of the BioCryst merger with Idera; however, we believe the concerns expressed by these investors are fundamentally misguided. We would like to set the record straight on the merits of the proposed merger, which we believe is even more compelling today than it was just weeks ago, and again highlight the benefits of this transaction for our patients, employees and stockholders.
THE DATA FOR IMO-2125 CONTINUES TO BE CLINICALLY MEANINGFUL AFTER DOUBLING THE NUMBER OF PATIENTS
THE DATA FOR IMO-2125 FURTHER SUPPORTS OUR CONCLUSION THAT THE IDERA MERGER IS A VALUE-ENHANCING OPPORTUNITY FOR BIOCRYST STOCKHOLDERS; ONE THAT APPROPRIATELY VALUES THE RELATIVE CONTRIBUTIONS OF IDERA AND BIOCRYST
Both BioCryst and Idera have promising late-stage drug candidates. We strongly believe that the combination of the two companies, creating a company with a rare disease pipeline, presents a compelling opportunity for significant potential financial returns for our stockholders.
Idera’s IMO-2125 results presented earlier this month at ASCO create a treatment profile even more attractive than we considered in our market research and ultimately used to forecast the value as part of our Board's comprehensive strategic review process. When BioCryst was conducting due diligence as part of our Board's comprehensive strategic review process, we assumed a response rate of 30.0% for IMO-2125 when determining the appropriate valuation for Idera. The response rate reported at ASCO of 38.1% demonstrates substantial clinical benefit and notably, is approximately triple that of response rate of 13% for Ipilimumab alone. Additionally, IMO-2125 demonstrated a disease control rate of 71.4% of patients, including patients who are Stable Disease, some of whom are now more than one year into the trial. We believe this durable data further supports the value creation potential of the merger.
NEW IDERA DATA SUPPORTS VALUE PROPOSITION OF COMBINED COMPANY, DE-RISKED PORTFOLIO AND SIGNIFICANT UPSIDE POTENTIAL FOR STOCKHOLDERS
Following its strategic review process, the BioCryst Board and management team concluded that the transaction with Idera significantly enhances long-term BioCryst stockholder value and that the valuation and terms negotiated by the parties were equitable. The notion that the terms of the agreement are unfairly dilutive to BioCryst stockholders due to the companies’ disparate risk profiles is premised on misguided assumptions that: (i) BioCryst’s lead asset is essentially guaranteed to succeed, and (ii) Idera’s portfolio is unproven and excessively risky.
While those questioning the strategic rationale of the merger are of the view that the BioCryst pipeline contains significantly greater upside than that of Idera, their analysis irresponsibly assumes Phase 2 trial results for BCRX-7353 are highly predictive of the success of our drug candidates in Phase 3 trials. We have an appropriate level of confidence in our science, but to assume Phase 3 clinical trial success does not take into account the inherent risks in biopharmaceutical drug discovery and development. Instead, BioCryst assigned a probability of success for the BCRX-7353 Phase 3 pivotal trial of 70%, which management believes is a reasonable estimate based on the Phase 2 trial results and taking into account other industry estimates of the success probability rate for compounds entering Phase 3 of development. We believe our analysis is appropriate for estimating value and was supported by the fairness opinion we received from J.P. Morgan, and therefore the BioCryst Board determined that the merger made strategic and financial sense.
Idera’s recent results for IMO-2125 suggest that its response rate is even higher than our assumptions, and now with a doubling of the number of patients treated and evaluated since we conducted this analysis, there is even more evidence to support our belief in the value of the combination for BioCryst stockholders.
A CLEAR AND COMPELLING STRATEGIC RATIONALE TO CREATE SUBSTANTIAL VALUE
The BioCryst Board continues to believe that the merger with Idera creates substantial upside potential for BioCryst stockholders. In addition, through the strategic review process undertaken by the BioCryst Board, the Board identified numerous strategic benefits resulting from the merger.
- Diversifying Risk: Together, BioCryst and Idera will have a much larger pipeline with a greater number of compelling late-stage drug candidates. Valenscion’s risk will be distributed more broadly across multiple promising assets, creating more opportunities for success and adding greater financial flexibility for the developmental investments that will need to be made by both BioCryst and Idera in the coming years.
- Bolstering Development Pipeline: The recently published data from Idera’s IMO-program further underscores the merits and strategic rationale for the combination as originally outlined by the companies in January 2018. Now having a significantly larger data set for Idera's lead program and a robust result, Valenscion has two Phase 3 assets that have potential to deliver significant value.
- Creating Meaningful Synergies and Cash Generation Opportunities: The combined company will have meaningful administrative synergy opportunities, and expects to realize approximately $20 million in cash synergies in year two and a total of $30 million in annual pre-tax cost synergies in year three after closing. Together, BioCryst and Idera are expected to have opportunities to generate non-dilutive capital, which can be thoughtfully and effectively allocated to maximize the portfolio’s market potential and create stockholder value. For example, the cash generated by Idera’s IMO-2125 program will potentially be used strategically to invest in BCX-7353 launch activities, creating additional synergies and maximizing the cash use efficiency of the combined company.
- Combining Powerful Discovery Engines: The combined company will be well-positioned to capitalize on both BioCryst and Idera's separate and complementary talents and expertise to successfully commercialize late-stage development candidates and expand the number of rare disease targets that can be advanced into development. By leveraging both structure-guided small molecule design and nucleic acid/oligonucleotide chemistry within one organization, Valenscion may also be able to create more effective and potentially unique treatments for rare diseases that would not be possible for either BioCryst or Idera on a standalone basis.
With a lower risk profile, a stronger financial foundation, enhanced discovery capabilities and more opportunities for success, Valenscion will be well-positioned to capitalize on its rare disease pipeline and build greater and more sustainable value for the benefit of stockholders, as well as patients with rare diseases, beyond what the two companies could achieve alone.
THE PROPOSED MERGER IS THE CULMINATION OF A LENGTHY AND EXTENSIVE EVALUATION OF STRATEGIC OPPORTUNITIES
Prior to entering the merger agreement, the BioCryst Board conducted a careful and thoughtful review of strategic opportunities. The Board was assisted in this work by leading outside financial and legal advisors. J.P. Morgan Securities LLC is serving as exclusive financial advisor to BioCryst and provided a fairness opinion to the BioCryst Board in connection with the transaction.
During the strategic review process, which began in early February 2016 and is described in our proxy statement, the BioCryst Board met numerous times to discuss a number of potential opportunities to both enhance value and diversify risk, including considering the value potential of the Company’s standalone plan, mergers, bolt-on acquisitions and in-licensing transactions. We also determined the desired attributes of a strategic counterparty in a potential transaction, and spoke with multiple credible parties that expressed interest in exploring a possible strategic transaction.
The merger agreement with Idera is the result of an evaluation of multiple potential options. After evaluating opportunities and engaging with five other possible counterparties, the Board determined that the proposed transaction with Idera creates more compelling potential for value creation than other alternative strategies available to the Company. While the Company maintains an open and constructive dialogue with its stockholders, the Board based its decision on what it determined to be in the interests of the Company and its stockholders generally. Any suggestion that the Company did not conduct a thorough evaluation of strategic options prior to agreeing to the merger or that the merger was designed to disproportionately benefit insiders or a single stockholder is simply false. Stockholders need look no further than our proxy statement, which clearly describes the thoughtful and deliberate process by which the Board reached its decision.
PROVEN LEADERSHIP AND STRONG GOVERNANCE TO GUIDE PIPELINE DEVELOPMENT AND DELIVER ON VALUE PROPOSITION
The combined company will have a highly engaged, seasoned Board and management with a proven track record of getting drugs approved and successfully launched. The Board will comprise nine members – four from each of the current BioCryst Board and the current Idera Board, and one person to be mutually agreed by the BioCryst Board and the Idera Board who is not a director, officer or affiliate of either BioCryst or Idera. The mutually agreed director also will not be a representative of the combined company’s largest stockholder, ensuring no one stockholder carries undue influence over the company, just as BioCryst operates today.
As we write the next chapter of BioCryst’s growth, the combined company is attractively positioned to unlock the compelling value of the merger while also executing on its strategic plan to drive long-term growth and attractive returns for stockholders going forward.
Vote “FOR” the Merger Proposal TODAY
Your Board of Directors believes that the merger is value-enhancing for BioCryst stockholders, and we recommend that stockholders vote today “FOR” the merger proposal.
Your vote is extremely important, no matter how many shares you own. Please take a moment to vote “FOR” the proposals set forth on the proxy card today – by internet, telephone toll-free or by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.
If you have any questions or need assistance voting your shares, please contact Innisfree M&A, our proxy solicitor, by calling toll-free at (877) 800-5834 (from the U.S. and Canada) and (412) 232-3651 (from other locations) or collect at (212) 750-5833.
We are excited about the opportunities ahead for BioCryst and thank you for your continued support.
Sincerely,
The BioCryst Board of Directors
