Important note: Information in this article was accurate in 2002. The state of the art may have changed since the publication date.

Reuters NewMedia - Wednesday December 04, 2002
Ransdell Pierson and Dane Hamilton

Gilead, which already markets four HIV and other anti-viral drugs, would pick up Triangle's experimental treatment Coviracil against HIV and hepatitis B. The $6-a-share deal also includes Triangle's HIV drug amdoxovir and hepatitis B treatment clevudine, which are both in clinical trials.

The deal is the latest in a spate of recent biotechnology mergers, in which cash-rich companies are buying smaller rivals that are struggling to raise capital to continue expensive drug development programs. Triangle, for instance, ended the third quarter with $48 million, only enough to last until mid-2003, prompting it to seek a marketing partner or buyout.

"Antivirals can be very profitable and Gilead will have a supermarket of drug choices to offer doctors and patients once Triangle's products are approved," said David Saks, chief investment officer of the Saks MedScience Fund at Ladenburg Thalmann.

Gilead raised its profile last year by launching Viread, a promising HIV treatment that some industry analysts think could garner annual global sales of $1.5 billion by 2008. It also sells Tamiflu, a treatment for influenza.

Gilead's offer, a premium of 33 percent Triangle's closing price of $4.50 on Tuesday, caused Triangle shares to surge as much as 30 percent to $5.93. The shares closed $1.32 higher at $5.82 on Nasdaq, where it was one of the top net gainers.

Foster City, California-based Gilead rose 73 cents to $37.61, also on Nasdaq. The stock is up 10 percent for the year, defying a 38 percent drop for the biotech sector during the period.

The deal would reduce Gilead's earnings in 2003, have no effect in 2004, and boost earnings in 2005 and beyond, the company said.

The transaction particularly benefits Warburg Pincus, a New York private equity firm that bought a stake of nearly 31 percent of Triangle in August 2001 for around $60 million. Warburg Pincus bought the Triangle shares at $2.65 each and gained two board seats. Assuming the deal closes as planned, Warburg Pincus stands to more than double its investment.

TRIANGLE TALKS

Triangle Chairman and Chief Executive Daniel Welch said the company had been in talks with various AIDS drug makers in recent months to help finance its drug development and marketing, resulting in the Gilead offer.

"Our business plan called for a very substantial amount of capital to develop, register and market our products," said Welch in an interview. "It's a very big challenge for small-cap companies with share prices below $5 to raise money in the public markets."

The deal comes less than a year after the unexpected death of Triangle founder and Chief Executive David Barry, the 58-year-old former research director of the U.K.'s Glaxo Plc, the giant AIDS drug maker and precursor to GlaxoSmithKline Plc.

Welch said it had not been decided which Triangle executives would keep their jobs after the deal closes as expected in the first half of 2003.

The deal is structured as a two-step process. Gilead will make a cash tender offer for all outstanding Triangle common stock at $6 per share, followed by a cash merger in which Gilead would acquire any remaining shares at $6 each.

It also obliges Gilead to provide Triangle with $50 million in interim financing, although up to $30 million of the loan may be forgiven under certain circumstances.

"This represents an excellent strategic deal for these two companies and a good deal for Triangle shareholders," said Marina Bozilenko, a Banc of America Securities BAC.N managing director who represented Triangle.

The deal comes on the heels of other biotech mergers. In November, Hyseq Pharmaceuticals HYSQ.O agreed to buy Variagenics for $56 million, while Denmark's H. Lundbeck A/S agreed to buy Synaptic Pharmaceutical SNAP.O for $121 million. Bozilenko, who represented both Hyseq and Synaptic, said she is not expecting the takeover trend to continue. "There are very few left that have not partnered," she said.

Goldman Sachs GS.N represented Gilead in the transaction.

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