Tapping the Markets

In March this year Vectura, a product development company that focuses on the development of pharmaceutical therapies for the treatment of airways-related diseases acquired private German company Activaero, focused on the development of products for the treatment of respiratory diseases.

The total consideration of the acquisition was €130m funded through a combination of cash and equity. Vectura also raised £52m to fund the augmented pipeline making it the latest in a line of British biotech firms to tap the markets in recent months.

We caught up with Chris Blackwell, CEO of Vectura, to talk us through the acquisition and placement process and to gain an idea of what the future holds for Vectura and its newly acquired pipeline portfolio.

First of all, congratulations on the raising of £52m, making it one of the UK’s largest biotech placements in recent times. But for those unfamiliar with the recent transaction, are you able to briefly explain the details of the acquisition?  

The deal had two components; the acquisition of Activaero, a privately owned, VC backed company in Germany and a placing with institutional investors to raise the £52million. However, the two were not linked and the acquisition was not predicated on us doing the placing. The acquisition cost, in total, €130m, consisting of an upfront payment of €95m (€45m in cash and €50m in equity) followed by a further, non-contingent cash payment in August 2015 of €35m. This transaction aligned closely with our stated strategic intent and enhances our medium- to long-term growth prospects.

The acquisition brought us a proprietary smart nebuliser-based technology, FAVORITE, that facilitates targeting inhaled drugs into pre-selected areas of the lung. FAVORITE is incorporated into a range of products, with application to branded and generic drugs, for small molecules and for biologics. Our enhanced technology offering now spans both dry powder and liquid/aerosol forms of delivery to the lung. The acquisition also brought us a balanced pipeline of partnered and un-partnered drug assets through seven clinical and several pre-clinical stage programmes. A significant attribute of the deal was that it augmented our pipeline through a single transaction, not only providing a balance of drug assets across development phases, but doing so with limited use of human and financial capital when compared to the cash outlay that would be required to acquire a similar asset base through a series of individual transactions.  

The deal happened to complete on the same day as Circassia floated in London, but how long had this acquisition been on your radar and what was the rationale behind the decision to carry out a placement?

We had known about Activaero for quite some time but we got talking in earnest after a meeting last summer, when we realised how applicable their technology was in the treatment of airways related disease, especially the ability to pre-select areas of the lung for targeting inhaled therapeutics. The rationale behind the fund-raising is simple: the cash will be used to fund the development of the Company’s existing pipeline and the new pipeline following the acquisition. Vectura will also proceed with on-going and future clinical/regulatory work for the acquired partner programmes where appropriate.

The fact that we completed on the same day as the Circassia float and the fact that our placing was three times oversubscribed is testament to the support we had from the market and our shareholders.

Once you were committed to the acquisition how did you lay the groundwork for the placement and who was involved in that process?

The acquisition took a lot of negotiation by senior management and our advisors, especially our financial advisor, Rothschilds and our legal team at Covington and Burling. We also had an in-house diligence team, supplemented where appropriate by external consultants. The placing was carried out by our joint brokers, Peel Hunt and JP Morgan Cazenove.

To help fund the purchase you placed shares with new and existing investors, primarily in the UK. How was the placing originally viewed when speaking to investors? What was your angle to them and did the recent uplift in the market help the discussions?

The acquisition was funded from our own cash resources and equity, and was not dependent on us raising the capital. The aim of the placing was to allow us to invest in our augmented pipeline in a proportionate way, so that the inherent value in the pipeline could be realised at an appropriate level of investment. We positioned the deal as an important part of our strategy, because it is! In summary, Vectura’s strategy is to develop and commercialise products for the treatment of airways diseases, leading and enabling the development of innovative and efficacious medicines to address unmet medical and payer needs.

We also set out our strategic priorities and demonstrated how Activaero addressed these. For example, we needed products to create a pipeline that was balanced in terms of risk and investment with the potential to realise returns in the short to mid-term. Activaero provides mid- and late-stage assets, some of which are partnered, others available for us to develop ourselves. Most investors understood this rationale and thought that the deal made strategic sense and offered a very good fit. They also recognised it broadens Vectura’s technology base (adding smart nebulisation technology to our recognised competencies in dry powder inhalation formulation and device design).

The initial and deferred cash payments on the acquisition were made from existing resources. Did you have a figure in mind before the placement and what are your plans for the majority of capital raised by the placement?  

We didn’t have an explicit figure in mind but we did want to signal to our investors that by staying at or below our 10% pre-emption threshold that we would be very financially disciplined in how we develop our pipeline. This has historically been a strong point in the Vectura investment case and one that we wanted to signal very clearly in our meetings with investors.

Key Success Factors in Raising Capital

Why do you think the placement was so successful? What were the key success factors that contributed to the £52m raise?  

I like to think it was the strategic fit, our continued desire to grow whilst maintaining our financial discipline and our communication of the opportunity.

What did you find most challenging during the time of the placement? In hindsight, any advice for biotechs readying a placement of their own?  

I don’t think I can offer advice that isn’t already out there. These events are always going to put a strain on the management team, primarily due to the huge amount of time that needs to be devoted to them. In that regard, having a good team of senior people definitely helps as well as experienced advisors who can communicate with you effectively on issues that may need resolving in real time.

For those biotechs readying themselves for a placing, I would suggest doing as much preparation as they can ahead of the transaction and getting advisors that are experienced and with whom they get along. As with most things in life, clear communication and an understanding of the goals are key.

‘For those biotechs readying themselves for a placing… clear communication and an understanding of the goals are key.’ 

How have the last few months been since the placement and acquisition? What’s been the major focus of your time since March 13^th?

In short, running the business.  However, a number of activities have taken up a large proportion of my time. Shortly after the transaction, we held an investor day, which was very important for us as we went into additional detail about the acquisition, expanded upon our strategic intent to become a specialty pharma company focussed on airways disease and highlighted some aspects of our product and technology opportunities. A lot of my time, and that of my senior colleagues, has been spent supporting the integration teams bringing the two companies together. We are also undertaking a project review and we are assessing new business development opportunities that have arisen as a result of the acquisition.  

The acquisition appears to be highly complementary to Vectura’s core capabilities, so what now in terms of a priority of focus for Vectura’s legacy portfolio and its newly acquired pipeline?

We must complete the integration and realise the value we see in our business. As I mentioned earlier, we are in the process of a full development pipeline review and we will need to prioritise the investments we make in all of our assets.

 Tell me more about the lead product candidate FAVOLIR^®. What do you see as the greatest opportunities for this product and the market it will serve?

During the inhalation of a therapeutic drug, control of the flow and volume of the drug aerosol can improve the efficiency of delivery of drug. Vectura uses this principle in its FAVORITE technology, to enable a drug to be delivered to targeted areas of the lung, with high efficiency, where drug deposition may provide greater benefit to a patient. VR475 (FAVOLIR^®) is an investigational product that comprises the inhaled corticosteroid budesonide, delivered with Vectura’s smart nebuliser system, the Akita Jet. With this system, FAVORITE technology is used to deliver budesonide more efficiently to uncontrolled, severe, oral corticosteroid (OCS)-dependent asthmatics such that their dose of OCS may be reduced or they may be weaned off OCS totally.

OCS therapy is often associated with severe adverse reactions, and dose-reduction or weaning is a desirable end-point for these patients, provided asthma control is maintained. We have data from one multi-centre, double-blind, randomised, placebo controlled Phase IIb trial (AICS 01), which met its primary endpoint with supporting secondary endpoints . We will soon initiate a Phase III study to support filing a Marketing Authorisation Application (MAA) in Europe. A pharmacokinetic study to support initial development of VR475 in the US is also being planned to start later this year.

Your clinical portfolio consists of 10 products at the moment, with 7in active partnership. What are your expectations for those currently in partnerships and what are your goals for the remaining three?  

We will support the partnered assets where that would be beneficial use of our skills and expertise. These assets are progressing and we are working closely with our partners. The un-partnered assets will be evaluated as part of the development pipeline review.

Looking at the next 12 months, what is the single greatest opportunity that lays ahead for Vectura and how do you aim to exploit it?

Vectura is fortunate in that it derives revenues from a growing and diversified set of marketed drugs and so interest always gathers around the reporting dates of our partners.  In addition, Novartis aims to file QVA149 and NVA237 in the US by end of 2014. These are important events for us as they are a step towards realising value, in the US, in addition to that we are starting to see from those products as they reach the market across Europe and the rest of the world.

The outcome of the pipeline review will be an important event, and there are other value drivers we hope to be in a position to talk about, but I think that the greatest opportunity is for us to demonstrate to the market that the acquisition of Activaero was a success with regard to integration and value to our shareholders.

One final question, looking at Vectura’s experience with the raise, would you say biotechs looking to emulate you should be buoyed by the reaction of the market to your placement?

The placing was a success but the general market since then has been disappointingly weak. We are experienced enough to know that we cannot predict or control the markets. Our focus is to deliver value from the right strategy with the support of our shareholders. If we achieve that, the share price will take care of itself.

Chris was talking to Terence O’Dwyer and Neil Darkes, co-founders of Biotech and Money

This article was featured in the June edition of Drugs&Dealers, Biotech and Money’s exclusive magazine.To get access to 10 other executive interviews like this one and feature articles, download for free the magazine.

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