Biotech Values

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Middlebrook mbrk


http://washington.bizjournals.com/washington/stories/2008/06/30/daily44.html



Wednesday, July 2, 2008 - 3:34 PM EDT
MiddleBrook Pharmaceuticals secures $100M investment
Washington Business Journal - by Vandana Sinha Staff Reporter


MiddleBrook Pharmaceuticals Inc. has announced a $100 million private equity investment to help bring its lead drug to market — a milestone for the company, but disappointing for investors who expected a buyout.

Thwarting immediate plans to be the area’s next biotech to be sold to a pharmaceutical firm, MiddleBrook said it has ended its strategic review of its future options by accepting a private placement deal from Equity Group Investments LLC, a 40-year-old Chicago investment firm founded by entrepreneur Sam Zell that has dabbled in finance, energy, pharmaceuticals, transportation, media, telecommunications and real estate.

MiddleBrook plans to use that cash to hire a new sales and marketing team to launch Moxatag, its once-a-day strep throat tablet, in the first half of next year and restart other clinical trials that had been on hold while the company scraped together otherwise waning funds.

“At the end of the day, the decision of the board was that this was clearly the best alternative available to the company,” said Bob Bannon, vice president of investor relations. “Having this cash allows us to move forward with the sales and marketing team to bring Moxatag to market.”

Under that agreement, Equity Group will buy 30.3 million shares of MiddleBrook stock at $3.30 apiece, a 23 cent premium over the local company’s closing price on Tuesday. The move makes Equity Group the 30-person company’s largest shareholder, owning roughly 35 percent of its stock.

In the process, Equity Group has also asked to replace two of MiddleBrook’s top executives, Chief Executive and founder Ed Rudnic and Chief Financial Officer Bob Low, with leaders from one of the equity firm’s previous life sciences investments. Rudnic will make way for John Thievon, former executive vice president of sales and corporate accounts for Chester, N.J.-based Adams Respiratory Therapeutics Inc., while Low will be replaced by David Becker, former CFO at Adams.

Germantown-based MiddleBrook has won the blessing for the deal from its three largest shareholders, HealthCare Ventures, Rho Ventures and Deerfield Management, who said they would vote in favor of it. If other stockholders back the move, the companies hope to close on the investment by early September.

But investors have not been nearly as welcoming of the news. By midday Wednesday, MiddleBrook’s share prices had sunk by 55 percent after investors swapped shares at a stunning 24 times the average trading volume.

Wall Street, and MiddleBrook executives themselves, had pointed to the likelihood of a company sale in a biotech buying binge that has boasted some of the most generous premiums in recent history. MiddleBrook had been exploring strategic alternatives for the past year and, bolstered by federal approval of Moxatag in January -- a climactic event for biotech companies -- had hired Morgan Stanley & Co. Inc. in February to start sorting through those proposals.

“That was definitely one of the possible outcomes,” said Bannon, who declined to comment on any proposals or potential offers that resulted from its review. “Depending on the price of a transaction, it was possibly a preferred outcome. Of all of the available alternatives, this was clearly the best.”

An acquisition hasn’t been written out of MiddleBrook’s future, Bannon said. That prospect, he said, may in fact look more promising if the company can successfully launch Moxatag, estimated to enter a roughly $300 million market.

“It certainly doesn’t preclude us from doing any kind of strategic transaction down the road,” he said. “It might make sense to do that.”

MiddleBrook officials pointed to the Equity Group’s track record with Adams Respiratory, where the firm was an early investor. While with Adams, Thievon launched the Mucinex brand of nasal congestion and cough relievers, building it up to a $350 million revenue-generator each year before he and Becker helped sell Adams Respiratory to British-based Reckitt Benckiser Group PLC late last year for $2.3 billion.

Thievon, along with Equity Group Managing Directors William Pate and Mark Sotir, will join MiddleBrook’s board, bringing its total to nine members. Rudnic will step down from the board, but he and Low will hold long-term consulting contracts with MiddleBrook.

Rudnic will be leaving a company he built from the ground up eight years ago as founder and developer of MiddleBrook’s once-a-day, extended-dosing Pulsys technology. He had shepherded the company through a roller-coaster ride in the past several years, when MiddleBrook, formerly Advancis Pharmaceutical Inc., received failed results from its initial phase III clinical trials for Moxatag and even had to change its name after losing a trademark lawsuit to Sanofi Aventis.

After cash continued to run short, MiddleBrook had sold off rights to its Keflex franchise to investor Deerfield Management last year -- which it will buy back in an $11 million deal and redeem $8 million worth of warrants after this private placement with Equity Group closes. The local company also plans to renew clinical trial plans for its once-a-day Pulsys version of Keflex and pediatric version of Moxatag.

MiddleBrook (NASDAQ: MBRK) shares, which had peaked at $4.89 in the past year, had fallen from the previous day’s closing price of $3.07 to $1.46 roughly an hour before closing bell on Wednesday.