In a transformational deal announced earlier this week, Tekmira Pharmaceuticals (TSX:TKM, Nasdaq:TKMR) plans to merge with private OnCore Biopharma, redefining itself as a company focused predominantly on hepatitis B (HBV) therapeutics and less on RNA interference (RNAi). The new Tekmira will have a pipeline of 8 drugs targeting HBV, as they try to follow the path carved by Gilead (Nasdaq: GILD) in hepatitis C (HCV) with its enormously successful combination therapeutic approach. Gilead’s HCV playbook should be familiar to the new Tekmira, given that Sovaldi, the crown jewel of Gilead’s HCV franchise, was developed by OnCore execs while they ran Pharmasset, before it was acquired by Gilead for $11 billion in 2011.
OnCore’s HBV pipeline and the pedigree of their executive team met with investor approval as Tekmira’s stock shot up over 40% this week, irrespective of the 100% dilution required to consummate this 50 / 50 merger. For its part Tekmira brings its own HBV candidate to the proposed merger, TKM-HBV. Late in 2014 Tekmira announced Health Canada clearance to start a Phase I study with TKM-HBV. That would make TKM-HBV the most advanced HBV drug in new Tekmira’s 8 drug HBV pipeline.
Clearly, TKM-HBV fits strategically in the new HBV focused company, but the fit for Tekmira’s pipeline of other RNAi based drugs is less clear. Assuming a successful merger, it wouldn’t come as a surprise to see the new Tekmira streamline its pipeline by divesting, or maybe discontinuing, certain RNAi projects / products.
The proposed new executive team will consist of 5 OnCore people and 4 from Tekmira. Mark Murray, Tekmira’s current CEO, will remain as the CEO of the new Tekmira. An executive team of 9 seems excessive for a company as therapeutically focused as the new Tekmira. So it wouldn’t come as a surprise to see the executive suite right-sized sometime in the near future.
The merger is schedule to close sometime in the first half of 2015 once a special meeting of Tekmira shareholders has been held. It seems highly likely that shareholders will approve the transaction, given the immediate vote of support the deal received in the market.
The combination of their stock surging this week and proposed doubling of their shares outstanding would peg the new Tekmira with over a $1 billion market cap – not bad considering they started the week valued at $300 million.