Crucell: Great Chance of a Buyout

by: Mike Havrilla

As the largest pure-play vaccine company with a market cap of $1.2B, Crucell (NASDAQ:CRXL) represents a likely takeover target some time this year since the bid from Wyeth (WYE) fell through after the Pfizer (NYSE:PFE) deal. Crucell offers a technology platform, development pipeline, marketed vaccines, a specialized sales force, and in-house manufacturing facilities.
CRXL is also poised to benefit from a trend in healthcare to increase resources toward preventing disease as a way to reduce the cost and complications of treating medical conditions after they arise.

Since Pfizer cited Wyeth's vaccine and biological agents as one of the reasons for its acquisition, PFE may be interested in a bid for CRXL. Other names who would likely be interested in CRXL include:

- Merck (NYSE:MRK): MRK could bolster its vaccine division to expand beyond the successful launch of cervical cancer vaccine Gardasil as the company waits on the FDA to expand the label to include older women and males.

- Novartis (NYSE:NVS) and Sanofi-Aventis (NYSE:SNY) represent existing strategic partners with CRXL who are also based in Europe and would likely consider making a bid.

- GlaxoSmithKline (NYSE:GSK): GSK is also developing a cervical cancer vaccine (Cervarix) to compete with Gardasil and CRXL would expand upon their pipeline and marketed vaccines.

The upside for CRXL is likely around 50% from the $18 U.S. stock price as of today, based on a premium to the previous Wyeth deal (reported at an initial value of $1.35B), which had CRXL trading near 24 bucks. Considering that a buyout for CRXL would likely involve multiple bidders such as the companies outlined above, a $27 price target is easily attainable in a takeover scenario given the scarcity of pure-play vaccine makers with the size and scope of CRXL, plus the quest for growth by big pharma companies such as Pfizer from biological agents and vaccines instead of the traditional drug product route.

CRXL offers a variety of proprietary development platforms, which revolve around their core technology platform called PER.C6 (a high-yield, large-scale, low-cost human cell line system for the production of vaccines, therapeutic proteins, and monoclonal antibodies), AdVac (utilizes fragments of the common cold virus to deliver vaccines), MAbstract (fully humanized antibodies for application in vaccines against rabies, SARS, and West Nile virus), and STAR (a gene expression technology with the potential for 5-10 fold greater antibody or therapeutic protein yields from mammalian cell lines).

Last November, CRXL reported robust 3Q08 results, which included net income of about $15M, 31% revenue growth, and 50% gross margins. CRXL guided for 25%-30% revenue growth and higher margins for 2008 full-year results. The Company also guided for positive year-end cash flow despite a significant investments to build inventories and continue clinical development initiatives.

CRXL offers robust fundamentals as a pure-play on preventive medicine in the form of vaccines and a valuable technology platform for the production of therapeutic proteins and monoclonal antibodies. For these reasons and the previous Wyeth bid, CRXL is poised to be acquired some time this year by one of its larger rivals outlined earlier, as part of widespread M&A this year in the healthcare sector.