Did Transgene Jump the Gun With Novartis?

Includes: NVS, TRGNF
by: EP Vantage

The positive effect of Dendreon’s (NASDAQ:DNDN) breakthrough approval for prostate cancer vaccine Provenge continues to permeate the field. While the likes of Bavarian Nordic claiming partnering interest in their candidate, Prostvac, has significantly increased since the FDA approved Provenge ten days ago, Transgene (OTCPK:TRGNF) Monday launched a rights issue to raise a massive €152m ($196m) mainly to fund a phase IIb/III study of its lung cancer vaccine, TG 4010.

The offer of 3 new shares for 7 existing shares at €16 per share means Transgene is aiming for the top end of its own expectations announced in March. At $196m, the transaction is by far the biggest European equity financing round this year and likely to be one of the largest globally in 2010 overall (see table below). Although Transgene’s shareholders appear likely to bite the bullet and place a long term bet on TG 4010, will they be left wondering whether quite so much cash would have been required had the company waited until after Provenge approval to sign its underwhelming deal with Novartis (NYSE:NVS)?

Timing is everything

Transgene’s shares had gained 43% to €22.29 in the three months prior to its licensing deal with Novartis in March over TG 4010, with the company perhaps guilty of fanning the flames of expectation for a big payday type deal.

However, with Novartis paying just €10m upfront for an option to fully license the vaccine only after phase IIb data in 2012, Transgene’s shareholders were naturally disappointed. Shares in the French biotech have declined ever since (Transgene deal disappoints but were expectations too high?, March 10, 2010).

Although TG 4010 is a very different vaccine from Provenge in terms of its technology and tumor target, sentiment towards the novel field was always going to increase dramatically with its first major regulatory approval. As such it seems quite likely that Transgene’s bargaining position in talks with Novartis could have been strengthened had the deal been struck in a post Provenge approval era, possibly resulting in at least a greater upfront fee.

Long term play

Nevertheless, if this rights issue is successful, Transgene could soon be sitting on a cash pile of over €200m ($258m) when added to the €55.7m it held as of the end of March.

Transgene’s shares have gained 8% so far Monday to €16.35, suggesting confidence that shareholders will take up this offer. It helps, of course, that Transgene’s major shareholder, Institut Mérieux, which has a 55.2% holding, has already agreed to subscribe to the share issue.

Importantly, €200m in the bank will not only help fund the pivotal trial for TG4010 but also Transgene’s three other clinical stage pipeline candidates: HPV vaccine TG 4001/RG3484 partnered with Roche (OTCQX:RHHBY), hepatitis C vaccine TG4040 and gene therapy agent TG4023 for liver cancer. Successful development of these projects should help to limit Transgene’s risk if TG 4010 fails to deliver.

As a result, Transgene’s investors appear to be taking an increasingly long term view of the company’s prospects.

Chunky finance

This will be Transgene’s biggest financing round since going public in 1998, larger than the €100m it raised in 2007 from an equity issue, the last time the company tapped its investors for cash.

As the table below shows, this will easily be the biggest equity financing round in Europe so far this year, almost double the amount raised by Archimedes Pharma in its private series investment in March.

In fact, looking at the track record globally in 2009, Transgene’s rights issue looks likely to still register as one of the biggest financing rounds come the end of year analysis (Who were the cash call kings of 2009?, December 23, 2009).

Top 10 European Share Based Financings in 2010
Company Value (local) Value ($m) Date Type
1 Transgene €152m 196 10-May Rights issue
2 Archimedes Pharma £65m 100 02-Mar Private series
3 Ablynx (OTC:ABLYF) €50m 69 15-Mar Public offering
4 Bavarian Nordic DKr317m 60 02-Feb Public offering
5 Vernalis (OTCPK:VNLPY) £30m 47 11-Feb Public offering
6 mondoBIOTECH SFr43m 41 25-Jan Public offering
7 CureVac €27.6m 35 10-May Private series C
8 Affimed Therapeutics €20m 26 29-Apr Private series C
9 BioInvent International (OTC:BOVNF) SKr150m 21 14-Jan Private placement
10 Active Biotech (OTC:ATVBF) SKr149m 21 01-Apr Private placement
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