Hawaii Biotech agrees to merge; headquarters will be in California
The company wants to combine its vaccine business with Avantogen
In a step toward transforming a division of Hawaii Biotech Inc. into a publicly traded producer of vaccines, the company has proposed to combine its vaccine business with that of Avantogen Ltd., an Australian biotech firm headquartered in La Jolla, Calif.
The deal, which would amount to a merger of equals between the two companies, would marry Hawaii Biotech's vaccine programs with Avantogen's program making products designed to boost the effectiveness of vaccines. The deal also would mean the new company would establish its headquarters in California to be closer to venture capitalists. Leonard Firestone, chief executive of Avantogen, will become chief executive of the new company.
Although Avantogen markets its main vaccine product, known as an adjuvant, to research scientists who are using it to develop vaccines, Avantogen does not make actual vaccines. The deal with Hawaii Biotech would give Avantogen a foothold in the vaccine market, said David Watumull, Hawaii Biotech's chief executive.
Meanwhile, the deal would give Hawaii Biotech access to the cash flow produced by licensing of Avantogen's adjuvant to medical researchers, as well as access to the adjuvant, which Watumull said is "particularly effective" when combined with Hawaii Biotech's West Nile virus vaccine. The company hopes to begin testing its vaccines on people next year as a final step before going to market.
The deal, executives said, would position the new company as a "pure-play" vaccine producer -- one that could attract investors seeking to tap into the demand for vaccines to prevent worldwide pandemic diseases, such as avian flu.
"This combination will create a truly exceptional biotechnology company, and is a pivotal step in restructuring Avantogen to optimize the value of its assets for the benefit of its shareholders," said Richard Opara, chairman of Avantogen and the new company. "Our vision is to create a public company that is a world leader in the development of recombinant vaccines for prevention of common, deadly, incurable diseases using our proprietary, state-of-the-art manufacturing methods."
"We have explored a number of options over the past year for the development of our vaccine business," Watumull said. "We believe that this strategy is our best choice as it brings together the necessary financial, scientific, and management resources to focus and accelerate development of our vaccines, including those for avian flu, West Nile and dengue fever."
Technically, Watumull said, the deal is an acquisition. If approved by the boards of the two companies, Hawaii Biotech will acquire the adjuvant assets of Avantogen and fold them into Hawaii Biotech, which will be renamed to reflect its position as a pure vaccine company. A new name has not been selected, Watumull said.
Avantogen will bring $3.5 million in cash, its adjuvant program and senior management, while Hawaii Biotech will contribute its research and development team, vaccine programs and $1 million in cash.
Hawaii Biotech's shareholders will own 50 percent of the new company and take two seats on the five-seat board. Avantogen will take the other 50 percent and another two seats on the board. The fifth board seat will be occupied by a representative of the venture firm Chopin Capital Partners.
Hawaii Biotech also will spin off its anti-inflammatory business into a separate company, Cardax Pharmaceuticals Inc., which will remain in Hawaii. Cardax will begin with about 12 employees, said Watumull, who will remain chief executive of Cardax.
For Hawaii, the deal means something of a trade-off. On one hand, the Aloha State will lose the corporate headquarters of the new firm, which will be located in La Jolla, Calif., where Avantogen's senior management now resides, and where the company will have greater access to California's troves of venture capital.
On the other hand, the deal will allow Hawaii Biotech to maintain its research and development laboratories here and probably add to the 40 workers it now employs developing vaccines. Watamull said relocating Hawaii Biotech's vaccine developers to the new company's California headquarters would be difficult, expensive and significantly slow the process of developing the vaccines -- making such a move impractical and unlikely.
"We felt that (locating the headquarters in California) was stronger given that the new combined vaccine company needs to access mainland capital, and having a mainland office and a mainland presence is conducive to that financing activity," Watumull said. "But clearly all the Hawaii Biotech employees will remain in Hawaii and will be expanding."