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09.07.2005, 03:07 PM

GlaxoSmithKline PLC said Wednesday it will acquire ID Biomedical Corp., maker of the Fluviral flu shot, for about $1.4 billion as the British drugmaker moves to position itself as a leading influenza-vaccine manufacturer.

GlaxoSmithKline said it will pay $35 Canadian dollars ($29.50) per share for the Vancouver, British Columbia-based company and loan ID Biomedical up to $120 million to repay debt and meet cash requirements until the deal closes.

ID Biomedical shares jumped 19 percent to an all-time high of $31.05 on the Nasdaq following the news, then settled to $29.40 in recent afternoon trading. Glaxo's American depositary shares rose 34 cents to $50.54 on the New York Stock Exchange.

The companies expect the transaction to close by the end of 2005 or early 2006. The deal has been approved by both boards but still must be voted on by ID Biomedical shareholders and clear regulatory reviews.

"For someone like (GlaxoSmithKline) it's such a small deal, but it is something that they identified as strategically important for their business," said JP Morgan analyst Craig Maxwell. Glaxo's successful bid follows Novartis AG's recent failed attempt to purchase Emeryville, Calif.-based vaccine maker Chiron Corp.

The rush of interest in flu vaccines comes after the nation's expected flu vaccine supply was cut in half last year by manufacturing issues at a Chiron plant. Only two other companies had U.S.-approved vaccines at the time and the government had to bring in doses of a Glaxo vaccine that hadn't yet been approved in order to address the shortage.

This year, the United States put incentives in place that make entering the market more desirable, said Pacific International Securities analyst Karen Boodram.

"The manufacturer's price has gone up and doctors receive a higher administration fee for giving the flu vaccine," Boodram said. U.S. Medicare reimbursement for the vaccine rose to $10.10 per dose this year from $8.02 last season, according to Boodram.

ID Biomedical supplies about 75 percent of the Canadian government's flu vaccine and is seeking U.S. approval for the Fluviral shot. The company has facilities in both countries.

GlaxoSmithKline said ID Biomedical is on track to produce about 75 million doses a year of its Fluviral vaccine starting in 2007. The London-based company's own flu vaccine, Fluarix, was approved by U.S. regulators in August.

GlaxoSmithKline recently decided to double flu vaccine production capacity at its plant in Dresden, Germany and bought a vaccine facility in Marietta, Pa., where the company plans to develop new flu vaccine technology. The company also is developing an improved flu vaccine for the elderly.

"Vaccines are having a bit of a run right now in pharma, partly because people are very focused on a flu pandemic - which is bound to happen in the next couple of years - so they've been very much in vogue," JP Morgan's Maxwell said. Large flu outbreaks tend to occur every 20 or 30 years when a flu strain changes drastically, leaving people with little immunity to the virus.

Boodram said GlaxoSmithKline's price for ID Biomedical looks reasonable, but noted that there's no deterrent to a competitive bid. She holds a "Buy" rating on ID Biomedical with a price target of $32 Canadian dollars.

Meanwhile, Sprott Securities Ltd.'s David Dean argued that the bid is low, noting his target price of $41 Canadian dollars.

"But at the same time I don't see anyone who's going to come in and offer a counter-bid," Dean said. "The list of companies who would be interested in ID is probably short and with Novartis' recent attempt to purchase Chiron, two of those companies are probably off that list."

The Centers for Disease Control estimates that at least 75 million doses of flu vaccine will be needed this season. Sanofi Pasteur Inc. plans to produce 60 million doses, while Chiron has projected 18 to 26 million doses and GlaxoSmithKline expects to supply 8 million doses. MedImmune Inc. also has planned 3 million doses of its live FluMist vaccine.