Arix Bioscience plc’s VelosBio to be acquired by Merck

Summary

• NYSE listed Merck acquired VelosBio, a portfolio company of Arix Bioscience for US$2.75 billion
• Arix’s investment in VelosBio grew by 12 times
• Merck acquired VelosBio to bolster its oncology pipeline

The global venture capital company focused on investing in and building biotech businesses, Arix Bioscience Plc (LON:ARIX) shares rallied on Thursday, soon after US-based pharmaceutical major, Merck agreed to take over its portfolio company, VelosBio for US$2.75 billion. However, industry experts considered this deal to be expensive.  

Arix Bioscience’s original investment capital of £12 million increased by almost twelve times, which was reflected in the net proceeds to Arix of approximately £142 million. The company also realised a gain of £121 million through this takeover. Notably, Arix's holding in the privately-held company was grossly valued at £21 million.

Also read: TFF Pharmaceuticals releases results for Q3 2020

The takeover of the Arix’s portfolio company testified the fact that Arix had the knack of picking up gems in the trade and investing in them at the right time helping in creating value for all its stakeholders.  

US based biopharmaceutical, VelosBio is a privately held, clinical-stage company that aims to develop cancer curing therapies along with tumour detection solutions and cure. The antibodies developed by the group are currently being evaluated in clinical trials, which are expected to cure patients with solid tumours and hematologic malignancies. Moreover, VelosBio is pacing its studies in development of antibodies which aid in destroying tumour causing cells. Market experts deem this takeover as a strategic acquisition made by Merck.

Also read: Pharmaceutical Major Merck To Invest £1 Billion In Building A R&D Centre In the UK

Merck, also known as MSD in some regions is a well-established player in the field of oncology and investigational therapeutics. The acquisition made by Merck is a strategic move to bolster its oncology pipeline and strives to achieve its maximum potential to benefit in the realm of cancer treatment.

Venture capital company, Arix Bioscience invests in businesses which can disrupt the market through their innovative products and can achieve significant amount of growth to achieve premium valuations in the industry through verified clinical trials and regulatory approvals.

During the first half of 2020, the net asset value (NAV) of Arix Bioscience had risen to £251 million from £202.1 million by the end of fiscal year 2019. The NAV per share was up by 24 per cent from 149 pence to 185 pence during the six-month period ended 30 June 2020.

(Source: Company’s presentation)

The company achieved sound clinical and financial progress in its portfolio companies that led the surge in group's gross portfolio to £203.4 million during the first half of 2020 (FY2019: £149.2 million). November witnessed a major deal in the pharmaceutical sector as Arix Bioscience is set to receive US$185 million following the agreed takeover of VelosBio by the New York Stock Exchange listed company.

During the six-month period ended 30 June 2020, Arix Bioscience deployed £11.6 million of capital into the portfolio. The cash balances of the company stood at £44.0 million by the end of first half of 2020 (FY 2019: £54.6 million). Arix Biosciences has achieved tremendous growth since its inception in 2016 as it has managed to generate an IRR of 20 per cent in its Gross Portfolio. The Group managed to reduce its net operating costs by more than 35 per cent during the period.

The company aims to go for some IPO’s across its portfolio by 2023 apart from forging strategic partnerships through M&A or additional financing events across its portfolio in a bid to increase its NAV in the upcoming years. The company aspires to attain a NAV of up to £500 million and an IRR of 15-25 per cent over the course of next three years.

The company is keen on investing in innovative companies such as life sciences or companies that are currently addressing serious unmet medical requirements, irrespective of their development stage and area of therapeutics or geography. 

The management expects to invest around 66 per cent of their capital in clinical stage companies with a portfolio size of 10-15 companies. Most of the portfolio companies have achieved important clinical milestones and have made good progress during the first half of 2020.

During the six-month period ended 30 June, Arix Bioscience portfolio companies have emerged as strong players in the market through their important clinical development programmes and have managed to raise $392 million during the period.

Arix Bioscience has also sold a further holding of 15 per cent in one of its clinical portfolio company, Harpoon during the first half of 2020 which led to the cash proceeds of £6.6 million and helped in realising a blended price of close to $21 per share.  As of now, Harpoon has delivered an IRR of 49 per cent and Arix holds an 8.8 per cent stake in the clinical company. 

ARIX shares have delivered a price return of over 50 per cent, from January to till date. ARIX shares traded at GBX 162.50 at GMT 11:27 +1 AM on 6 November 2020.

Since inception in 2016, Arix Bioscience has realised £13 million through its Gross Portfolio through optimising the timing of divesture and leveraging upon a deeper understanding of the sector. The company is expected to drive growth through either M&A, IPO and/or equity sale in its portfolio over the course of next 12-18 months and continue to create value for its shareholders.