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Investor Recommends Celera Spin Out Merck Royalty Asset

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – An investment fund has filed a document with the US Securities and Exchange Commission recommending that Celera spin out, segregate, or distribute its royalty asset that is associated with a Merck drug candidate currently in Phase III studies.

Biotechnology Value Fund filed the Schedule 13D two days ago. The fund and its affiliates own nearly 10 percent of Celera's 81.9 million shares outstanding, as of its last 10-Q, which was filed with the SEC on Nov. 9, 2009.

BVF said in the filing this week that it believes "significant shareholder value could be unlocked" if Celera were to spin out or distribute the royalty asset. That royalty is associated with a Merck drug that currently is in late-stage human studies for treating osteoporosis. Celera has stated that the royalty equals a mid- to mid-high single digit percentage of revenues.

According to BVF, "if successful, the royalty asset could generate tremendous free cash flow for [Celera's] shareholders and, accordingly, this single asset could be worth a significant multiple of [Celera's] current market value."

It said in the filing that decoupling the asset from the "risks, vulnerabilities, and opportunities" of Celera's diagnostics business could help shareholder value. "Additionally, once the Merck royalty is carved out, [Celera] would be free to pursue strategic transactions without limiting the extraordinary potential upside of the royalty," BVF said.

Celera declined to comment on BVF's suggestion.

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