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Lion Set to Close Two i-Biology Deals Before Q4; Says Courting Acquisition Target

NEW YORK, Nov. 7 – Lion Bioscience is ready to close two large i-Biology partnerships in the coming months and has set its sights on a “very promising” potential acquisition target, the company told GenomeWeb.

While Lion would not disclose the names of the companies linked to these partnerships, an analyst said he “suspects” one might be a major California-based pharmaceutical company and the other is likely a top-20 European pharma firm.

The target for the potential acquisition, meanwhile, was also kept secret but the spokeswoman, Andrea Kreisselmeier, allowed that the company “looks interesting but it really depends if [the two firms] can agree on the smaller issues.”

“I mean, in the big picture, [both sides] are completely agreeing,” she said, adding that Lion has approximately $130 million in the bank left over from its IPO last summer that may be applied toward an acquisition.

Kreisselmeier confirmed that the two potential i-Biology deals are likely to close before the end of the company’s fiscal year in March. But although they will be similar to Lion’s drug-discovery collaboration with Bayer, they each will be worth $25 million, or one-fourth of what Lion is set to earn from Bayer, according to the analyst.

In 1999, Lion signed a five-year collaboration with countrymate Bayer to create an IT-based system for in silico research to identify and validate potential drug targets, gene-expression markers, and SNPs. The deal, besides being valued at $100 million, also included help from Bayer to construct a research facility in Cambridge, Mass.

Lion, based in Heidelberg, anticipated closing one new deal by the end of its current third quarter, which began on Oct. 1, but shelved those plans until it got its financial house in order, according to Michael Clulow, an analyst with UBS Warburg, in New York.

It has even reached the point where “a lot of investors are saying ‘I’ll believe it [an i-Biology deal] when I see it,’” he said.

A company may postpone sealing a collaboration because of less-than-optimal economic health, Clulow said. Firms like Lion, he explained, “need to manage their earnings,” but added that “it’s not like they’re giving up on projects. They are saying ‘Let’s delay this three months, six months, nine months. I think that’s what Lion is suffering right now.”

In a research report released in March, Clulow estimated that Lion would bring in $10.73 million in revenues and record a net loss per share of $0.37 in the second quarter 2002, which ended on Sept. 30, or nearly double the $0.19 it posted for the same period last year.

Lion is scheduled to release its second-quarter 2002 earnings  on Thursday.

Applying pressure, meanwhile, are “investors [who] are really bashing” Lion to find another company to further validate its technology, said Clulow.

Today, the company and industry watchers say that these reported i-Biology deals should finally materialize before March 31, when Lion closes the books on fiscal 2002.

Oliver Scluter, an analyst who covers Lion for DZ Bank, in Frankfurt, Germany, said he expects one of the partnerships “to be a pharma deal, but we anticipated that it would look quite a bit different from the Bayer deal,” he said. “We thought perhaps it would look something like the Nestle deal.”

He was referring to a deal Lion struck with Nestle in November 2000 in which the food company bought perpetual licenses for Lion’s SRS, bioSCOUT, arraySCOUT, and genomeSCOUT technologies to help it “accelerate food research and development,” Nestle said in a statement released by Lion. 

Scluter, who believes Lion will probably announce at least one of its two deals before January, speculates that Lion’s new deals “would have a small volume but with the potential to increase over time. We think we could expect [a partnership] like that in the next few months or even a few weeks,” he said.

Friedrich von Bohlen, Lion’s CEO, denied that the potential partners reside in either California or Europe but confirmed that he “expects one to two big deals in the business year.”

He added: “This could mean a deal with a pharma company like Bayer or with a company that is setting standards in the industry the way SRS is a standard.”

“If we are a standard player for data integration and someone else is a standard player for something else, then we could provide a better offering for pharma companies,” he said.

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