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Great Point’s Majority-Stake Buy of Caprion Proteomics Could Lead to Pharma Purchase

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Its purchase by hedge fund Great Point Partners may be less than a week away from closing, but Caprion Proteomics is already looking for an even bigger payout down the road.
 
In an interview with ProteoMonitor this week, Martin LeBlanc, who will remain president of Caprion after the sale closes on July 10, said the deal sets Caprion up for its long-term goal of being purchased by a large pharmaceutical or biotechnology firm.
 
Caprion was put on the market in January when Caprion Pharmaceuticals merged with Ecopia BioSciences forming Thallion Pharmaceuticals. As a result of the merger, Caprion spun out its proteomics business into a general partnership, saying it did not fit with Thallion’s core business of developing drugs for cancer and infectious diseases [See PM 01/11/07].
 
In addition to providing some stability to Caprion, which has had a rollercoaster 15 months, the acquisition will allow Caprion to become a full service provider “and focus on all the areas of proteomics where we think we can generate significant value for our partners,” said LeBlanc.
 
Under the deal announced a week ago, Great Point, based in Greenwich, Conn., will buy an 80-percent stake in Montreal-based Caprion for more than CA$30 million ($28.4 million).
 
Terms of the deal call for Great Point to assume CA$22.2 million in long-term debt from Thallion and invest a “few million dollars” in working capital into Caprion, LeBlanc said. Caprion will issue CA$4.1 million in secured subordinated notes to Thallion at an annual interest rate of 9.5 percent.
 
Thallion will retain 20 percent ownership in Caprion, a stake that could potentially reap a tidy fortune for Thallion, according to LeBlanc. For full-year 2006, Caprion achieved a “moderate” profit after years of bleeding red, LeBlanc told ProteoMonitor last month. He said the company also expects to be in the black for 2007 [See PM 06/14/07].
 
“Eventually, when this company can be sold for a larger price because our profits have gone up to a significant number of millions a year, then you can actually sell [it] for 15 times your earnings or more,” LeBlanc said this week. “Thallion will then probably generate cash from that transaction that could basically deliver more of a return on its initial investment.”
 
Caption has “taken a real return now, and [has a] chance at a much higher return later,” he said. “So I think it’s a good compromise.”
 
When asked if that suggested that Thallion was unable to retrieve its asking price, LeBlanc said no.
 
“If you sell it now, you’re getting [an] asking price that is a multiple of what you’ve accomplished to date,” he said. “If you believe that you’re going to build it through a higher profit, you’re going to get the same multiple, but a higher payout.”
 
Thallion and Great Point did not respond to requests for interviews.
 
Wild and Bumpy Ride
 
Regardless of the implications for the future, the deal puts a capper on a topsy-turvy year for Caprion. Last summer, the company announced it was going public, then subsequently retreated from that plan amid a lukewarm reception from the investment community [See PM 08/03/06].
 
As part of Caprion Pharmaceuticals, the proteomics business had an internal drug development mandate, and Thallion CEO Lloyd Segal said in January that potential investors did not believe that proteomics and drug development were compatible elements for a business model.
 
When Caprion Pharmaceuticals announced it was merging with Ecopia at the start of the year and selling its proteomics division, questions about that business’ future were further raised.
 
Currently, Caprion’s business is built on licensing out its CellCarta proteomics technology and providing biomarker discovery services on a fee-for-service basis. In late May, the company announced it and Abbott Laboratories were extending a prior collaboration to use CellCarta to evaluate cell-surface drug targets by comparing plasma membrane proteins in normal tissues against cancer tissues.
 

“If you sell it now, you’re getting [an] asking price that is a multiple of what you’ve accomplished to date. If you believe that you’re going to build it through a higher profit, you’re going to get the same multiple, but a higher payout.”

Other companies and government agencies that are licensing or have licensed CellCarta for their own research include Biogen Idec, ICOS, and the National Institute of Allergy and Infectious Diseases. Companies that have collaborated with Caprion on biomarker discovery work include Pfizer, Wyeth, and Merck & Co.
 
Now entering its second act, Caprion may explore new fields including diagnostics and biomarker validation, LeBlanc said.
 
“We think that this is an ideal platform for diagnostic discovery, and therefore we’d like to see that move forward a little more than we have in the past,” he said. “It’s really broadening what we’re doing now. We’re known for oncology target deals and biomarker deals and NIH contracts. We want to broaden our offering in targets and expand to metabolic disease, inflammation, and infectious disease.
 
“We want to do not just monoclonal antibody targets, but also vaccine targets and secreted protein targets and we want to just broaden our array of biomarker services,” he said.
 
The working capital Great Point will be providing to Caprion will be used as a “cushion to just make sure you can actually overcome the various peaks and valleys that you have over the year,” he said.
 
Caprion currently employs 35 people and will bring that figure up to about 40 shortly, he said.
 
Under the terms of the deal, Thallion is entitled to 100 percent of any royalty payments and half of any milestone payments from existing licensing agreements related to Caprion Proteomics. Thallion has also secured the rights to certain target candidates using the CellCarta platform for future preclinical and clinical development, as well as certain preferred services for biomarker development for its clinical programs.
 
“Great Point Partners is a best-in-class investment partner in the life sciences and health care services sector,” Thallion’s Segal said in a statement. “This sale demonstrates the strength of the proprietary proteomics technology developed by Thallion and the ability of our management team to execute strategic transactions to advance our corporate objectives.”
 
Great Point was created in 2003, according to its website. Caprion is the third firm funded by its private equity arm. The other companies it has financed are Biodel, a specialty drug company developing therapeutics for endocrine disorders such as diabetes and osteoporosis, and Risk Services, a specialty insurance and risk-management firm.
 
“We believe [Caprion’s] powerful proteomics discovery engine and leading bioinformatics capabilities will enable Caprion to continue to expand its leading position in the proteomics industry,” said Adam Dolder, managing director at Great Point, in a statement.

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