A Biotech Reaches For Deep Pockets

Applied Microbiology, a small biopharmaceutical company that's still in the red, with revenues of less than $1 million, has always wanted to link up with a big partner with deep pockets. On May 18, it announced that it will acquire Aplin & Barrett, a wholly owned subsidiary of Burns, Philp, a food conglomerate in Sydney, for stock worth $40 million. Applied's stock, trading at 4 3/8 a share, has hardly budged on the news. But some pros believe the deal, which would immediately put the company in the black, is heaven-sent.

These pros figure that Applied Microbiology is now worth twice that amount, based on the combined companies' cash flow and earnings potential. Aplin, a major producer of nisin, an antimicrobial agent used in certain food preservatives, posted revenues of $8.6 million last year and earnings of $2.3 million.

The deal makes Burns the largest stakeholder in Applied, with 18% of the stock. Applied Chairman David Guttmann says he will remain as chairman and CEO, although Burns will get four of Applied's six board seats.

Aplin's acquisition will give Applied the cash flow it needs to permit a more rapid entry into new areas of biopharmacy, says Guttmann. Applied develops antibacterial proteins for treating certain infectious diseases in animals and humans. One raw material the company uses is nisin, which Aplin supplies for Applied products, including Ambicin, a nontoxic agent that kills bacteria linked to ulcers and cancer.

After the deal closes in August, Burns can further raise its stake in Applied to 63%, by paying $1.5 million. One thing is certain, says Guttmann. Burns will help Applied become very profitable. But will it eventually buy the rest of Applied? Says Guttmann: "Anything can happen."

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