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From casual to contractual

Acquisition of Sirtris developed after years of talks

Email|Print|Single Page| Text size + By Todd Wallack
Globe Staff / June 6, 2008

British drug maker GlaxoSmithKline PLC flirted with Sirtris Pharmaceuticals Inc. for at least eight months before striking a $720 million deal to buy the Cambridge biotech in April, according to company executives and documents filed with the Securities and Exchange Commission.

Christoph Westphal, chief executive of Sirtris, said the companies have talked casually for years. But the discussions heated up last August, when executives began considering a collaboration based on Sirtris's work to develop drugs that activate key enzymes in the body, called sirtuins, that are thought to help stave off some effects of aging.

"We're getting married to someone that we've been dating for a while," Westphal said. The deal is expected to be completed today.

Sirtris's lead drug candidate is a reformulation of resveratrol, a compound naturally found in red wine, that is believed to stimulate sirtuins and could potentially be used to treat age-related illnesses, such as type 2 diabetes. The drug has already shown some promising - though early - results in diabetics. And Sirtris says it is close to launching clinical trials for experimental drugs that could prove to be up to 1,000 times more potent.

As part of a potential partnership with GlaxoSmithKline, Sirtris suggested the British pharmaceuticals giant buy a stake for $25 per share, nearly double Sirtris's stock price at the time.

But as the firms kept talking, GlaxoSmithKline became more interested in an outright acquisition. On April 1, GlaxoSmithKline sent Westphal an e-mail offering between $18.50 and $19.50 per share, or about $600 million.

The next day, Westphal and other Sirtris executives met with GlaxoSmithKline representatives at Sirtris's headquarters near Kendall Square. Sirtris cofounder Richard Aldrich, a Boston investment manager, suggested Sirtris's board might be more willing to accept an offer of $22.50. GlaxoSmithKline soon agreed. After further negotiations in New York and Philadelphia, the companies had a deal. Among the other conditions: Sirtris wanted to remain an autonomous unit with its own budget for three years. Also, Westphal agreed to continue running the company.

"In effect, nothing will change," Moncef Slaoui, GlaxoSmithKline's chairman, research and development, said this week

GlaxoSmithKline said it was also interested in keeping Sirtris independent. The drug giant has been trying to emulate the success of many small biotech companies by operating a number of small "drug discovery" units, instead of just mashing everything into one sprawling research division. Many large drug companies are having an increasingly difficult time developing new drugs to replace their old blockbusters, forcing them to strike deals with smaller biotechs to replenish their pipelines.

GlaxoSmithKline also wants to tap Westphal's expertise as it makes decisions about where to invest research money in the future. Slaoui said the company plans to include Westphal on a key committee with a handful of other executives to help make such decisions. Prior to running Sirtris, Westphal worked as a venture capitalist and cofounded two other publicly traded Cambridge biotech companies, Alnylam Pharmaceuticals Inc. and Momenta Pharmaceuticals Inc.

Westphal stands to earn up to $25 million from the deal. As an incentive to stay on, GlaxoSmithKline is offering him roughly $2 million more over the next four years. Westphal said he is committed to staying at least several years because Sirtris's research has the potential to treat so many aging-related diseases.

"This is likely to be the most important thing I do in my life," he said. Westphal also said he admires GlaxoSmithKline and is confident the British drug company will continue to invest in Sirtris's research efforts.

Investors will make out well, too. Boston Red Sox owner John Henry, who owns nearly 8 percent of Sirtris, stands to reap more than $50 million from the deal, more than double the initial $20 million investment he made early last year. Three other investors owned more than 7 percent of the company as of May: Fidelity parent FMR, Polaris Venture Partners, and Cardinal Partners. Former Fidelity Investments money manager Peter Lynch invested $6 million. Smaller investors include Boston Celtics managing partner Wyc Grousbeck and former Congressman Joseph P. Kennedy II, along with a host of more traditional biotech investors.

After the deal is completed, Sirtris will have more than 110 employees in Massachusetts, including 60 in Cambridge. But some have questioned GlaxoSmithKline's commitment to Massachusetts.

Last month, a GlaxoSmithKline executive sent a harshly worded letter to Governor Deval L. Patrick, complaining about Senate President Therese Murray's proposal to ban pharmaceutical companies from plying doctors with gifts. The Boston Herald reported GlaxoSmithKline was effectively threatening to stop investing in the state if lawmakers went forward with the proposal.

Slaoui declined to comment on whether the letter was a threat. But he said GlaxoSmithKline plans to keep its research operations in Massachusetts, regardless of the gift ban. Just this week, he noted, the company inked a $25 million deal with Boston's Immune Disease Institute.

"GSK has no intention of withdrawing its research or discovery efforts in Massachusetts," Slaoui said. "We have a plan to be where there is great science, and there is great science in Boston."

Todd Wallack can be reached at twallack@globe.com.

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