* Concentrated shareholder base among biotech companies
* Top 10 investors average 60 pct control at leading targets
* Big Pharma hungry for biotech assets to refill pipelines
By Ben Hirschler and Sophie Sassard
LONDON, May 2 (Reuters) – Biotech companies are fighting
back in an unequal battle with Big Pharma, helped by a small but
powerful cohort of investors who dominate the companies’ share
registers.
A Reuters analysis of 10 likely biotech takeover targets
shows the extent to which a few large investors, including
Fidelity Investments, Capital Research Global Investors,
Wellington Management and T. Rowe Price Associates hold the keys
to the kingdom when it comes to negotiating a deal.
From Amylin Pharmaceuticals to Onyx Pharmaceuticals
and Human Genome Sciences, these U.S.-based
companies are, on average, 60-percent held by their top 10
shareholders, according to ownership filings.
That can help explain their ability to fend off an unwanted
advance by the biggest players in the drug industry.
“There is a lot of concentration of power in the hands of
certain shareholders, which basically demands more negotiations
and more convincing arguments before deals get done,” said
long-time biotech investor Francesco De Rubertis, a partner at
Index Ventures.
It could also leave major drugmakers with little option but
to contemplate higher deal premiums, as they hunt for promising
new drugs and technologies to refill pipelines depleted by the
biggest wave of patent expiries in pharmaceutical history.
In some cases the fight-back is already gaining traction.
Last month GlaxoSmithKline had a $2.6 billion offer
for its long-time partner Human Genome spurned with no
discussion, while a resounding snub from investors prompted
Roche to walk away from Illumina.
“The key learning point is that Big Pharma needs to avoid
bids being painted as opportunistic,” said Charles Hoare, global
head of healthcare M&A; at Commerzbank. “If it involves big
shareholders having to accept a big loss on their investment, it
is much harder to persuade them.”
DIGGING IN THEIR HEELS
Big share price swings linked to the highs and lows of
developing risky products means investors have bought in at
widely differing points on the biotech rollercoaster.
Certainly, investors who have kept the faith through bad
times now appear to be digging in their heels.
Take Mark Evans, a fund manager at Taube Hodson Stonex
(THS), the sixth-largest Human Genome investor with 5.6 percent.
He finds GSK’s $13 a share unacceptable and is galled that the
market failed to recognise the company’s value before the bid.
“Glaxo has been very clever to bid at the point of least
confidence,” he said. “It just shows how differently the stock
market values these businesses compared to industrial buyers.”
THS has been invested in Human Genome since 2004. Others
bought more recently, notably when the shares surged from some
$3 in July 2009 after the U.S. firm and GSK announced impressive
clinical trials results with lupus drug Benlysta.
“I imagine that a lot of holders bought in after the first
successful Benlysta trial. They would have bought between $15
and $18, so they need $20 really,” Evans said.
After two decades of partnership, GSK Chief Executive Andrew
Witty had hoped for a better reception when he wrote to his
opposite number Tom Watkins on April 11.
Instead, he got a brief telephone call at 10.00 a.m. London
time on April 19, just 12 minutes before Human Genome issued a
press release rejecting GSK’s offer, according to a person
familiar with the situation.
Watkins, however, was cheered on by his investors. What
sticks in their craw is the fact that while GSK offered an 81
percent premium, the price per share was still less than half
last year’s peak.
Significantly, another biotech deal on April 23 involved
AstraZeneca clinching agreement to buy Ardea Biosciences
for $1.26 billion – a smaller 54 percent premium but a
price 10 percent above the stock’s 52-week high.
Amylin, meanwhile, is negotiating a tricky path. After
reportedly rejecting a $3.5 billion unsolicited bid from
Bristol-Myers Squibb, it is now under pressure from
activist investor Carl Icahn to sell itself. Sources familiar
with the matter have said it is exploring a sale with the help
of Credit Suisse and Goldman Sachs.
PRESSURE TO BUY
During the downturn, Big Pharma’s fat dividends and share
buybacks kept many investors happy. Now, though, investors are
looking for growth – increasing the pressure to access promising
new drugs locked away in biotech labs.
“We and the competition are thinking the same thing: we need
to do deals to augment the internal portfolio,” AstraZeneca
research head Martin Mackay said in an interview. “This isn’t
just a gap-filler. This is going to be the strategy for years to
come.”
The world’s top drugmakers all have the financial muscle to
do bolt-on biotech deals running into billions of dollars, and
are likely to find themselves competing more closely for
attractive assets.
Pfizer CEO Ian Read said in an interview this week
he was on the hunt for mid-size deals of around $4 billion that
could add promising new treatments for diabetes, cancer and
neurological conditions. And sources have told Reuters that
Bayer is close to a multi-billion euro deal to
bolster its healthcare decision.
In the long run, seeing off opportunistic approaches may pay
off for some biotech firms, but it can be a gamble. Investors in
the biotech “hold-out” camp will be hoping others can emulate
Switzerland’s Actelion, which this week produced
knock-out clinical trial results with a new lung drug.
The success of macitentan means investors who backed
Actelion’s management last year, in the face of a push by
activists to consider selling up, can now breathe a lot easier.
(Additional reporting by Paritosh Bansal in New York; Editing
by Michele Gershberg and David Holmes)
