Replies to post #103670 on Biotech Values

[DewDiligence]

ENDP acquires sixth-largest generic-drug company in the US, Qualitest Pharmaceuticals, for $1.2B in cash:

http://finance.yahoo.com/news/Endo-Pharmaceuticals-prnews-3435210445.html?x=0&.v=1

Because Qualitest is private, it has an unusually low profile for a company of its size and scope. According to the above PR, Qualitest plus ENDP will have 46 ANDA’s under FDA review. (Only Teva, Sandoz, MYL, WPI, and COV/Mallinckrodt have more.)

The above PR does not explicitly state Qualitest’s sales, but it does say that the combined companies would have had pro forma FY2010 sales of about $2B. Based on this disclosure, Qualitest has annual sales in the neighborhood of $500M, which means that ENDP is paying about 4x sales.

[DewDiligence]

Delaware-law machinations in the APD-ARG hostile takeover
could be germane to a biotech buyout some day. Here’s the
latest from the NYT’s DealBook blog.

http://dealbook.blogs.nytimes.com/2010/10/08/air-products-wins-round-in-battle-with-airgas

›Air Products Wins Round in Battle With Airgas

October 8, 2010, 7:04 pm
By Steven M. Davidoff

Despite some last-minute chatter in arbitrage circles that Airgas had turned the corner and a very good presentation by Ted Mirvis of Wachtell, Lipton, Rosen & Katz, Air Products and Chemicals won an important decision in Delaware Chancery Court late Friday in its takeover quest for Airgas. Chancellor William B. Chandler III ruled that a new corporate bylaw that would move up the Airgas annual shareholders meeting to January was valid under Delaware law.

One effect of this ruling will be to shorten the terms of some directors on Airgas’s staggered board. Chalk up this victory to Air Products’ legal team at Cravath, Swaine & Moore.

The basis for this opinion was just what I previously thought. The Airgas charter and bylaws are ambiguous and therefore that ambiguity should be interpreted in favor of the Airgas shareholders.

Chancellor Chandler stated that:

The charter and bylaws are ambiguous as to whether directors’ terms run in accordance with a calendar year or a fiscal year. Therefore, under the “rule of construction in favor of franchise rights,” I cannot read the word “fiscal” into the charter, and must instead construe the ambiguous terms against the board, which leads to my conclusion that Airgas’s annual meeting cycle can validly run on a calendar year basis and still be consistent with the charter.

Since “annual” can mean during the year rather than one year later, Airgas loses.

…The net result of this opinion is twofold. First, Airgas will now have to hold its annual meeting on Jan. 15. This is a true blow to Airgas and its chief executive, Peter McCausland, who reportedly had privately described the outcome of the case as a “no-brainer” in Airgas’s favor. No doubt this will not only hurt his credibility, but also put Airgas on the defensive.

Second, this opinion blows a hole in the defenses of many companies with staggered boards [which many biotech companies have]. They will have to amend their charters or otherwise live with the fact that a staggered board can be weakened by forcing the subsequent annual meeting to occur much sooner than people thought. But here, Chancellor Chandler has an answer in his well-written opinion:

This [ruling] will not diminish the effectiveness of staggered boards. The common sense, ordinary language reading that an “annual meeting” must happen once every year comports with the clear terms of our statute, its policy rationale and our common law decisions. If corporate charters and bylaws have been written in a non-specific, open-ended fashion, it is not for this Court to twist their plain words to achieve a purported intent of the drafters. The solution is for drafters to employ clear and simple language to provide clarity and avoid ambiguity. This could easily be accomplished by corporate planners and draftsmen through such simple language as: “The annual shareholder meeting shall be held as closely as practicable in the same month of each year so as to ensure that the terms of office of directors shall approximate a complete year in length.”

In short, this is not the end of the world for staggered boards; it is an easy fix if it needs fixing.

Whether or not you agree with this outcome, once again Delaware has shown the superiority of its judges through its quick adjudication.‹

[DewDiligence]

Recent Biotech Buyouts

[Added PFE-KG (shown in red).]

 
 Acquired         Premium    Deal         iHub  
 Company  Buyer   to Market  Value  Date  Reference  
 GNLB     GSK       465%     $57M  10/08  #msg-33209281 
 MEMY     Roche     319%     $50M  11/08  #msg-33787598 
 KOSN     BMY       233%     $190M  5/08  #msg-29647147 
 MGRM     LH        171%     $155M  6/09  #msg-38960958 
 COLY     PFE       167%     $165M 11/07  #msg-24600805 
 NTMD     Deerfield 158%‡‡‡  $36M   1/09  #msg-35132470 
 EYE      ABT       149%   **$2.8B  1/09  #msg-34762429 
 IOMI     Intercell 147%     $190M  5/08  #msg-29232165 
 BTRX     Stiefel   136%     $150M  6/08  #msg-30201906 
 Tepnel   GPRO      126%     $132M  1/09  #msg-35221710 
 SGXP     LLY       119%     $64M   7/08  #msg-30547648 
 ENCY     PFE       118%     $350M  2/08  #msg-26978155 
 TRCA     Ipsen     104%     $660M  6/08  #msg-29795183  
 CRY.to   MDT        97%     $380M  9/08  #msg-32421462 
 Speedel  NVS        94%     $880M  7/08  #msg-30588524 
 MNT      JNJ        92%     $1.1B 11/08  #msg-33879830 
 MEDX     BMY        90%     $2.1B  7/09  #msg-39801273 
 SIRT     GSK        85%     $620M  4/08  #msg-28705020 
 ZGEN     BMY        84%     $885M  9/10  #msg-54152162 
 CVTX     GILD     *‡76%     $1.4B  3/09  #msg-36225695 
 MOVET.BR Shire      74%     $560M  8/10  #msg-52918245 
 IDEV     ENDP     *†74%   *†$370M  1/09  #msg-34592416 
 LEVP     VPHM     ††73%   ††$510M  7/08  #msg-30704409 
 TARG     MDCO    ***72%     $42M   1/09  #msg-34774402 
 Ventana  Roche      72%     $3.4B  1/08  #msg-30912677 
 Jerini   Shire     *71%     $520M  7/08  #msg-30452872 
 APNO     Cell Bio   70%     $20M   9/09  #msg-43348606 
 AAH.AX   CEPH       69%     $207M  2/09  #msg-35956544 
 OSTE     MDT        65%     $123M  8/10  #msg-53410183 
 TLCR     Grifols    64%     $3.4B  6/10  #msg-50961841 
 FACT     ABT        64%     $450M  3/10  #msg-47606240 
 Acambis  SNY        64%     $550M  7/08  #msg-30990498 
 JAV      HSP        64%     $141M  4/10  #msg-48881292 
 SCRX     Shionogi   61%     $1.4B  9/08  #msg-31859174 
 BFRM     Merz       60%     $253M  1/10  #msg-45071380 
 ASPM     COV        56%     $210M  9/09  #msg-43348479 
 OSIP     Astellas   55%     $4.0B  5/10  #msg-50234451 
 IDMI     Takeda     55%     $75M   5/09  #msg-37898204 
 BSMD     MMSI       54%     $96M   5/10  #msg-50161877 
 ATSI     MDT        54%     $370M  4/10  #msg-49617936 
 ALO      KG       ‡†54%     $1.6B 11/08  #msg-33763449 
 MEDI     AZN      ‡‡53%     $15.2B 4/07  #msg-19020387 
 MLNM     Takeda     53%     $8.8B  4/08  #msg-28365383 
 TRBN     EBS     ***52%     $97M   8/10  #msg-53271836 
 PCOP     LGND    ***52%     $75M   9/08  #msg-32404474 
 CLZR     ELOS       51%     $65M   9/09  #msg-41293512 
 OMRI     JNJ      ‡*51%     $465M 11/08  #msg-33762745 
 IMCL     LLY     †††51%     $6.5B 10/08  #msg-32662830 
 MYOG     GILD       50%     $2.5B 10/06  #msg-13712121 
 MIL      Merck KGaA 50%*†*  $7.2B  3/10  #msg-47249493 
 CRGN     CLDX       50%     $40M   5/09  #msg-38262967 
 PHRM     CELG       46%     $2.9B 11/07  #msg-24645394 
 BRL      TEVA       42%   **$9.0B  7/08  #msg-30792830 
 KG       PFE        40%     $3.6B 10/10  #msg-55425514 
 MOGN     Eisai      39%     $3.9B 12/07  #msg-25163775 
 SGP      MRK        34%     $41B   3/09  #msg-36140327 
 HTRN     ENDP       34%     $223M  5/10  #msg-49838813 
 SMTS     COV        32%     $250M  6/10  #msg-51344183 
 CGPI     Galderma   30%     $420M  2/08  #msg-28286522 
 WYE      PFE        29%     $68B   1/09  #msg-35077617 
 APPX     Fresenius †29%     $940M  7/08  #msg-30498388 
 SEPR     Dainippon  28%     $2.6B  9/09  #msg-41143301 
 Zentiva  SNY      ‡‡26%     $2.6B  9/08  #msg-32327005 
 NOVN     Hisamitsu  22%     $428M  7/09  #msg-39515681 
 PPCO     ENDP       19%     $168M  8/10  #msg-53137069 
 EVVV     COV        19%     $2.6B  6/10  #msg-50797343 
 ABII     CELG       17%     $2.9B  6/10  #msg-51844360 
 ACL      NVS     *‡‡17%  *‡‡$49.7B 1/10  #msg-45072999 
 CGRB     JNJ        16%     $970M  5/09  #msg-38039851 
 DNA      Roche      16%   †*$46.8B 3/09  #msg-36224175 
 ARI.to   Roche     ‡15%     $190M  7/08  #msg-30904056 
 SENO     BCR        14%     $213M  5/10  #msg-49838776 
 CEGE     BPAX        6%     $38M   6/09  #msg-39163410 
 MEND     JNJ         6%     $480M  7/10  #msg-52176337 
 VXGN     OXGN       (4%)    $33M  10/09  #msg-42578130 
 AVGN     MNOV    ***(7%)    $38M   8/09  #msg-40769841 
 VRX      BVF        (7%)    $3.9B  6/10  #msg-51505172 
 PGLA     Avexa       ®         ®  12/08  #msg-34341452 
 NUVO     ARCA        ®         ®   9/08  #msg-32420015 
 NOVC     TSPT        ®         ®   9/08  #msg-31869987 
 VSGN     IPC*††      ®         ®   8/09  #msg-40603745 
  
 ®Reverse merger with private or non-US company.  
  
 ‡Number is misleading inasmuch as Arius announced in 
 May 2008 that it was pursued by an unnamed suitor. 
  
 ‡‡Premium relative to commencement of bidding. 
  
 ‡‡‡To be liquidated by Deerfield following failed merger with 
 Archemix; premium relative to 11/18/08 date of Archemix deal. 
  
 ‡†Based on closing price 8/21/08, the day 
 before KG announced initial buyout offer. 
  
 ‡*Based on 11/20/08 close. 
  
 †Premium reaches 63% if earn-out met. 
  
 ††Premium and deal value based on 0.45/sh of contingent payments. 
  
 †††Premium relative to 7/30/08 close, the 
 day before BMY announced first buyout offer. 
  
 †*Price for 44% of DNA not already owned. 
  
 *199% premium to volume-weighted 
 price during preceding 3 months. 
  
 **Deal value includes assumption of debt. 
  
 ***Premium and deal value exclude contingent payouts. 
  
 *‡Premium relative to 1/26/09, the day 
 before Astellas announced $16/sh offer. 
  
 *‡‡Price includes entire deal in three stages; 17% premium is the 
 blended avg price of NVS’ purchases ($164) relative to ACL’s market 
 price 4/4/08 immediately prior to announcement of first stage of deal. 
  
 *†Premium includes estimated value of contingent 
 payouts, but listed deal value excludes them. 
  
 *††IntelliPharmaCeutics. 
  
 *†*Relative to MIL’s price before announcement that co. was for sale.