I'm wondering if there's a little too much civility in the life sciences industry today. Too much good-mannered fellowship. A lack of hostility, if you will.
How else do you explain the slow drain of the biotech's largest companies into the arms of big pharma? Here's an example you know well: In June, AstraZeneca paid $15.6 billion for MedImmune, or $58 a share - about a 21 percent premium to the stock price just before the deal was announced. But of course, what that doesn't tell you is that MedImmune's stock price already had seen a huge run-up in anticipation of such a deal. Billionaire investor Carl Icahn, known for taking activist stakes in companies, had taken a position in the company in February and started putting pressure on management to sell the company.
Around the time Icahn first climbed on board, shares were trading close to $30. A 21 percent premium to that price would have been under $37, or less than $10 billion for the company - something AstraZeneca shareholders might not have complained so vociferously about.
If AstraZeneca wanted MedImmune so badly, what was it waiting for? An engraved invitation? Well, yes, apparently.
I'm not saying MedImmune shareholders would have happily handed over the company for $10 billion, but AstraZeneca effectively paid a 93 percent premium by waiting for the company to announce it was putting itself up for sale. And if any company has a reason to be aggressive and perhaps even a bit hostile, it is AstraZeneca.
The pharma giant has seen some prominent late-stage pipeline failures and is facing near-term generic competition to many of its most important remaining products. If it needed MedImmune to secure its future, perhaps it should have gone shopping without the invitation. After all, it's not as if MedImmune's shortcomings went away as its stock price appreciated.
Of course, AstraZeneca isn't alone. Bidders are rumored to be lining up to buy Biogen Idec - now that its stock costs about 60 percent more than it did before Icahn convinced that company to invite takeout offers. Whatever premium it fetches will understate just how much its value has risen since the dance began.
True, things have not worked quite so smoothly for PDL Biopharma - in part because Third Point CEO Dan Loeb's abrasive approach to dealing with his targets likely undermines the confidence of potential allies, and in part because PDL's board and management can't stop getting in their own way and make a persuasive case that there is a lot of unrealized value for the taking.
But now the dance may be beginning all over again with Genzyme. Icahn has taken a small (0.6 percent) stake in the company, leading to reasonable speculation that it soon will be on the auction block. And since rumors that Genzyme would be the next target have been circulating for weeks now, the stock has been on the rise for some time - from less than $60 near the end of summer to a recent peak of more than $75. If buyers wait for a formal announcement that bids are being sought, big pharma may be expected to pay well north of $100 per share for Genzyme.
In that case, the anticipation of a buyout may be a bit muted. There are good reasons to wonder if Genzyme is really what big pharma is looking for. It is built not on blockbusters (Cerezyme excepted), but rather a multitude of niche products for diverse indications - the kinds of products a lot of big pharmas tend to license off, not acquire. A breakup of the company's operating divisions is possible, but Genzyme itself attempted the same thing in the 1990s through separate tracking stocks, with unimpressive results.
Nonetheless, if there are big pharma companies panting to overpay for Genzyme just like they did MedImmune and potentially Biogen Idec, recent history suggests it won't happen until Genzyme issues an invitation.
Yet it's not as if hostile takeovers are completely unknown in the industry. Genzyme itself got involved in a recent battle with Millennium Pharmaceuticals over AnorMed. Management at AnorMed wasn't impressed with Genzyme's original hostile bid, so they welcomed an alternative bid from Millennium.
Ultimately, AnorMed got a better offer, Genzyme got the company and Millennium got a $19 million breakup fee for doing next to nothing. Everyone was happy. It wasn't even all that hostile!
All other things being equal, of course, it's best to keep things as friendly as possible. A lot of the value of a life sciences company is in its people, and if they feel manipulated and dispossessed, the acquirer may lose them and thus some of the value of their target. But avoiding hostile takeovers doesn't get around this issue - just because top management welcomes a deal doesn't mean employees feel the same way.
And in any case, those are mature companies we are talking about, with products addressing large markets, advanced technology platforms, battle-tested patent portfolios and extensive manufacturing capabilities. It's not just about the people.
Perhaps big pharma should take a page from Roche. Currently embroiled in a $3 billion, $75 per share hostile takeover bid of Ventana Medical Systems, Roche didn't wait for investors to say it was OK to go after a strategic target. Admittedly, Roche has found a tough negotiator in Ventana CEO Christopher Gleeson. But a new confidential agreement allows Roche access to materials that may change its assessment of Ventana's value.
Whatever the outcome, Roche will probably have an easier time than did AstraZeneca in convincing its shareholders it did the right thing.
"It doesn't leave a good taste when someone goes hostile on you," Gleeson is quoted as saying in a recent Reuters article.
"But at the end of the day, it's business. There's really no issue with Roche," he said. Indeed, there need be no lasting bad blood here, just as a protracted and very hostile battle with Igen International didn't stop Roche from acquiring that company in 2003.
So are we going to see this wave of courteous consolidation continue? The pickings of profitable, multibillion dollar biotechs are pretty slim. Amgen has its troubles, certainly, and could be a potential target. But just in case you forgot, Genentech isn't available - Roche got there first, too. Its 1990 acquisition wasn't hostile - it was engineered by the boards of both companies. But it didn't take activist investors to come in from the outside and make the deal happen.