BioWorld Today Columnist

It's been an interesting month for nondeals. Back in November, I was wondering why big pharma companies, if they are "panting to overpay" for large biotechs, seem to need activist shareholders as intermediaries to begin takeover negotiations.

A few weeks later, it's become even clearer that while the rainmakers are great at running up stock prices, they're haven't been so hot when it comes to finding the sort of win-win common ground that actually makes deals happen.

Now we know who wanted to pay $25 billion or so that shareholders of Biogen Idec ultimately were asking: Exactly no one.

That doesn't mean that no big pharma company was interested in Biogen - just that none could justify bringing that sort of price tag forward to their board or shareholders.

And it's no surprise why. With Rituxan and Avonex having long ago seen their peak sales growth, and Biogen's pipeline not offering the kind of near-term promise pharma companies so desperately need, that kind of rich valuation only could be based on optimistic projections for the multiple sclerosis drug Tysabri. And since the drug is still early in a re-launch and has a controversial safety record, risk-averse pharma companies weren't willing to bite.

But there's more to it than that. According to a report in In Vivo's blog, companies wishing to negotiate purchase of Biogen had to sign a confidential disclosure agreement that forbade them from negotiating any kind of deal with Elan or Genentech.

Since Elan shares revenue on Tysabri and has rights to buy it back in the event of a Biogen buyout, that would seem to have made the deal a nonstarter from the very beginning. It just piled risk on risk. A buyer was expected to put forward more than $20 billion without even being sure it could get the only product that could possibly begin to justify such a valuation? Come on!

So what was Carl Icahn thinking?

Apparently, his experience selling MedImmune to AstraZeneca for more money than it was worth convinced him that big pharma is so desperate for products that it will take any kind of deal it can get. Likewise, investors began salivating at recent history, thinking someone would step in to pay some 20 percent over whatever price they could bid shares up to, never mind how overinflated it became.

It was an exceptional festival of greed, and it's more than mere Schadenfreude to take pleasure in seeing it go unrewarded.

Brewing Fight At Genzyme

Not only that, but Icahn seems to have been landed with a one-two punch. Genzyme - in which Icahn also recently took a stake - isn't playing ball. Its chief executive, Henri Termeer, essentially has come out and he said he intends to fight Icahn every step of the way if he tries to pressure the sale of that company, citing some of the reasons I suggested back in November, and doubtless many more of his own. Couple that with Icahn's massive failure in finding a buyer for Biogen, and it probably means that a lot of Genzyme's institutional investors are going to be sympathetic to Termeer's message that the company is better off on its own.

That's two defeats for Icahn. And while we're at it, did we mention that nobody has yet put up an offer for PDL Biopharma, in whole or in part? Or for what remains of Nabi?

That gets us to the unfortunate fallout from recent events. The report card on activist investors is looking pretty shoddy right now. Several weeks ago, I spoke to a couple of sell-side analysts who were enthusiastic about what activists had brought to the sector in terms of value creation. Now I have to wonder if they've changed their tune.

The likes of Icahn and Third Point's Dan Loeb have been successful at causing a lot of chaos and disruption, at eating up a lot of management and board time that might have been directed toward product development, and at fomenting a great deal of stock speculation. But the creation of long-term value? It's hard to see much - especially for investors who followed their lead. That's important, because Icahn and Loeb are buying tiny minority stakes in their targets and counting on swaying other investors to climb on their bandwagon and force through a sale or management turnover.

If everyone who listens to them loses money - as they have been lately with Biogen, PDL Biopharma, Nabi and Ligand (Genzyme may have nipped speculation in the bud before things got too crazy) - then the whole game falls apart.

More Than Greed

That may be a relief to many biotech CEOs, but it's a bit of a pity, too. Because shareholder activism doesn't have to be about short-term greed or nasty letters or adversarial relationships. It can be about the owners of a company - its investors - working constructively with management and boards to maximize the value of a company, whether that means a sale or new management or a shift in strategy. And it can be an important check and balance to insular executives.

Whatever ultimately may have transpired, I don't think PDL's leadership was running the company in the best interest of shareholders. Some shareholder activism in that instance was a welcome thing. The execution, however, was lousy.

Corporate governance has by-and-large improved since the days of the Enron scandal. Poison pills, supermajority voting requirements, special classes of preferred stock and other anti-shareholder practices have become less common. Companies that used to set up defensive strategies against takeover and that once may have looked on shareholders as troublesome interlopers to be kept at arm's length now actively engage them.

That's better not just for investors but also for companies, which can gather more input and make positive changes for everyone's benefit.

Shareholder's have been silent owners for decades, and it only has been recently that the pendulum has swung toward greater empowerment. To see a string of failed deals and broken companies give the notion of shareholder empowerment a black eye is a real shame. Let's hope the notion of activism can gain a little more of its grassroots appeal and less of the taint of greedy billionaires.