Washington Editor

NEW YORK - The label of shareholder activism implies that there is some sort of a conflict where the views of shareholders are pitted against those of a firm's management, said Annette Grimaldi, managing director and head of the life sciences investment banking practice at Jefferies & Co. Inc.

But, she told attendees at the BIO CEO & Investor Conference in New York, the reality is that shareholder activism encompasses a broad spectrum of activities, from something as innocuous as shareholders meeting with companies and expressing their views to voting with their feet by selling or accumulating shares to taking their grievances to the public.

"My view is that the whole range of activities shouldn't necessarily be cast in a negative light," Grimaldi said.

While some at the conference contended that shareholder activism generates healthy transparency, others argued that overzealous shareholders can wreak havoc when they severely scrutinize a firm's spending and challenge corporate decision making and leadership.

Some high-profile shareholder activists include billionaire investor Carl Icahn - who recently attempted to trigger a sale of Cambridge, Mass.-based Biogen Idec Inc. and had pushed the sale of Gaithersburg, Md.-based MedImmune Inc., which ultimately was sold last year to London-based AstraZeneca plc - and Third Point LLC, a New York-based $5.5 billion dollar hedge fund.

While some activist shareholders express their concerns in face-to-face meetings with a company's management, others choose to attach critical letters to management in 13D filings, a document that must be filed with the SEC and the relevant stock exchanges within 10 days of when an individual, a firm or a related group buys 5 percent or more of any class of a public company's stock.

However, said Jeff Marell, partner in the corporate department at Paul, Weiss, Rifkind, Wharton & Garrison LLP, companies should not wait to find out about a share owner's grievances in a 13D filing.

"You need to be diligent on a day-to-day basis communicating with stockholders and potential stockholders," he urged.

When confirmatory Phase III results showed that Nabi Biopharmaceuticals' Staphylococcus aureus polysaccharide conjugate vaccine StaphVAX showed that there was no difference between active and the placebo arms, a group of activist investors, led by Third Point, began airing their concerns about the company in 13D filings, said former Nabi CEO Tom McLain.

The investors, which held 32 percent of Nabi's shares, pushed for the firm to sell assets, including marketed products and a manufacturing facility, and insisted that the company suspend its investments in certain pipeline programs, including StaphVAX.

Even though Nabi's outside advisory board had provided a clear strategic direction for the firm in moving forward with the vaccine, the company found itself in a standoff with the activist investors, McLain said. That fight, he added, resulted in his attention being diverted from other vital Nabi activities.

Ultimately, McLain stepped down as CEO, the firm relocated from Boca Raton, Fla., to Rockville, Md., and sold its biologics strategic business assets for $185 million in cash to Biotest Pharmaceuticals Corp., a subsidiary of Dreieich, Germany-based Biotest AG.

McLain said he learned many lessons from the experience, most importantly, how difficult it is to convince investors about the necessity of understanding the concept of long-term investments in biotech firms.

"As in any situation, in 20-20 hindsight you learn a lot about yourself and you have thoughts of things that you would try a different path," McLain said.

He urged CEOs of other public biotech firms to always keep in mind that they are there to serve their shareholders and to not get caught up in a personal tit-for-tat battle.

Conflicts between shareholder activists and a firm's management sometimes can become very personal because the livelihood of the CEO and other management personnel are often at stake, Marell said, adding that those clashes can sometimes turn into "knock-down, drag-out fights."

But, warned Lilian Stern, principal and founder of Stern Investor Relations Inc., firms should never engage in "public pissing matches" with their investors.

Companies often can preempt such nasty conflicts by ensuring that they have clearly communicated their long-term strategies to their shareholders, articulated what their spending is about and ensured that they are shareholder-friendly, she said.

A firm is "always going to lose" in a conflict with its shareholders "unless you have a well-articulated argument," said Steve Rouhandeh, investment manager for SCO Capital Partners LP.

"You've got to be able to convince shareholders that in the end, this will make you more money than breaking up the company," he said.

Stern argued that it takes more than communication with shareholders.

"It's really important to have a relationship with shareholders," she insisted. "Investors look you in the eye, and they believe you are going to do what you say you're going to do."

The conference ended Wednesday.