American Home Products Corp., which owns a majorityof Immunex Corp., offered $263 million to purchase theremainder of the biotechnology company in anunsolicited offer that many say undervalues the company.
American Home Products (AHP) is offering $14.50 pershare for the 45.4 percent of Immunex's 39.6 millionshares it doesn't own. The unsolicited offer, madeWednesday evening, came a week after Immunexreported the Phase III failure of its Pixykine drug torestore platelets in bone marrow transplantation.
Immunex, in reporting the offer Thursday, added that itjust completed an analysis of a Phase II trial of tumornecrosis factor (TNF) receptor that showed statisticallysignificant results in rheumatoid arthritis.
"American Home really chose an opportunistic time tocome with their bid, on the heels of the Pixykine news,"said Edmund Debler, an analyst with New York-basedMehta & Isaly. "It's clearly a low-ball bid," he said,adding its a "relatively hostile" maneuver considering theoffer price and unsolicited nature of it.
"At $14.50," Debler said, "I would be surprised if thisgets beyond the board. I don't think there will be anymeaningful discussion until the offer is around $18 pershare. AHP has always been known for having very sharppencils. This could create some friction, but beyond thatthere's nothing lost in making the offer."
Ed Hurwitz, who follows Immunex for San Francisco-based Robertson Stephens & Co., said Immunex currentlyis worth $16 to $18 per share.
"We've been waiting for this for a year now," Hurwitzsaid. "I think its going to go through, but AHP will haveto up the bid marginally. Immunex did a smart thing inannouncing it had the rheumatoid arthritis data," but itcan't be lost that it's only Phase II and in a competitivearea, he said.
AHP, of Madison, N.J., gained its ownership position inSeattle-based Immunex through its 1994 acquisition ofAmerican Cyanamid Co., of Wayne N.J. AmericanCyanamid got 53.5 percent of Immunex when it mergedits North American Lederle Laboratories oncologybusiness with Immunex in December 1992.
AHP also owns a majority stake (60 percent) in GeneticsInstitute Inc., of Cambridge, Mass., with an option topurchase the rest of the shares at $85 through 1996.
Consolidating Biotech Business
Analysts speculated there may be some consolidation ofAHP's biotechnology interests if and when this deal goesthrough.
"Given AHP's attention to the bottom line and the talk ofthe possible combination of the two, this may the firststep in that direction," said Mike King, a vice president atNew York-based Dillon, Read & Co. Inc.
Rachel Leheny, an analyst with New York-based Ham-brecht & Quist Inc., said there have been rumors for along time involving some combination of GeneticsInstitute and Immunex. One possible scenario, she said,would be to break Immunex apart, and transfer thebiotechnology research and development into GeneticsInstitute.
"In a sense it's not particularly well rationalized rightnow," Leheny said. "It's a little cumbersome."
Hurwitz agreed. "The conflicts have been evident," hesaid. "It was a matter of time until we expected to seeAmerican Home rationalize its investment in one or bothcompanies. I'm not convinced AHP wants to ownImmunex, buy it may want part of Immunex and bewilling to sell other parts."
Leheny said $18 per share would be the area where theoffer approaches fairness and $20 would be better, butshe isn't sure if AHP will go that high. King suggested aprice between $18 and $20 was appropriate, but thedifference could be split and $16 be the buyout price.Matthew Geller, an analyst with New York-basedOppenheimer & Co., suggested that $14.50 was areasonable offer, but one that could come up a bit.
Investors clearly didn't believe the deal would go throughat $14.50. Immunex's stock (NASDAQ:IMNX) gained$3.69, to close at $15.69, in trading of more than 3.6million shares. Genetics Institute (NASDAQ:GENIZ)gained $2.13 to close at $40.13, and American Home(NYSE:AHP) was unchanged at $88.75.
Immunex's flagship product is Leukine, a yeast-derivedgranulocyte macrophage-colony stimulating factor forstimulation of white blood cells. Third quarter sales of theproduct were $10.1 million, while total revenue in thatmost recent quarter was $37.6 million. The Pixykinenews, together with an FDA panel's recent failure torecommend approval of Leukine in broader chemotherapyindications, has hurt Immunex's stock.
Robin Shapiro, manager of corporate communications forImmunex, said there are a number of things to considerwhen valuing the company.
"We're a mature biotech company with an incrediblepipeline that has both near- and long-term possibilities,"Shapiro said. "We're cash-flow positive, we're debt-freeand we have $14.3 million in the bank."
Another consideration when valuing the deal is thatImmunex is due about $161 million in guaranteedpayments from AHP over the next three years if certainsales figures are not reached for Lederle oncologyproducts. Immunex is to use about half that money tosupport research and development of AHP oncologyproducts.
Immunex plans to take three products into the clinic nextyear: interleukin 15, being developed forchemotherapy/radiotherapy-induced mucositis andinfectious disease; FLT-3 ligand, which was shownpreclinically to have an impact on the stimulation ofdendritic cells, for myelosuppression and stem cellmobilization/expansion; and CD40 ligand, beingdeveloped as a vaccine adjuvant and for B celllymphoma. Leukine, Pixykine and the marketed cancerdrug Novantrone are in late-stage trials for variousindications.
TNF Receptor Data Significant
Data from the TNF study in rheumatoid arthritis will bepresented at a meeting in Boston on Nov. 15, 1995. InDecember papers will be presented on the FLT-3 ligand,and on Nov. 13, 1995, an advisory board will meet toconsider expanding Leukine for peripheral stem cellmobilization and transplantation.
Shapiro said the Phase II trial of TNF involved 180patients randomized to receive one of three doses orplacebo. Endpoints were scores for pain, swelling andjoints as compared to baseline.
In the largest dose, the improvement in pain at day 85was 64 percent vs. 46 percent in the middle dose and 28percent for placebo (p=.0006). In swelling, theimprovement was 58 percent for the largest dose, 32percent for the middle dose and 25 percent for placebo(p=.0002). The joint scores were 61 percent, 40 percentand 25 percent, respectively (p=.0002).
An existing agreement spells out the process for theevaluation of the AHP offer. A fairness opinion of theoffer will be obtained from Alex Brown & Sons Inc., ofNew York. Then two-thirds of non-AHP board membersmust approve of the offer before it is presented toshareholders. n
-- Jim Shrine
(c) 1997 American Health Consultants. All rights reserved.