Biotech Buyout Draws Rebuke
Two companies founded and controlled by a billionaire doctor from Los Angeles will combine in a deal that received a harsh reception Monday from investors.
Generic drug maker American Pharmaceutical Partners Inc. said it planned to buy its largest shareholder, Santa Monica-based American BioScience Inc., for stock.
Shares in American Pharmaceutical plunged nearly 18% on the dilutive effects of the deal, pushing down its value to about $3.4 billion from $4.1 billion based on Friday’s closing share price.
The deal casts a spotlight on Dr. Patrick Soon-Shiong, founder of both companies. The former UCLA surgeon ranked No. 116 on Forbes’ list of the richest Americans last fall, with an estimated fortune of $2.2 billion.
Soon-Shiong’s portfolio took a big hit with Monday’s drop in the price of American Pharmaceutical shares, cutting the value of his 69% stake in the company by about $410 million.
The acquisition would create a biotech company with global reach, combining American Pharmaceutical’s manufacturing capability with American BioScience’s pipeline of innovative cancer drugs, Soon-Shiong said.
“We are creating a differentiated biopharmaceutical enterprise with the potential for high, sustainable growth and a lower development risk profile,” he said.
Soon-Shiong is executive chairman of American Pharmaceutical and chief executive of American BioScience. He would be chairman and CEO of the new company, which would be called Abraxis BioScience and be based in the Los Angeles area.
Soon-Shiong said the deal would enhance long-term growth and shareholder value. He also said it would resolve investor complaints about the transparency of American Pharmaceutical’s dealings with American BioScience, which is largely unaccountable to investors because it is privately held.
Morningstar Inc. analyst Brian Laegeler was skeptical.
“At first glance, the transaction is a raw deal for minority shareholders as it serves only to line the pockets of Patrick Soon-Shiong,” he wrote in a note to investors, noting that the physician owns more of American BioScience than of American Pharmaceutical.
But several other analysts liked the deal. Although he cautioned that the transition could make the new company volatile, Merrill Lynch & Co. analyst Gregory B. Gilbert said the deal was “the right move and [would] eventually broaden the company’s shareholder base and create value.”
Lazard Capital Markets’ Megan Murphy said she was awaiting further disclosures before commenting on American BioScience’s purchase price. But, she said, “strategically, this merger makes a lot of sense.”
American Pharmaceutical said it would issue 86 million new shares to American BioScience shareholders, up substantially from the 72.2 million shares now outstanding. The combined company would have a market capitalization of about $6.2 billion, based on American Pharmaceutical’s Monday closing price of $39.25, down $8.36.
The two companies’ sales are expected to exceed $500 million this year. The deal is expected to close in the first half of 2006.
The announcement said Al Heller stepped down as American Pharmaceutical CEO as well as from the board of directors.
The two companies already split profit from sales of Abraxane, a breast cancer drug that received Food and Drug Administration approval this year. American BioScience also would contribute its pipeline of products, including a slate of cancer drugs.
American Pharmaceutical, founded in 1998, specializes in making generic and injectable drugs. The company is based in Schaumburg, Ill., and has manufacturing plants in the Chicago area as well as New York state.
Soon-Shiong called American BioScience, founded in 1994, the “discovery engine” of the combined company.
American BioScience “is an incredibly organically grown biotech company with now 74 clinical trials developing over Abraxane going after other indications -- lung, head and neck, prostate and ovarian [cancers] and melanoma,” Soon-Shiong said.
The acquisition would add about 500 employees to American Pharmaceutical’s workforce, for a total of 2,000, making the new company one of the largest biotech firms on the West Coast, Soon-Shiong said.
*
Reuters was used in compiling this report.
