BOTHELL – The first major investor to oppose ICOS Corp.’s proposed sale to Eli Lilly &Co. emerged Thursday.
HealthCor Management, a New York-based hedge fund that owns a 5 percent stake in ICOS, said Lilly isn’t paying enough to acquire the biotechnology firm. As a result, it will vote no to the merger with its 3.3 million shares.
The fund’s managers said in a letter to ICOS and a regulatory filing that Lilly should pay at least $40 a share instead of the purchase price of $32 per share.
“Clearly, Eli Lilly is attempting to purchase the ICOS assets at bargain prices,” the managers stated in their letter. “Twice in the last two years, the ICOS share price has suffered short-term downward price movements. Both times, Eli Lilly has approached ICOS in an attempt to purchase … the whole of ICOS.”
The letter points out that the purchase price for ICOS represents a 30 percent discount from the stock price when Paul Clark became ICOS’ chief executive in mid-1999.
HealthCor also cited recent changes to the compensation agreement that gives large payouts to Clark and other top executives as a result of ICOS’ sale to Lilly. It criticized the “audacious handout.”
“We remain confused as to how the board of directors of ICOS can so generously calculate the value of management performance yet simultaneously so conservatively undervalue the assets of the company that is being managed by this same group,” the letter concluded.
In response, ICOS’ spokeswoman said the company thinks Lilly offered a fair deal. The purchase price totals about $2.1 billion.
“The ICOS board conducted a thorough and careful review, and unanimously concluded that this transaction will deliver immediate, compelling value. We are confident that this is a very positive transaction for shareholders,” said Lacy Fitzpatrick.
HealthCor would be the fifth-largest shareholder in ICOS, according to the latest available shareholder information. Interestingly, it bought the vast majority of its shares in the company after the acquisition announcement in mid-October.
Analyst Paul Latta of McAdams Wright Ragen said he doesn’t expect the majority of other voting shareholders to join HealthCor’s stance. But other opposition could emerge.
“It’s not going to be a unanimous vote,” he said.
Speculation that Lilly might offer a higher per-share amount has helped raise ICOS’ stock price above the $32 mark in recent days. On Thursday, ICOS stock closed at $32.60, up 92 cents, or 3 percent.
Separately, ICOS reported net income of $9.7 million, or 15 cents per share, during the third quarter. That compared with a net loss of $19.3 million for the same period last year.
The company also reported that a phase 2 study of tadalafil, the active ingredient in the erectile dysfunction drug Cialis, found it reduced high blood pressure in people less than some existing drugs already on the market. As a result, it’s unlikely the drug could compete successfully against other primary hypertension drugs.
As a result, the joint venture formed by Lilly and ICOS is considering whether to continue to seek approval of tadalafil as a hypertension treatment.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
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