BOTHELL – With such a lengthy debate, you’d think the vote to complete ICOS Corp.’s sale to pharmaceutical giant Eli Lilly and Co. would take more than 10 minutes.
But that’s all it took for the holders of 65 percent of the voting shares to agree to the biotechnology company’s $2.3 billion buyout.
The decision means that 400 people will lose their jobs within two weeks. And several of the employees watching the proceedings at the Bothell headquarters dabbed away tears.
“Shareholders and employees have much to be proud of. ICOS has accomplished much in the short history of the company,” Paul Clark, the company’s chief executive officer, said at the meeting’s end.
The biotech that started in 1990 with three founders and an early investment boost from Bill Gates went on to develop Cialis, the world’s No. 2 erectile dysfunction drug, which reached $971 million in sales last year.
Along the way, ICOS also became profitable – a rarity for biotechs nationwide – and grew to become the largest biotech firm based in Washington, as well as one of Snohomish County’s largest publicly held companies.
There soon will be little left, as Lilly officially takes over next week. Four hundred of the approximately 700 ICOS employees will be gone by early February. A transition team of about 160 people will stay on for additional weeks or months.
Additionally, about 125 working at the company’s contract manufacturing facility in Bothell will continue working until later this year. Efforts are under way to find a new owner to continue operating that plant.
While many shareholders and employees assumed Lilly’s acquisition would win the approval vote, the fact the vote wasn’t closer raised some eyebrows. A vocal faction of shareholders had criticized Lilly’s offer for ICOS, even after that offer was raised last month from $32 a share to $34 per share.
“It just seemed on paper to be ludicrous,” Dwight Crosby, a longtime shareholder from Kirkland, said of Lilly’s offer. “Essentially, you’re giving Lilly a billion-dollar drug for way too little money. Upper management got their money and shareholders didn’t.”
Paul Latta, an analyst who tracked ICOS for Seattle’s McAdams Wright Ragen , said his phone had been “ringing off the hook” with calls about the vote.
“I was expecting something a little more 50-50” for the vote, Latta said.
Shareholders will receive $34 in cash for each ICOS share they own. The company’s stock, which peaked in late 2001 above $57 a share, closed Thursday’s trading at $33.97.
Indianapolis-based Lilly partnered with ICOS in 1998 to develop and market Cialis and will now reap all the profit from that drug. Cialis, which has surpassed Viagra in sales in several overseas countries, generated $971 million in net sales last year. This year, sales are expected to easily surpass $1 billion.
Because of those strong sales figures and more recent news that ICOS began testing a new potential treatment for psoriasis, some shareholders argued the company was worth more than Lilly offered. Influential proxy advisory firms were split on the deal and one large hedge fund, HealthCor Management, publicly opposed the buyout.
Saul Kerpelman, a Baltimore attorney and long a vocal shareholder, said he expects the vote to wind up in court.
ICOS executives stand to split severance packages totaling more than $75 million, including at least $26 million for Clark. The size of those payouts also were a source of shareholders’ complaints.
Clark said he stands by the due diligence ICOS management performed, including projecting earnings out to 2020 before it decided to accept Lilly’s buyout offer. In the end, the offer was “compelling” to shareholders, as reflected in the vote, he said.
He said the departing employees are receiving varying severance packages and job placement help. The employee on-site day care will stay open through May, and recently hired employees who moved to the area to work for ICOS are being offered money to relocate to their old locations if they want.
Clark will not stay on past next week, he said, adding he has no immediate plans. He said he hopes ICOS’ employees are able to keep contributing to the region’s biotech community, though it’s likely not all will find jobs in this region.
Tom St. John, a Woodway resident who’s vice president of therapeutic development at ICOS’ laboratories, said he will miss co-workers, but he’s dwelling on the future. He predicted the company’s talented researchers will either help start new companies or join others.
“Keep watching,” he said. “There are a lot of folks here who want to do something amazing.”
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
ICOS timeline
1990: The company is founded in Seattle by George Rathmann, Christopher Henney and Robert Nowinski. One early investor is Microsoft Chairman Bill Gates.
1993: ICOS researchers begin studying IC351. The drug, first considered as a potential treatment for heart problems, turns out to be effective against erectile dysfunction.
1997: First human study of the experimental erectile dysfunction drug is conducted.
1998: Eli Lilly and Co. and ICOS enter a partnership for the development and eventual marketing of Cialis worldwide.
1999: Paul Clark is named as the companys chief executive officer.
2001: ICOS and Lilly apply to the Food and Drug Administration for approval to sell Cialis.
2002: The European Commission approves the drug in the 15 nations of the European Union. The drug becomes available for sale to patients there in early 2003.
2003: The FDA grants final U.S. approval to sell Cialis.
2006: ICOS board agrees to acquisition by Eli Lilly.
2007: ICOS shareholders approve Eli Lillys buyout offer.
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