BOTHELL – The fate of 700 jobs, millions of dollars in executive bonuses and the 17-year legacy of a biotechnology company that created a $1 billion drug will be decided Thursday.
That’s when shareholders will gather at ICOS Corp.’s Canyon Park headquarters as proxies for and against the company’s proposed buyout are tallied.
Eli Lilly &Co., the Indiana-based pharmaceutical giant that’s partnered with ICOS since 1998 to develop and market the Cialis impotence drug, has offered $2.3 billion to buy the biotech firm.
The bid is sweetened from the $2.1 billion Lilly initially offered for ICOS. Still, opposition from shareholders still is evident.
“There doesn’t appear to be a strong mandate one way or another,” said Paul Latta, an analyst with Seattle’s McAdams Wright Ragen. “I can’t quite get my arms around which side of 50 percent this vote will fall on.”
Influential proxy advisory firms have split on the deal. Institutional Shareholder Services has not changed its view of ICOS’ acquisition. In December, the advisory firm criticized the deal as not beneficial to shareholders, and it again has urged a no vote.
Glass Lewis &Co. and Proxy Governance Inc., however, have issued reports in favor of Lilly’s new offer. That represented a change of heart from Glass Lewis.
For its part, ICOS has repeatedly said the buyout offer is a good one.
“We believe that the $34 per share cash merger, which was carefully considered and unanimously approved by the ICOS board of directors, provides very attractive value for ICOS shareholders,” Paul Clark, ICOS’ chief executive officer, said in a recent written statement.
Lilly wants to buy ICOS primarily to grab its share in Cialis, which is expected to generate more than $1.1 billion in annual sales this year. The company has said repeatedly that it plans to shut down ICOS’ operations, putting all 700 employees out of work by the end of 2007. About 525 of ICOS employees are in the Puget Sound region.
After some investors objected to Lilly’s offer of $32 a share for ICOS as too low, Lilly elevated its offer to $34 on the eve of a December shareholders’ vote, which was then delayed to this week.
When Lilly’s buyout plan was first announced, ICOS’ stock was trading below $30 a share, but it has risen above $40 at times during the past four years. In recent weeks, shares have hovered between $32 and $34.
Also in recent weeks, ICOS and Lilly have released numbers showing strong, better-than-expected sales of Cialis in recent quarters and optimistic bits of news about new drugs in development.
The new information has only strengthened some shareholders’ criticism of the deal.
HealthCor Management, a New York-based hedge fund, has committed its 5 percent of ICOS’ total shares against the takeover, suggesting $40 a share is a fairer price. Individual smaller shareholders also have indicated no votes. At least one has asked the Securities and Exchange Commission and the state’s Division of Securities to review the deal.
Some dissenting shareholders also have expressed unhappiness with the management compensation packages that are part of the acquisition deal. ICOS executives will receive payouts totaling at least $75 million, including at least $26 million from bonuses and stock awards to ICOS Chairman and Chief Executive Officer Paul Clark.
As Lilly and ICOS have waited for shareholders to seal the deal, local economic and political leaders have pleaded for Lilly to retain at least some of the local jobs ICOS created.
In a Jan. 10 letter to Rep. Jay Inslee, Lilly Chairman and chief executive Sidney Taurel said the company hopes to find a buyer for ICOS’ contract manufacturing facility in Bothell, which makes small batches of compounds and drugs for other biotechs.
“It is our preference that a buyer will emerge that will operate that site as an ongoing business and that as many of the approximately 150 jobs as possible at that forecast will be preserved,” Taurel wrote.
But he went on to say that Lilly can’t promise that will happen.
Reporter Eric Fetters: 425-339-3453 or fetters@heraldnet.com.
ICOS vote
What: Shareholders meeting on ICOS buyout by Eli Lilly and Co.
When: 11 a.m. Thursday
At stake: A $2.3 billion deal that would lead to the shut down of ICOS’ facilities in the Puget Sound area and the loss of 700 jobs.
Notable: ICOS, which helped to create the erectile dysfunction drug Cialis, became the largest biotechnology company based in Washington state. It’s also one of a very few in the Northwest to create a drug that’s generated more than $1 billion in sales.
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