Since it has been a relatively quiet week – for proxy season, at least – I want to provide a little bit more insight into one of our two feature articles from the April issue.
It’s something of an irony that just as Bill Ackman decides to get out of Valeant Pharmaceuticals International, the rest of the activist community appears to be refocusing on the sector. Perhaps it’s a function of real estate faltering a little or oil prices failing to stabilize (though the outlook is better than it was a while ago). Perhaps it has to do with Trump winning the election, although his policy on drug pricing may turn out to be as harsh as Clinton’s.
Whatever the reason, pharmaceuticals and biotech are a hot space for activists right now. Jana Partners and Starboard Value – not known for their expertise in the space going back more than a few months – have picked up board seats at Bristol-Myers Squibb and Depomed respectively. First-time activists venBio Select Advisor and Richmond Brothers have waged proxy fights. And looming over all is Carl Icahn, whose recent decimation of his investment team and hire of Richard Mulligan suggests a bigger focus on the sector in the years to come.
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Mulligan, whose appointment to Icahn Capital presaged the veteran activist’s own reported stake in Bristol-Myers, completes a cycle for the activist. In 2012, Icahn’s then-biotech expert Alex Denner left to form his own fund, Sarissa Capital, bringing Mulligan on as a co-founder. Together the pair ran a couple of fights, unsuccessfully opposing a takeover bid in their first year, and settling a proxy contest at Ariad Pharmaceuticals in 2015 – where a year later the activist would go on to eject company founder Harvey Berger and sell the company. After initially heading back to academia, Mulligan is now back in the investment world, tasked with finding Icahn some hits after some difficult years in mining, oil and car rentals.
Interest in pharmaceuticals is showing in the data. At the end of March, nine companies in the sector had been publicly targeted by activist investors in 2017. The total for each of the last two years was 17. Meanwhile, activists have kept a healthy interest in biotech – targeting seven companies in the first quarter and 23 in 2016. That may not be a surge, but it at least means the sector is turning over, as overall levels of activism are down (more on that in another column, perhaps).
There is perhaps one more thing to say about activism here. This is where the proxy fights are. Earlier this week, Richmond Brothers filed its preliminary proxy at Rockwell Medical, where one board seat is expected to be up for grabs. Yesterday, Glass Lewis backed two of three nominees put forward by Sarissa at Innoviva, formerly known as Theravance. Whether that is because scientist-founders are more deeply entrenched, activists’ demands are less palatable (perhaps unlikely, given the slight shift away from M&A toward balance sheet demands), or the snapping patience of shareholders who signed on for a long period of losses before hopefully hitting the jackpot is that much louder, this seems likely to be one of the spaces to concentrate on, at least for the year ahead.
Article by Activist Insight