Astex Pharma $886-mn merger with Japan’ Otsuka runs into shareholder trouble

Shareholders of US cancer drug maker Astex Pharmaceuticals Inc have opposed the $886 million takeover offer by Japanese drugmaker Otsuka Holdings Co as too low and questioned the timing of the deal.

Early last month Otsuka offered to pay $8.50 a share for California-based Astex, a 27-per cent premium to the company's closing stock price on 3 September, the day before Japanese newspaper Nikkei reported about the deal.

Analysts had immediately said that the offer was too low and advised Astex should hold on till at least $13 a share.

Astex had recently started the sale process after a five-year internal review and hired Jefferies as the financial adviser.

Hedge fund Sarissa Capital, founded by Alex Denner, a former associate of activist billionaire investor Carl Icahn, which holds about 5 per cent in Astex, said that it and many other shareholders believe that Otsuka's bid was too low and raised questions about the timing of the proposed sale.

Sarissa questioned as to why the auction was held before the release of key data from Astex' cancer drug SGI-110, which is scheduled to come out in December and added that it is contacting other potential suitors  it believed had been left out of the bidding process.

It also raised questioned Otsuka's intentions of offering better compensation and incentives to the Astex'senior management post completion of the deal.

In an open letter to shareholders, Astex said that as part of the auction, it had contacted 33 pharmaceutical companies worldwide to gauge their interest in exploring a potential strategic transaction, but only five, including Otsuka, executed non-disclosure agreements and it was the only company to submit a final proposal.

It also said that since the agreement with Otsuka was announced on 5 September, no third parties have approached Astex with an interest in acquiring the company.

Addressing Sarissa concerns on why the auction was held before the release of key data from its cancer drug SGI110, Astex said, On 28 August, the company issued a press release announcing preliminary top-line results of the SGI-110 Phase 2 clinical trial, prior to considering final bids for the acquisition.

It said that Otsuka was provided with access to these results as part of the auction process and while assessing the valuation of Astex, the board took into account not only the preliminary results, but also the potential future economic risks and benefits of SGI-110 and the other pipeline products.

It said that Otsuka originally indicated that it would offer $7.75 per share but Astex Board rejected the initial offer, and based on, among other things, the preliminary SGI-110 clinical trial results, negotiated to a final offer of $8.50 in cash per share.

It also said that Otsuka has not discussed specific employment terms or roles with Astex management, although the Japanese company had indicated that it expects continuity in management post acquisition and neither Otsuka nor Astex has conditioned the transaction on employee retention nor has Otsuka or anyone in Astex management discussed concrete employment arrangements.

Astex, earlier called Astex Therapeutics, was founded in 1999 by Dr Harren Jhoti, a former head of Structural Biology and Bioinformatics at GlaxoWellcome, and two Cambridge academics, Prof Sir Tom Blundell and Prof Chris Abell.

Astex is a leader in innovative small-molecule therapeutics with particular expertise in fragment-based drug discovery, the most important advance in discovery chemistry in the last 20 years. Its primary focus is on oncology and hematology.

Astex has built myelodysplastic syndromes (MDS) franchise with Dacogen for Injection, which has been recently approved in Europe for the treatment of acute myeloid leukemia in patients over 65 years.

Astex's lead clinical development candidates are SGI-110, a novel and subcutaneous hypomethylating agent, which is being evaluated in multiple clinical studies for a variety of hematological and solid tumour oncology indications, including MDS, AML, ovarian cancer and liver cancer, and AT13387, a novel, second generation HSP90 inhibitor being evaluated in clinical studies in the treatment of prostate and lung cancers.

Astex also has five partner-funded programs that are being developed by Novartis, AstraZeneca, Janssen and through a clinical development partnership with Cancer Research (UK).

Founded in 1964, Otsuka conducts research and development of highly-innovative drugs and diagnostics.

The Tokyo-based company researches, develops, manufactures and markets innovative and original products, with a focus on the treatment of diseases and consumer products for the maintenance of everyday health.

Otsuka operates in 26 countries and regions around the world, and had 2012 revenues of $12.2 billion.