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MSMB Capital Makes Unsolicited $378 Million Bid for Amag

MSMB Capital Management, a New York-based hedge fund, made an unsolicited, $378 million takeover bid for Amag Pharmaceuticals Inc. and said it will fire the drugmaker’s top management if successful.

MSMB Capital will offer $18 a share in cash for Lexington, Massachusetts-based Amag, 25 percent more than yesterday’s closing price, the fund said today in a statement. MSMB Capital, already an investor in Amag, thinks the company has been mismanaged and opposes its proposed merger with Allos Therapeutics Inc., Martin Shkreli, chief investment officer, said yesterday in an interview.

“This is a universally hated deal,” Shkreli said. “People want this deal to stop. They want an alternative, and I’m offering it to them.”

Sales fell 20 percent in the second quarter for Amag’s biggest drug, a treatment for iron deficiencies called Feraheme, after changes in U.S. Medicare payments cut its use in dialysis clinics. Amag shares have fallen 49 percent in the past year and 1.9 percent since the Allos merger announcement on July 20.

Amag rose $1.61, or 11 percent, to $16 at 4 p.m. New York time in Nasdaq Stock Market trading. Westminster, Colorado-based Allos, maker of a blood cancer treatment, was unchanged at $1.78.

‘No Guarantee’

“There is no guarantee that this deal would materialize,” Eun K. Yang, a Jefferies & Co. Inc. analyst in New York, said of the MSMB bid in a note to clients. “To us, it is more to derail the proposed Allos transaction.” The analyst recommended selling the stock “to take profits on today’s share strength.”

Five more analysts recommend buying Amag stock while four rate it a “hold,” according to data compiled by Bloomberg.

The companies said July 20 that their all-stock combination would value the merged business at $686 million and lead to annual savings of $55 million to $60 million a year.

The two companies already share a common customer base, in hospitals and cancer clinics that use Amag’s anemia drug and Allos’ lymphoma treatment, Folotyn, according to their July 20 statement. The U.S. lymphoma market represents a $400 million opportunity and the merged companies may potentially earn more than $530.5 million in milestone payments and royalties from partnerships with other drugmakers, they said.

Enhancing Value

“We continue to believe that the proposed merger with Allos represents a transaction that enhances value for our shareholders,” said Frank Thomas, the company’s chief financial officer, in a telephone interview today. He and a spokeswoman, Carol Miceli, declined to comment further.

Amag’s board “will carefully consider and evaluate the MSMB proposal in due course” and will inform shareholders of its position, the drugmaker said in a separate statement.

If he wins control of the company, Shkreli said he’d dismiss top management at Amag, starting with Chief Executive Officer Brian Pereira. Pereira, who took over in July 2007, has failed to diversify the company beyond Feraheme and hasn’t done enough to cut waste, Shkreli said.

The time for Amag to propose a deal like the Allos merger was two years ago or more, when its stock was near $60 and could fetch more in return, Shkreli said.

“When your stock goes from $60 to $14, there’s something wrong,” he said. “The hope is to get management fired and then we can negotiate with the board on a much less emotional level.”

Increased Offer

The hedge fund may increase its offer, which is contingent on reaching an agreement with Amag before Sept. 11, according to a letter sent to the drugmaker’s board. While MSMB Capital has enough cash to pay for the company, it also is seeking financing for the deal, Shkreli said.

“MSMB is a long-term investor in Amag and believes that the management’s current strategy does not protect the interests of Amag’s stockholders or ensure Amag’s long-term viability,” the fund said in its statement.

Shkreli said MSMB owns about 5 percent of Amag. He declined to give details of MSMB’s assets under management. The fund has 10 employees, and its investors include about 20 “high net-worth individuals’ as well as other investment funds, he said.

Amag had $239.2 million in cash and short-term investments as of June 30, according to its second-quarter earnings statement. It also had $50.9 million in long-term borrowings and liabilities.

SeraCare Bid

In June, MSMB Capital made an unsolicited bid for SeraCare Life Sciences Inc., a Milford, Massachusetts-based maker of products used in drug research and diagnostic testing. Since then, SeraCare announced the departure of its chief executive officer, Susan Vogt, and said it would explore “strategic alternatives,” including a possible sale.

While it’s hard to gauge the credibility of Shkreli’s offer, the bid “does raise some valid points,” said Christopher Raymond, a Robert W. Baird & Co. analyst in Chicago, in a note to clients.

“We have struggled with the logic behind the need for the Allos deal,” he wrote. Amag shares don’t represent the value of Feraheme’s potential growth or a possible sale of the company, he said.

“We continue to believe shareholders will ultimately see this value - whether it is delivered by management, MSMB or some other player,” Raymond said.

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