Sarissa Capital Management LP, the hedge fund of activist investor Alex Denner, boosted its stake in Astex Pharmaceuticals Inc. after the cancer-drug maker accepted an offer of as much as $886 million from Otsuka Holdings Co. that disappointed investors.
Astex, based in Dublin, California, said Sept. 5 it accepted a bid of $8.50 a share from Tokyo-based Otsuka, a premium of 27 percent to Astex’s closing price two days earlier, before reports of the deal surfaced. Investors and analysts took issue with the price, saying it undervalues Astex’s approved drug and slate of experimental compounds.
“We think that the bid price seems exceptionally low given the promise of the pipeline of the company,” Denner said today in a telephone interview. “I talked with the CEO. We’re one of their largest shareholders.”
The stock has traded above $8.50 since Sept. 5, indicating investors may expect a higher bid. Astex rose less than 1 percent to $8.71 at the close in New York.
Sarissa, the hedge fund Denner founded with Richard Mulligan after leaving billionaire investor Carl Icahn’s firm in 2011, has boosted its stake to almost 5 percent of Astex stock, Denner said.
“We had a position before the deal was announced and we increased the position when we saw the meager offer,” Denner said. He declined to lay out further plans immediately.
Timothy L. Enns, a spokesman for Astex, didn’t respond to a call and e-mail seeking comment.
Astex makes the blood-cancer drug Dacogen and its pipeline includes SGI-110, which in August produced results in a mid-stage study in acute myeloid leukemia that drove the stock up 24 percent in one day.
The company is worth at least $13 to $14 a share currently and could be worth double or triple that in 18 months, Aquilo Capital Management, a San Francisco-based investment fund that said it has owned Astex stock for three years, wrote in an open letter on Sept. 9 to the company and its shareholders.
“The company is currently on the path to success, making great strides in becoming an important player in the oncology market,” Aquilo’s Marc Schneidman and Adam Bristol wrote in the letter. “In a robust capital market environment in which biotech companies with fewer resources, lower commercial potential, and minimal clinical pipelines are being valued for far more, the board has decided to short-change shareholders of the value that they have supported and helped to create.”
Michael Yee, an analyst with RBC Capital Markets, put the likelihood of a higher bid or another bidder at less than 35 percent to 45 percent, in a Sept. 9 research note.
“We think Astex was shopped to all the big pharmas including Japanese pharmas,” Yee wrote, noting he spoke with the company’s management about the sale process. “Thus, the only way the deal might be at a higher price is if holders do not tender at least 50 percent of shares which is possible but not likely and has some risk Otsuka would not raise the price and walks away.”
Otsuka’s offer will be made via a tender process and the companies expect to complete the deal early in the fourth quarter, Astex said in its statement.