Another company, Trimeris, whose only
product, the AIDS drug Fuzeon, has lost sales to newer competitors, halted
research and development last year and repaid $55 million or $2.50 a share
to stockholders. The company continues in business, but with few
employees.
And two companies, VaxGen and NitroMed,
have canceled planned reverse mergers because of shareholder opposition. In a
reverse merger, a publicly traded company essentially cedes its cash and stock
listing to a private company with presumably better prospects.
For every Gilead Sciences, which spent
$450 million over 15 years and abandoned its original technology before becoming
profitable, there have been countless zombies companies that lurch from
product to product, surviving years or even decades without ever achieving
success.
One company so tarred, by one of its
biggest investors, is Penwest Pharmaceuticals.
The companys history is an
unfortunate progression of failed development programs, Perceptive Advisors, an
investor in the company, wrote in November to Penwests board. Perceptive
demanded that Penwest cease all research and development and become a virtual
company that would just collect royalties on its one successful drug. Penwest
defended its track record and said it was sticking to its course.
Some investors say that with capital
markets now so tight, the walking dead should be buried to free up financing for
more viable companies. Its in a time like this that the good companies are
being dragged down by the bad ones, said Oleg Nodelman, a portfolio manager at
the Biotechnology Value Fund.
In some cases, however, the investors
asking for their money back are not long-suffering shareholders. They are
speculators who bought in only after the stock price collapsed, hoping to make a
quick killing.
Tang Capital Partners, for instance,
began accumulating its 14.9 percent stake in Vanda Pharmaceuticals only after
the Food and Drug Administration rejected Vandas schizophrenia drug in July.
Tang is now pressing for the company to cease all operations and return cash to
shareholders. Vandas stock is trading at 80 cents, well below the $1.74 a share
in cash it had as of Dec. 31.
Vanda says that it is still hopeful
that it can get its drug approved and that liquidation is not in the interest of
all shareholders.
The Biotechnology Value Fund, often
called BVF, was a longtime shareholder in Avigen. But it sold 640,000 shares,
nearly all its holdings, for about $3.95 to $4.60 a share. The sale was near the
stocks highs for the year in the two months before Avigen was scheduled to
announce, in October, the clinical trial results of its drug to treat a symptom
of multiple sclerosis.
After the drug failed, BVF swooped in
and bought more than eight million shares, nearly a 30 percent stake, at about
58 cents a share. That was well below Avigens cash total of about $1.90 a share
at the time.
BVF has made a $1-a-share tender offer
for Avigen and is trying to replace the directors. If it gains control, it could
liquidate Avigen or sell it to MediciNova, which has said it wants to buy it.
Mr. Chahine, the chief of Avigen, which is based in Alameda, Calif., said its
assets might be parlayed into a deal that would be worth more than BVF or
MediciNova would pay and more than the liquidation value. All were saying is,
give us an opportunity to canvass the field, see whats out there and bring
something to the shareholders, he said.
But Mr. Nodelman said such a process
might eat up the companys remaining cash. Someones got to police the space,
he said. Were making sure that the last $50 million in the company dont go to
the bankers and the consultants and the golden parachutes.
BVF, which specializes in smaller
biotech companies, has become the most outspoken investor pressing for its money
back. The fund, based in San Francisco, gets about half of its capital from the
Ziff family, which made its fortune in magazine publishing.
Mr. Nodelman makes no apologies for
BVFs having bought Avigen stock again after the collapse. The fund is also
pressing for a cash-out to shareholders from CombinatoRx. BVF has been a
continuous shareholder in the company, although it added to its stake after some
CombinatoRx clinical trials failed.
CombinatoRx, whose strategy is to
combine two old drugs to make one new one, has lost $236 million since its
inception in 2000. The company has about $1.45 a share in cash, but its stock is
trading for only 66 cents.
Alexis Borisy, the chief executive,
said the company, based in Cambridge, Mass., was not ready for the grave. We
obviously think theres a lot of upside value in the CombinatoRx technology, he
said.
BVF and CombinatoRx are now in
confidential discussions about the companys future.
BVF is also one of four investors,
which collectively own about two-thirds of the shares, demanding money back from
Neurobiological Technologies of Emeryville, Calif.
The companys stroke drug is derived
from the venom of the Malayan pit viper. Three of the investors, including BVF,
were shareholders when that drug failed in a clinical trial in December. The
fourth bought in after the failure. The stock now trades at 58 cents, but its
liquidation value would be as high as $1 a share.
Matthew Loar, the chief financial
officer, said the company was sympathetic to the requests but had not yet
decided what to do. In any case, he said, it could not act as fast as the
investors want.
You cant just turn off the lights in
a company in a day, he said. Among other things, the company must figure out
what to do with 1,000 poisonous snakes, he said. Were going to get rid of them
in the most expeditious, reasonable way possible.
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