(Reuters) – Hedge fund Elliott Management on Tuesday publicly called on Alexion Pharmaceuticals Inc to sell itself, arguing that management’s steps, including recent plans to acquire a smaller company, were leading in the wrong direction.
“The best approach for the Company and its stakeholders is the immediate exploration of a sale,” Elliott Associates said in the letter, made public one day before Alexion’s annual shareholder meeting.
“The current strategy is unlikely to restore the market’s perceptions of Alexion’s attractiveness and uniqueness,” added Elliott, which manages roughly $40 billion and is one of the world’s most powerful activist investors.
Rather than consider a sale, Alexion has been on an acquisition spree, seeking to diversify its research pipeline, deals the hedge fund criticized in the letter.
Elliott said it had waited months for CEO Ludwig Hantson’s “go-it-alone” approach to gain traction and is speaking out now after he announced plans to buy Portola Pharmaceuticals Inc (PTLA.O). Alexion shares tumbled on the announcement last week, erasing approximately $1.7 billion from the company’s market capitalization in one day.
“Such a disproportionate decline in a company’s share price is the sign of much deeper concerns regarding a company’s perceived strategy,” Elliott said in the letter.
“Alexion maintains an active dialogue with shareholders and welcomes input and feedback as we execute on our transformation strategy,” a company spokeswoman said in an emailed statement. “We will review the letter issued by Elliott today in due course and expect to continue our constructive dialogue with all of our investors, including Elliott.”
Elliott first invested in the rare disease drugmaker in late 2017 and pushed the company to boost its share price. Since then, the company’s share price has remained essentially flat as investors feared competitive threats to its key drug franchise. During that period, shares of large-cap biotechnology peers like Amgen, Regeneron, and Vertex have all risen.
Alexion is currently valued at $22 billion, and a sale would be a large deal by the standards of the drug industry, likely reaching more than $40 billion at Tuesday’s share price of $104.92. However, the company has one of the most lucrative drug franchises in the biotechnology industry, which could be attractive to larger players seeking to add billions in cash flow. This year, Alexion has said it expects revenues of $5.2-$5.3 billion.
Last year, Celgene Corp and Allergan were acquired in drug industry megadeals after long slumps in each company’s share price.
Until now, Elliott and Alexion have held private discussions and this is the second time the hedge fund’s push for a sale has become public. Alexion in December said it rejected Elliott’s suggestions.
Elliott was founded in 1977 by billionaire investor Paul Singer and has returned an average 13% a year since then, making it one of the industry’s best performing hedge funds. While it can invest nearly anywhere, it recently devoted significant capital to pushing companies like AT&T, eBay and Twitter to perform better, winning board seats at some.
Elliott has praised Alexion’s steps to improve its underlying business but noted its operational improvements have not boosted it in the market.
Other shareholders also are concerned about management’s moves, sources familiar with the matter said on Tuesday, adding that several large owners had supported Elliott’s call for a market check to identify meaningful interest to buy the company.
In the absence of a real buyer, Elliott has said that management should consider buying back its own shares to boost the share price, now trading as much as 50% below what Elliott said was its potential level.
For Elliott, the Portola deal was only the latest in a string of missteps that include the purchase of Achillion Pharmaceuticals for $930 million, as the company tries to diversify its revenue base away from its bestselling drugs for rare blood disorders. It also cited an unexpected and unexplained departure of Paul Clancy, a former chief financial officer, as worrying investors.
Elliott’s letter took aim at the board, saying the group “is in urgent need of fresh perspectives and a new direction.” Directors Deborah Dunsire and Judith Reinsdorf were the most recent additions, joining the Alexion board in 2018.
Investors could signal unhappiness with the company’s direction by withholding support for the chairman of Alexion’s board, David Brennan, said industry analyst Don Bilson at research firm Gordon Haskett.
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