AnorMed rebuffs hostile bid by Genzyme

August 31, 2006
Globe and Mail
By Leonard Zehr

U.S. firm offers 70% premium

Savvy biotechnology investor Felix Baker of New York won an acrimonious proxy battle this year for AnorMed Inc., finally persuading shareholders to back his strategic vision for the Canadian drug developer. Now, he has a different fight on his hands: getting the best price he can to sell the company.

AnorMed was put in play yesterday as U.S. giant Genzyme Corp. said it plans to make a hostile $380-million (U.S.) bid to acquire the Langley, B.C.-based company. AnorMed said its board has unanimously rejected the proposal.

Mr. Baker controls investment funds that own 23 per cent of AnorMed. He couldn't be reached for comment but an individual familiar with the board's deliberations said: "There is an outcome [down the road] that would not be the strategic vision of making AnorMed a stand-alone, integrated company but would provide a very good return to shareholders."

During the four-month proxy fight, Mr. Baker argued that a new board would develop a plan to distribute AnorMed's flagship Mozobil drug with its own sales force to maximize the drug's profit for the company. The drug is designed to speed the flow of stem cells out of bone marrow so they can be collected for a stem cell transplant.

The life-saving procedure restores the immune system of cancer patients after chemotherapy. Final clinical trial results are due to be released in the second quarter next year, leading to a possible market launch in 2008.

As AnorMed's largest single shareholder, Mr. Baker's long-term vision was focused on Mozobil's market potential of an estimated $300-million a year and an experimental HIV drug that could represent an entirely new approach to treating the disease. Now, he is faced with finding a white knight willing to outbid Genzyme.

"This was the most obvious biotech company on the planet to be put into play," said Raymond James Ltd. analyst Brian Bapty. "It has a late-stage drug with excellent data and a promising HIV drug, both wrapped around an incredibly cheap market capitalization."

Cambridge, Mass.-based Genzyme said it plans to mail an offer within a week to acquire AnorMed for $8.55 a share, representing a 70-per-cent premium over the stock's closing price of $5.03 on the American Stock Exchange on Tuesday.

Yesterday, the stock price nearly doubled, soaring $4.87 to close at a five-year high of $9.90 in frenzied trading that suggests investors are betting AnorMed will be acquired at a much higher price. "This company could be worth $13 to $14 or more, and still provide a buyer with substantial upside," Mr. Bapty said.

Last fall, Genzyme began discussions with AnorMed on a partnership to sell Mozobil in Europe initially, with a global licence if the drug cleared U.S. regulators. When those talks floundered, Genzyme made a proposal to the board to buy the company for $8.55 a share. The offer was made in April before shareholders ousted the incumbent board in favour of Mr. Baker's slate.

AnorMed yesterday said it offered to negotiate a better deal with Genzyme that would have reflected the "potential strategic value of the company to Genzyme." But Genzyme declined to discuss sweetening the terms.

AnorMed said the proposed offer does not recognize the full value of the company. It has hired Goldman Sachs & Co. to beat the bushes for other proposals that would maximize shareholder value. The company is also considering a poison pill to thwart a hostile takeover bid and buy time to pursue alternatives.

Mr. Bapty said that if AnorMed is sold, there's a good chance that other Canadian biotech players such as Cardiome Pharma Corp., QLT Inc. and Angiotech Pharmaceuticals Inc. could be next. Last year, Britain's GlaxoSmithKline PLC acquired Vancouver-based ID Biomedical Corp. for $1.7-billion (Canadian).

"We could be witnessing the hollowing-out of the Canadian biotech industry because if we lose critical mass, this industry is finished," he said. "And it would be a crying shame if they went south of the border because our industry can compete globally."

Mr. Bapty blamed Canadian investors, who "don't pay enough attention to world-class biotech assets in Canada. AnorMed is a legitimate $9 stock; so why is it trading at $5? If Canadian assets were fairly valued instead of trading at a discount to fair value, there wouldn't be any rush to buy them."