Astex Pharma shareholder opposes $886 mln bid by Otsuka

Reuters

* Sarissa says Otsuka's $886 million offer undervalues Astex

* Sarissa says Astex did not contact all potential bidders

* Astex says contacted 33 firms, only Otsuka made final bid

* Questions raised about timing, manner of auction

* Astex says made carefully consideration of economic risks

By Varun Aggarwal

Oct 2 (Reuters) - Otsuka Holdings Co's $886 millionbid for Astex Pharmaceuticals Inc has run intoopposition from an activist shareholder who says the dealsignificantly undervalues the U.S. biotech firm - a charge thatAstex has denied.

Sarissa Capital, founded by activist investor Alex Denner, aformer associate of billionaire Carl Icahn, said manyshareholders agreed that Otsuka's bid was too low and the hedgefund also raised questions about the timing of the auction andthe manner in which it was conducted.

The Japanese drugmaker has offered $8.50 per share for theU.S. firm, keen to tap its pipeline of cancer drugs.

After the announcement of the deal in early September, Astexshares initially traded above that price, indicating thatinvestors expected a higher bid. The stock price gradually fellback to around $8.50 but shot to $8.64 on Wednesday afterSarissa's open letter to shareholders.

Sarissa, which owns about 5 percent of Astex, said itbelieved that U.S. firm did not contact all potential biddersand it was reaching out to companies it believed had been leftout of the bidding.

In its own open letter to shareholders, Astex countered thatit had contacted 33 pharmaceutical companies worldwide to gaugetheir interest, of which only five, including Otsuka, executednon-disclosure agreements.

The Japanese drugmaker was the only company to submit afinal proposal, it said.

Astex also said it negotiated with Otsuka for a higheroffer, gaining $8.50 per share from a previous bid of $7.75.

Sarissa questioned the timing of a deal that comes beforethe release of key data from a cancer drug, codenamed SGI110,expected as early as December. It also raised concerns overOtsuka's expectation of offering greater compensationopportunities and incentives to the U.S. company's seniormanagement.

Astex said it had carefully considered not only the new,preliminary and interim results of the SGI110 trials but alsothe potential future economic risks and benefits of its productsin development. It had also said Otsuka had not discussedspecific employment terms or roles with Astex management.

Otsuka declined to comment on the open letters.

Others have questioned Otsuka's offer price.

Brean Capital analyst Gene Mack said in a note dated Sept. 5that Astex should have rejected a bid below $13 per share as itdid not reflect the royalties from its drug Dacogen and itsportfolio of drugs partnered with companies including NovartisAG.

The Japanese drug maker is facing the patent expiry of itsmainstay Ablify schizophrenia drug in the coming years. TheEuropean patent will expire around October 2014 and it will losepatent protection in the United States in April 2015.

Large pharmaceutical companies facing such patent losseshave increasingly been looking to acquire smaller biotech firmsto gain access to new drugs that could bolster income, withcancer therapy an especially hot area for deal-making.

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