Kenneth Galbraith, Chairman & CEO of Zymeworks.Handout
Zymeworks Inc. ZYME-N has rejected an unsolicited takeover proposal from a Dubai hedge fund, saying it “significantly” undervalues the Vancouver biotechnology company and is not in the best interests of shareholders.
All Blue Falcons FZE, an arm of All Blue Capital, in late April made a $10.50-a-share cash offer, valuing Zymeworks at US$773-million. It made the bid after a tumultuous year for Zymeworks, once Canada’s most valuable early-stage drug developer.
Its stock had dropped 90 per cent since early 2021, partly because of setbacks related to its two lead cancer- and tumour-fighting drug candidates. Its slide was exacerbated by a crash of biotech stocks amid rising interest rates and mounting economic uncertainty.
Zymeworks replaced chief executive officer and founder Ali Tehrani in January with industry veteran Kenneth Galbraith, who promptly slashed staff by 25 per cent and raised US$107.5-million in a dilutive offering at $8 a share, 14 per cent below its price. The shares kept falling and traded for under $5 apiece before All Blue’s bid surfaced.
In a release Friday, Mr. Galbraith, who is also chairman, said All Blue’s “non-binding, unsolicited activist proposal was timed opportunistically during a period of substantial market dislocation, and prior to several important near-term events for the company expected in 2022,″ including publication of key trial data.
“We are confident that the execution of our key strategic priorities has the potential to deliver greater value to our shareholders than the current inadequate and non-binding proposal,” he said.
Zymeworks stated it would not enter discussions with All Blue because its proposal is “informal,” and “lacks credibility” or details on its ability to finance or consummate a deal.
The bid price is also below the $14.97-a-share strike price on the 500,000 options granted to Mr. Galbraith when he joined, meaning they would be worthless if a deal happened at All Blue’s terms.
All Blue owns 5.9 per cent of Zymeworks and has US$5-billion under management.
In the April 28 letter to the board outlining its bid, All Blue stated Zymeworks had suffered from “severe value erosion due to a number of serious missteps by an unfocused leadership with no clear strategy for improving performance.”
Zymeworks said its board had received several letters from All Blue before that, voicing displeasure and calling on directors to “immediately resign without delay” or face “a very public fight.”
“The board and management are disappointed that All Blue chose to publicly attack the company while efforts to reinvigorate the company are well under way,” the company stated.
In an interview, All Blue’s Canadian-born managing director Matt Novak said his firm has been in “constant” contact with the company since August. He dismissed its characterization of All Blue’s past correspondence, calling it “revisionist” and “baloney.”
“We’ve had tons of engagement,” Mr. Novak said. “Their positioning of this as an activist situation is just a smokescreen to the fact this is an opportunity for shareholders to realize concrete value, and the board is depriving shareholders of that opportunity.”
Mr. Novak said All Blue offered early this year to make a larger investment and at less dilutive terms than the stock offering Zymeworks later did. He disputed assertions about the seriousness of All Blue’s bid, which he said “is not contingent on funding. … We do have financing.”
He said his firm prefers to reach a “constructive” negotiated deal, but that if that is not possible “we are ready, willing and able” to proceed with a formal hostile bid. He said if the board believes the bid is opportunistic, “then come back to us and let’s figure out a price that doesn’t undervalue the company. How do we arrive at that if you won’t even engage us?”
The bid is unusual for All Blue, which tends to focus on real estate, private equity and capital market investments more oriented to digital companies such as Uber Technologies Inc. and Airbnb Inc. But with the recent sector selloff, “private equity is circling biotech today because there is value,” Mr. Novak said.
“There are lots of private equity firms like us that have patient capital” and are willing to ride out the downcycle. “Of course All Blue is being opportunistic,” Mr. Novak added. “We see substantial value in Zymeworks and its pipeline, and our goal is to crystallize before Mr. Galbraith has an opportunity to further erode it.”
Mr. Novak admitted he is “not a biotech guy,” but said “that’s irrelevant” as the company has engaged high-profile advisers who would serve on the board should All Blue’s bid succeed: Alan Barge, former head of oncology with drug giant Astra Zeneca, and oncologist Siddhartha Mukherjee, an associate professor of oncology and hematology at Columbia University Medical Center in New York and a Pulitzer Prize-winning Rhodes scholar.
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Sean Silcoff