Takeover talk won't prod sale of MedImmune

Someday David Katz's wish will come true, and Abbott Laboratories or some other huge pharmaceutical company will buy MedImmune, Maryland's largest biotech company.

MedImmune and Big Pharma each has something the other lacks. MedImmune has drugs in development that might someday be prescribed by doctors. Big Pharma has armies of salespeople who give doctors cool pens.


But don't expect the match to happen for a long time.

Big Pharma isn't desperate enough to overpay for MedImmune, although it's getting closer. Gaithersburg-based MedImmune likes its chances as an independent, and so, apparently, do its shareholders.


Except for Katz. His Matrix Asset Advisors, which owns 1.65 million MedImmune shares worth $50 million (less than 1 percent of the total) has formally asked the company to consider selling. This is not a unique tactic. In recent years, at various companies, minority owners have been quite successful at rattling the board's cage, recruiting other shareholders and ultimately forcing a sale.

But Katz's attempt has fallen flat. The board said forget it. Unanimously. It didn't even try to fob Matrix off with the age-old preface to rejection "while we are always seeking ways to increase shareholder value. ..." The stock hasn't budged since Matrix's letter to MedImmune was disclosed 11 days ago.

MedImmune's ownership, which includes Wall Street investment house Goldman Sachs and mutual fund companies such as T. Rowe Price and Fidelity, looks ready to wait.

Theoretically, the worth of any company is the discounted present value of its future earnings. Biotech investors, however, have a funny approach to theory. Many biotech companies, MedImmune included, have no earnings and may not become profitable for years, or ever, which kind of messes up the calculation.

Lacking profits, biotech investors draw hope from clinical trials, news announcements, licensing agreements and a wing and a prayer. They know one drug in a multitude will be a billion-dollar blockbuster, and they are prepared to spread their bets and wait for it to appear.

David Katz is not a biotech investor, and that's the problem. He's a value investor who happens to own a large piece of a biotech company.

His Matrix Advisors Value Fund holds stakes in Microsoft, Time Warner, General Electric and other big companies that Katz believes are cheap relative to their earning potential. He loaded up on MedImmune after the company's FluMist vaccine flopped in late 2003 and the stock dropped from $40, ultimately touching a low of $21.

Value investors, however, can't live on dreams. Unlike many biotech outfits, MedImmune has products and revenue, and it made money in 2001 and 2003, which is how a value investor might own it without being too ashamed. But while the stock has risen to around $32, it obviously has not bounced back the way Matrix thought it would.


Katz, whose patience can be proven by the low investment turnover of his fund, has run out of patience.

FluMist has not fulfilled its promise. Sales of MedImmune's biggest product, Synagis, a respiratory drug for infants, are growing but not quickly. Two pipeline drugs that are among those closest to approval are similar to Synagis and FluMist. (CAIV-T is basically FluMist that can be preserved through refrigeration instead of freezing.) MedImmune lost $17 million last year, and the stock has fallen from $37 in May.

Value investors love to stir the pot by publicly speculating about what great takeover prospects their companies are. (The master: Mario Gabelli.) Katz has floated the idea of selling MedImmune before. In 2004, in an interview with Business Week, he said that MedImmune was "an attractive target for the big pharmas, especially Abbott Labs." Abbott felt compelled to issue a denial, according to a report in the Chicago Tribune.

It didn't happen then. It's not going to happen right now. But it will. Maybe not with Abbott, whose ties to MedImmune have loosened. But with somebody.

MedImmune has a good pipeline of potential products, and established medicine companies are notorious for their dearth of prospects. But MedImmune can afford to wait. FluMist looks like it's off to a decent start this winter. The company has more than $1 billion in cash and marketable securities.

Someday MedImmune will be bought. But I'd bet by then Matrix won't be a shareholder.