Bait And Switch: American Pharmaceutical Partners’ Proposed Acquisition of American BioScience (APPX)

On November 28th, American Pharmaceutical Partners (ticker: APPX) announced it was acquiring its majority shareholder, American BioScience, Inc. (private company), in an all stock transaction valued at $4.1 billion. The rationale behind the transaction is to simplify the corporate structure while acquiring all the rights to the cancer drug, Abraxane, and a pipeline of development stage drugs. The question is: Is this transaction being done in the best interests of shareholders? In my opinion, the only person that will be enriched by the deal is American Pharmaceutical Partners’ (APP) Chairman and CEO, Patrick Soon-Shiong, who also happens to own over 80% of American BioScience (ABI) and is its President and Chief Financial Officer.

For those of you unfamiliar with APP, the company was spun off from ABI in a 2001 IPO. APP consists of generic drug business and has a 50% interest in the U.S. rights of the oncology drug, Abraxane. APP acquired the U.S. interest in Abraxane from ABI for $60 million plus milestones. Under the terms of the deal, APP is responsible for marketing Abraxane and ABI is responsible for development. ABI has a 50% interest in Abraxane’s U.S. rights and owns 100% of the rest of world rights. In other words, by spinning off APP, ABI separated its profitable drug business from the unprofitable development business.

The most disquieting fact pertains to Patrick Soon-Shiong who owns more than 80% of ABI and is its President, Chief Financial Officer, and a Director while also serving as APP’s Chairman and CEO. Since ABI owns almost 48 million shares of APP, Mr. Soon-Shiong is a de facto shareholder in APP to the tune of about 40 million shares. The relationship between ABI and APP isn’t what one would define as “arm’s length.