The number of shareholder rights plans - a.k.a. poison pills - implemented for biotech companies might lead an outsider to believe that the industry is fraught with hostile takeover bids. Last week Triangle (VIRS), a developer of infectious disease therapeutics, CV Therapeutics (CVTX) a cardiovascular therapy company, antimicrobial company Microcide (MCDE), and diagnostics marketers ZymeTx (ZMTX) and Hemagen (HMGN) added themselves to the list of biotechs with poison pills.

The selling point of such plans is to force a hostile bidder to deal with the company's board in order to ensure that shareholders are treated fairly. However, naysayers argue that poison pills also entrench management and protect employees, while doing little to preserve shareholder value.

Marc Ostro, senior managing director at KPMG Peat Marwick, who is focused on M&A for the firm, is baffled by the number of pills being swallowed by biotech companies. "If you're a little biotech company with no profits, who's going to make a hostile bid? Every night most of the assets walk out the door."

Ostro, who founded The Liposome Co. (LIPO) in 1981 and spent several years as a sellside analyst before joining KPMG, said he can't recall a hostile takeover of any biotech company. "I don't think the industry would look any different if poison pills didn't exist," he said.

In any case, Ostro noted, not all boards have the same agenda as shareholders. "If a stock is trading at $10 and a bid comes in at $15, if you took a poll of the shareholders, you'd probably see a majority in favor of it," he said. "But the board may balk at the deal saying 'we have a different opinion on the long-term valuation of the company.' So the agendas don't always mesh."

Paper trail

Idec (IDPH) joined the list of product companies that are raising cash via convertible debt, announcing plans to raise up to $100 million in 20-year zero coupon convertible notes (see Offerings, B16). CFO Phillip Schneider said the convert market has become the financing of choice for biotech companies that have cash flow, which IDPH has from sales of its Rituxan antibody to treat non-Hodgkin's lymphoma.