Activism Is A Bitter Pill More Healthcare Companies May Have To Swallow

In the next three months it is likely that three healthcare companies will face crucial activist votes.  At Alere Inc., Coppersmith Capital Management, LLC wants the company to sell/divest assets which it believes could allow them to pay down over $3B in debt.  In response, Alere is mounting a Hess style defense, nominating four new directors.

At Vivus, Inc., First Manhattan Co. is trying to replace the entire board, which initially meant six directors, but now means nine, as the board was expanded twice this year.  First Manhattan is disappointed by the roll out of Vivus’s obesity drug, Qsymia, and further, views the company’s expense structure as “unsustainable.”  One of First Manhattan’s nominees for the board is none other than Alex Denner, formerly Carl Icahn’s Healthcare czar, now captain of his own ship, Sarissa Capital.

Finally, we have Glenview Capital Management, LLC, launching a consent solicitation to replace the full Board of Health Management Associates, Inc. stating that the company has endured “a lost decade” and that management and the board need to be transitioned.  Glenview’s solicitation comes closest to stating that a sale could be in the offing, and HMA has hired Morgan Stanley to review its strategic options.  Interestingly, these deals are unique in two respects; for one, these activists are attempting to fix the companies first and second, these are not your typical activists, in fact, only one of them has ever been through a full proxy fight before.

“For healthcare companies whose stocks have consistently underperformed the market or their peer group, this should serve as a wake-up call.  Disenchanted shareholders who in the past might have pulled the plug, and sold their positions, may now hold on and take an ‘active’ role in their recovery” according to my colleague, Steve Balet, MD in FTI Consulting’s Activist Defense and Corporate Governance Practice.

In my view, as alpha becomes harder and harder to generate, an increasing number of traditional non-activist hedge funds can be expected to follow the activist’s playbook to drive their returns.

Barbara Ryan is managing director, strategic communications, at FTI Consulting, and a member of PharmExec’s Editorial Advisory Board. She can be reached at Barbara.Ryan@fticonsulting.com.