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Large Investor Urges Celera to Renegotiate Sale to Quest

By a GenomeWeb Staff Reporter

NEW YORK (GenomeWeb News) – Activist hedge fund business Starboard Value & Opportunity Fund today said it has delivered a letter to the CEO of Celera expressing concerns about the proposed sale of the company to Quest Diagnostics and asking Celera to renegotiate a better deal.

In the letter, Starboard, which had been called Ramius Value & Opportunity Fund, called into question whether the $8 per share price that Quest would pay for Celera in the $671 million deal undervalues Celera. It said that a "key driver of value" was overlooked during negotiations —a royalty interest associated with Merck's osteoporosis drug odanacatib.

Merck had licensed technology from Axys Pharmaceuticals to develop small molecule inhibitors of cathepsin k. In 2001, Celera acquired Axys. Under the terms of the licensing agreement, Celera is entitled to milestone payments of up to $11 million in the aggregate for each potential product under the agreement. It also is eligible for mid- to mid-high single digit royalty payments from the sale of any drugs resulting from the agreement.

In its annual report filed last month with the US Securities and Exchange Commission, Celera said that it has received milestone payments of $3 million under the agreement. Merck, it added, has said it intends to file a new drug application in 2012 for odanacatib, which is currently in Phase III clinical trials.

While the Merck agreement may be a valuable asset to Celera, "it does not appear that owning pharmaceutical royalty interests is a core competency for Quest or a strategic rationale for its acquisition of Celera," Starboard said in its letter to Celera CEO Kathy Ordoñez. "Therefore, it is our belief that the value of this asset may not be fully reflected in the value of the proposed Quest transaction."

Starboard called itself a "large shareholder" in Celera, though an official with Starboard declined to disclose its ownership stake in the company.

In the letter, which is signed by Peter Feld, a managing member of Starboard, the New York-based fund is pressing Celera to "re-engage" with Quest regarding Celera's royalty interests "so that shareholders may be presented with a transaction to consider that properly and adequately values the company."

Starboard's objections to the acquisition comes amid several lawsuits filed against Celera stemming from the deal, including one filed by The New Orleans Employees Retirement System that alleges the management team and board of the Alameda, Calif.-based molecular diagnostics firm breached their fiduciary duties in forging the deal, which undervalues Celera.

In Thursday trade on the Nasdaq, shares of Celera closed down nearly 1 percent at $8.14.

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