For more than a decade, Abcam has been known as the “Amazon of Antibodies” because of its selection of over 110,000 products to research protein targets, from antibodies to proteins, lysates, biochemicals, kits, and assays—enough, it says, to supply two-thirds of the world’s life scientists.
But in recent days, Abcam has become better known for a bitter battle unfolding between its current CEO, Alan Hirzel, and his predecessor, founder Jonathan Milner, PhD, who retains a 6.3% stake in the company.
Milner founded Abcam in 1998, oversaw its going public in 2005, and served as CEO through 2014, when he was succeeded by Hirzel, then the company’s chief marketing officer. Milner later served as deputy chairman before leaving the board in 2020. He is pressing for changes to Abcam’s board and direction in hopes of lifting its share price after it plunged by nearly half (47%) between January 3, 2022, when shares closed at $23.89, and May 9, when the price stood at $12.69.
“I cannot stand aside and watch the persistent erosion of Abcam’s shareholder value under the current Board and management. As such, I had to act,” Milner stated Wednesday in an open letter to shareholders.
A proxy battle based on an erosion in company value has also played out recently at another biotech tools powerhouse. At Illumina, activist investor Carl Icahn stated his case for change in letters to shareholders and an exclusive GEN interview, successfully persuading shareholders to elect an ally to the board of the sequencing giant, leading to the resignation of CEO Francis deSouza.
Rebounding shares
Since May, when Milner began publicly clamoring for change at Abcam, shares have rebounded 58% to $20.08 at the close on Wednesday and inched up 1% Thursday, closing at $20.28.
Shares bounced back a further 13% today, to $22.97, after Abcam said it would explore strategic alternatives, “including a potential sale of the company.” The board retained Lazard and Morgan Stanley as financial advisors.
The strategic review did not appear to placate Milner, who dismissed the announcement as “a blatant and desperate attempt to derail a proxy challenge.”
But Starboard Value, an activist investor that took a reported 2% stake, according to a report by the Sunday Times of London, hailed the news in a statement: “While we believe there is a substantial margin improvement opportunity at Abcam, we believe the best risk-adjusted outcome is a sale that maximizes value for all shareholders.”
Hirzel and Abcam assert that the stock increase reflects investor support for the company’s recent performance.
Under Hirzel, Abcam has carried out “Abcam 2.0,” which has pivoted the company from a seller of third-party antibodies to a developer of “innovative, differentiated, and high-quality” in-house products that deliver higher margins—such as proteomic research reagents, immunoassays, cellular and biochemical assays, and cytokines.
“This is a fundamentally different business from Jonathan Milner’s transactional ‘Amazon of Antibodies’,” the company stated. “With the groundwork now in place, we believe Abcam is set to further benefit as costs fall, sales rise, and margins improve.”
Milner has laid out a six-month plan he said will restore Abcam’s share price further:
- Nominate new independent members to the board and restructure the Remuneration Committee.
- Perform a “thorough” review and audit of the company’s ERP software system, which has run $130 million over budget.
- Ensure “transparent and frequent” dialogue with stakeholders, including moving from six-month to quarterly reporting of results.
- Restoring return on capital employed (ROCE) levels to above 20% from 8.9% last year, up from 7.6% in 2021.
- Define functions so as not to duplicate them worldwide, and evaluate Abcam’s senior vice president (SVP) leadership team. Headquartered in Cambridge, U.K., Abcam has more than 1,100 employees based at 11 sites globally (of which four are in the United States).
- Define performance metrics for the SVP team and wider company so that everyone is aligned on their roles and Abcam’s common mission.
Those metrics, Milner added, should include ROCE and Return on Investment Capital (ROIC); earnings before interest, taxes, depreciation, and amortization (EBITDA) margins; revenues per employee; free cash flow; processing time per order; ratio of volume to price increase of revenues; and time from target identification to publication of antibody or protein detection product.
Beating analyst expectations
Abcam—which normally releases financial results every six months—announced positive preliminary first-quarter numbers in April that beat analyst consensus expectations by generating more than £100 million ($127.6 million) in estimated reported revenue.
The company also reiterated earlier investor guidance of approximately £420 million to £440 million ($536 million to $561 million) in projected 2023 revenues. Abcam finished last year with £362 million (about $462 million) in revenues—more than double the £128 million ($163 million) generated in 2014, Milner’s last year as CEO, Abcam has pointedly noted.
In a statement Tuesday, Abcam added that it was on track to meet its 2024 revenue goal of between £450 million to £525 million ($573 million to $669 million), with adjusted operating profit margins of greater than 30%.
“The preannouncement strengthens our view on ABCM’s position as a leading provider of RUO [research use only] antibody, a key component for growing proteomics end-market, and other high-value LS [life sciences] assays and reagents,” Puneet Souda, senior managing director, life science tools and diagnostics and a senior research analyst with SVB Securities, observed in April.
Souda said Abcam’s results positioned the company to exceed the consensus forecast of £196 million ($250 million) in January–June revenues—as well as his own projection of £201 million ($256 million) in revenues for H1 2023. Actual H1 results are expected in July.
“Abcam’s share price performance has improved significantly since I formally signaled my intent to bring about focus to the company and as I moved from being a passive to an active shareholder on 1 May 2023,” Milner told shareholders. “I am not endangering the company’s momentum and progress, nor am I causing unnecessary disruption. I am simply calling for focus and an improvement to governance, execution, and cost control, for the benefit of all shareholders.”
Milner is asking Abcam shareholders to return him to the board and appoint him as executive chairman—one of five proposals he has made to the company’s shareholders that they will vote on during an extraordinary general meeting (EGM) set for July 12.
In a research note from an analyst group led by Charles Weston, senior healthcare analyst, RBC Capital Markets reported that investors viewed Thermo Fisher Scientific, Danaher, and Merck KGaA as the most likely trade bidders for Abcam.
“Abcam did not benefit from the bioprocessing tailwind enjoyed by many life science tools peers over the last few years, and equally now does not face the customer destocking headwinds, which may also be attractive,” Weston and colleagues wrote, according to Bloomberg News.
Reshaping the board
From late April till May, Milner and Abcam discussed his return to the board, with Milner later saying he was offered a seat only after he told the company he’d make his proposals public. The offer was “subject to restrictions that would have impaired my ability to hold management accountable and to serve effectively,” Milner asserted.
Milner wants to reshape Abcam’s board through several of his proposals. One would remove three current members of Abcam’s board: Non-executive chairman Peter Allen, CFO Michael S. Baldock, and Sally Crawford, a former COO of Healthsource who chairs the board’s Remuneration Committee and is a member of its Audit Committee.
According to Milner, Allen “failed to hold executives to account for their disproportionate remuneration demands and performance metrics machinations, and overseen poor governance, poor execution, and poor cost controls.”
Baldock was faulted for £109 million ($139 million) in impairments and adjustments in FY 2022; material weaknesses in maintaining inadequate or ineffective controls within the inventory cycle, revenue, and accounts receivable and ITGC [IT general controls]; “massive” overspending.
Abcam said the Nasdaq move provided more liquidity for shares and a deeper pool of capital, and strengthened the company with coverage by additional analysts. Only one U.S. analyst has begun covering Abcam while the number of U.K. analysts following the company dropped from eight to two, Milner countered in a June 12 shareholder letter. He added that the shift to Nasdaq-only shares eroded shareholder rights since American Depositary Shares (ADS) holders like him were not allowed to call an extraordinary general meeting. Milner converted his 11.7 million ADSs into ordinary shares, paying a nearly $600,000 fee to do so.
Milner also faulted Crawford for Hirzel’s 216% increase in remuneration since 2019 as well as allowing management to “move the goalposts” by altering compensation performance metrics over time, and keeping inconsistent reporting metrics over time.
Abcam has defended all three board members: “Peter Allen, Michael Baldock, and Sally Crawford have played essential roles in overseeing Abcam’s transformation, and their removal would be damaging for all stakeholders.”
Another Milner proposal would remove any director appointed between May 30, when Abcam received Milner’s request to convene an EGM, and the meeting. A third would require the board to conduct a thorough search for candidates and appoint at least two other “independent, highly qualified” directors “promptly” after the EGM.
“If passed, these resolutions would lead to a protracted period of uncertainty and, ultimately, put the company’s operations and growth at risk,” Abcam stated in a June 16 letter to shareholders. “The net effect of these changes would be a sudden and significant shift in both operational and executive leadership of Abcam [emphasis in original] that puts in jeopardy the company’s recent momentum as well as its day-to-day operations, growth strategy, and competitive position.”
“We firmly believe it would be damaging and counter-productive for Dr. Milner to step into the role of executive chairman, to become de-facto CEO, and demote Alan at this critical juncture.”
Not so, Milner countered, noting that he is not looking to replace Hirzel as CEO and is not seeking to be de facto CEO: “I have worked with Alan in the past and believe I can do so again.”
“Alan and the management team require better oversight from the Board of Directors,” Milner added. “I believe that with the right leadership, management miscues can easily be fixed and therefore I want to get back to working at the heart of the company in the role of executive chairman.”
Leaders & laggards
- Aeglea BioTherapeutics (AGLE) shares more than quadrupled, zooming 329% on Thursday, from $0.1064 cents to $0.4561 cents, after announcing that it completed the acquisition of privately-held Spyre Therapeutics. Concurrently, Aeglea agreed to sell Series A non-voting convertible preferred stock in a private placement to an investor group—a private placement expected to generate approximately $210 million in gross proceeds for the company. Proceeds from the private placement are intended toward advancing Spyre’s portfolio of inflammatory bowel disease (IBD) treatments through multiple data milestones, and are expected to fund the combined company’s operations into 2026.
- Pieris Pharmaceuticals (PIRS) shares cratered 71% on Wednesday, from 89.5 cents to 26 cents, after the company said partner AstraZeneca was ending ongoing clinical studies of elarekibep (PRS-060/AZD1402), an inhaled IL-4 receptor alpha inhibitor being developed to treat asthma. Pieris said AstraZeneca based its decision on lung findings from a nonclinical 13-week GLP toxicology study with dry powder inhaler-formulated elarekibep—and not from results of a Phase IIa trial (NCT04643158). “We will now reassess our priorities and communicate a corporate update as quickly as possible following a thorough review of our options,” stated Stephen Yoder, Pieris’ president and CEO. Elarekibep was part of an up-to-$2.1 billion collaboration the companies launched in 2017.
- uniQure (QURE) shares tumbled 40% on Wednesday, from $19.44 to $11.62, after the company announced mixed results from up to 24 months of follow-up data from 26 patients enrolled in an ongoing U.S. Phase I/II trial (NCT04120493) of AMT-130 in Huntington’s disease. uniQure said patients treated with AMT-130 showed preserved function compared to baseline and clinical benefits relative to the natural history of the disease. But mean cerebrospinal fluid neurofilament light chain (CSF NfL) for the 6 patients treated in the low-dose cohort was 12.9% below baseline compared to a predicted 22.9% increase in the natural history, with 4 of 5 low-dose patients having CSF NfL levels below baseline. In 10 patients treated with the high dose of AMT-130, CSF NfL levels declined toward baseline at 12 months.
