The Real Story: Hibernation Time on American Pharma

Shares of American Pharmaceutical Partners(APPX Quote) are down nearly 50% since late November, when the company announced its $4.1 billion takeover of American BioScience. I joined the bear parade in January, with the stock above $37. With American Pharma shares now at $28.29 as of Wednesday's close, after trading at a 52-week low of $27.76 intraday, this grizzly is heading into his cave.

To recap: American Pharmaceutical Partners is tightly controlled by billionaire CEO Dr. Patrick Soon-Shiong. In November, the company said it would spend $4.1 billion to acquire American BioScience, which also happens to be controlled by (drumroll, please) Dr. Patrick Soon-Shiong.

As reported previously, questions were raised regarding how the company arrived at a $4.1 billion price tag, as no details were released to the public. It turned out that three "independent" board members reviewed and approved the deal. These directors each received a six-figure payment for their efforts. The acquisition is to be completed with stock, diluting current American Pharma investors' holdings by 119%.

As with prior stories, American Pharma did not return calls seeking comment.

The deal actually makes logistical sense. The two companies were splitting the revenue for Abraxane. By combining, the companies can remove some costs and theoretically make the drug more profitable. Abraxane is currently used to treat breast cancer. It is in 74 clinical trials, including some for cancers of the lung, ovaries and prostate. Even if Abraxane turns out to be an effective therapy for these and other cancers, investors have to question whether their best interests will be served by Dr. Soon-Shiong and his board.

My argument against the stock had nothing to do with the company's drugs, sales or pipeline. It centered on the idea that with thousands of public companies to choose from, why would you invest your money with an executive who has proven he will destroy minority shareholders' value in order to enrich himself? On the basis of a flat 80% ownership of American BioScience, Dr. Soon-Shiong's take in the deal is about $2 billion at current market prices.