This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Eli Lilly, Verastem and the Defenders of Shareholder Value

Stocks in this article: LLY VSTM AMLN QLTI CELG

Verastem doesn't have much history at all. The company was founded less than two years ago, nor has management displayed the longstanding recalcitrance of Eli Lilly. Nonetheless, the back-to-back "deprioritize and discover" press releases of last week make me question how management thinks about spending shareholders' money. Investors should keep a close eye on Verastem's decisions.

As investment timeframes across the hedge fund world shrink -- short-termism that understandably alienates management teams focused on the long view -- one investment strategy strikes me as particularly attractive: Constructive activism.

Two recent examples suggest this style, in which a fund seeks to invest alongside with, and elicit change from, underperforming or inefficient companies, may be undergoing a renaissance in healthcare. First, shareholders should thank the investors that pushed Amylin Pharmaceuticals (AMLN) into its $7 billion sale to AstraZeneca (AZN) and Bristol-Myers Squibb (BMY). Activist investors saved Amylin's management from itself. Without prodding, the company would have kept on failing on its own.

My second example comes from the most unlikely of places, Vancouver-based QLT (QLTI). A slate of activist investors appointed to the company's board of directors recently announced a host of shareholder-friendly actions: Refocusing R&D on the most promising programs, divesting non-core assets, reducing bloated headcount, and -- gasp -- returning $100 million of capital to shareholders. Every investor with whom I have discussed the changes at QLT has been impressed that this long-beleaguered biotech backwater now appears to be at the industry's forefront in terms of R&D optimization and shareholder value creation. Other biotech companies making consistently bad decisions -- Celgene's (CELG) plan to conduct a Phase 3 trial of apremilast in rheumatoid arthritis despite a failed Phase 2 study is a recent example -- should sit up and take note.

The umbrella-like "drug development is risky" defense is old and tattered, and never made much sense in the first place. Of course, some risks are impossible to avoid, but others require only common sense and the willingness to call shenanigans even when it's unpopular. Investors need to be more willing to stand up and demand that management justify or abandon questionable decisions and bad outcomes. After all, it's the investors -- not the executives -- that own the company.

Disclosure: Sadeghi has no positions in any of the stocks mentioned in this article.

Follow Nathan Sadeghi-Nejad on Twitter.

Nathan Sadeghi-Nejad has 15 years experience as a professional health-care investor, most recently as a sector head for Highside Capital. He has worked on the sell side (with independent research boutiques Sturza's Medical Research and Avalon Research) and the buyside (at Kilkenny Capital prior to Highside). Sadeghi-Nejad is a graduate of Columbia University and lives in New York. You can follow him on Twitter @natesadeghi.
3 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs