Rarely has an activist been so successful in overthrowing a company’s board and management as was Sarissa Capital Management at Amarin earlier this year. The hedge fund, led by former Carl Icahn protégé Alex Denner, initially inquired about board seats in early 2022 and ended up voting Chairman Per Wold-Olsen out of office at a special meeting on February 28, where seven activist nominees were also voted in. A week later all remaining incumbent directors resigned, fearing a second proxy fight, followed on March 31 by CEO Karim Mikhail.

Many of the lessons from the campaign appear simple but are regularly ignored by boards to their own detriment. Year-to-date, 42% of resolved public activist campaigns ended with activist demands being at least partially satisfied, according to Insightia data.

Understand your shareholder base

The challenge facing the board was a pronounced shift in its shareholder base over the last three years. In 2019, healthcare-focused investor Baker Brothers Advisors owned almost 13%, while insiders controlled a further 2.75%, making an activist campaign more challenging.

Fast forward to early 2022 and Sarissa had the largest stake with 6.3% of the shares, while Baker Brothers had reduced its holding and no longer owned shares by the special meeting, while insiders held less than one percent.

In the meantime, the company’s stock value fell by more than 80%.

“The institutional investors fled the sinking ship and what was left were really angry retail investors,” said one securities lawyer specializing in defending companies during proxy fights, including versus Sarissa. The lawyer estimated that 66% of the company shareholders were retail. “They handed Sarissa a stunning victory because of the completely unmitigated and totally understandable anger.”

Possibly the biggest result of the low institutional shareholder base was to nullify the support given to management by proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis.

“Not many of them were the classic ISS and Glass Lewis investors who would exclusively vote within the box of how a proxy adviser would think,” noted John Glenn Grau, CEO and president of InvestorCom, of the retail holders. Meanwhile, many of the institutions that were on the roster were value investors for whom Sarissa’s argument would resonate, Grau estimated.

But a look at earlier shareholder meetings indicates some institutions were not happy. Though not a top 10 shareholder, BlackRock voted against the election of Olsen at the 2022 annual meeting for overboarding. Meanwhile, support for executive compensation fell annually from 80% in 2020, to 72% in 2021, and 65% in 2022, according to Insightia’s Voting module.

Be good at investor relations

“Understanding your shareholder base and communicating with them correctly is critical,” said Professor Yaron Nili at the University of Wisconsin Law School. “I think they failed to recognize their shareholders were largely retail and how sensitive they would be to short-term stock performance.”

As of early 2022, Sarissa was the largest shareholder in Amarin. Yet, according to the activist, the company repeatedly ignored its comments and request for board representation. In its proxy, Sarissa wrote, “despite a board refreshment process that began last October, the independent directors never proactively contacted Sarissa despite us being Amarin’s largest shareholder with a strong track record of value creation in cardiovascular care.”

Indeed, at the 2022 annual meeting, the Florida State Board of Administration voted against several directors noting “insufficient response to shareholder dissent.”

Don’t spend too much

In its proxy released on January 31, the company estimated it would spend $7,350,000 on its fight to keep Sarissa off the board, of which approximately $4,315,000 had already been spent. By comparison, Sarissa estimated it would spend $1,250,000 in total.

“They probably knew pretty early on that they had strong support, so they didn’t need to spend as much on outreach,” speculated Nili on why Sarissa’s outlay was so much lower.

Others suspected that the universal proxy card, the use of which was mandated last September, contributed to keeping the activist’s costs down.

Sarissa was quick to use the disclosure to its advantage, issuing a press release accusing Amarin of wasting “precious shareholder capital in its self-serving attempts to keep shareholders out of the board room.”

While neither side detailed the nature of their spending, Sarissa accused Amarin of wasting money by engaging in “several expensive and duplicative mailings of white proxy cards to shareholders in an attempt to sway votes away from Sarissa.”

What next

Now Sarissa finds itself in control of Amarin, the question is what it will do with the company. Amarin’s stock is off more than 60% since the activist first disclosed a stake, a high watermark to reach.

That could lean toward a sale. Of the 12 companies targeted by Sarissa over the years, three have ended in the target company being acquired, while two have merged, according to Insightia’s Activism module.

Luckily for Sarissa, premiums paid for biotech acquisitions have been high of late. So far in 2023, three biopharma acquisitions have paid more than a 100% premium, according to website BioPharma Dive. Sanofi paid a 273% premium when it acquired Provention Bio, while AstraZeneca paid a 121% premium for CinCor Pharma, and Chiesi paid a 107% premium for Amryt Pharma.

More tellingly, Amarin proxy peer Arena Pharmaceuticals was acquired by Pfizer at a 100% premium in December 2021, one month before Sarissa disclosed it stake in Amarin, an event that could well have sparked the activist’s interest.