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Angry investors say Ocata Therapeutics undervalued in sale

Executives struck a triumphant tone last month when Ocata Therapeutics Inc., of Marlborough, said it had agreed to be sold to the Japanese drug maker Astellas Pharma Inc., in a $379 million deal that promised a nearly 80 percent premium over Ocata's share price.

But shareholders at Ocata, a 21-year-old biotech long seen as a pioneer in the emerging field of regenerative medicine, have reacted to the buyout with bitter disappointment.

A large stockowner has hired consultants to seek alternative bids for Ocata, formerly called Advanced Cell Technology Inc. Many are grousing on an investor website that the company was undervalued and its new management unresponsive. Other investors have urged congressmen, regulators, and even President Obama to halt the acquisition to protect key technology.


"My impression is the value should be at least double" what Astellas has agreed to pay based just on the sales potential of its lead drug to prevent the loss of eyesight, said Gary Aronson, an investor from Incline Village, Nev., who said he is Ocata's largest individual stockowner, with 1.5 million shares. "The company has tremendous potential and we were hoping that they would be able to better develop that potential without selling the company."

But now that management has made the decision to sell, Aronson said he thinks the price should be higher. He has retained a pair of industry veterans who have contacted more than two dozen biopharma companies, inviting them to submit competing bids for Ocata.

Many seem to be studying the possibility, while seven have declined, Aronson said. But they are working against a deadline of Dec. 15, when investors have been asked to tender their shares to Astellas to sell them at the specified price of $8.50 a share under the terms of the deal.

At issue is not only the sale price for Ocata, which has about 35 employees, but also its intellectual property in embryonic stem cells. Such cells can grow others that Ocata initially hopes to implant in the eyes of patients suffering from macular degeneration. But they also hold potential for treating conditions ranging from diabetes to heart disease to spinal cord injury.


"This was at least a billion-dollar company," said Edward Assad, a shareholder from Monticello, Fla. "They've got a treatment for lupus, a treatment for multiple sclerosis . . . If you look at the deal, Astellas is paying nothing for this. Management is giving the company away."

The sale has been denounced in apocalyptic terms on InvestorStemCell, a website frequented by Ocata shareholders who warn of the dangers of transferring its technology abroad.

"What government would allow a proprietary science [like stem cells] to be sold to a foreign power?" asked a disgruntled writer with the Internet handle BF. "What this tells the world is pretty much any . . . trade secrets are open to be bought or taken from this country."

Longtime investors, including many cell biologists and their associates, have an almost cult-like reverence for Robert Lanza, Ocata's bearded chief scientific officer, who is considered one of the world's leading authorities in stem cell biology and tissue engineering. Late last year, Lanza and his colleagues published an article in the Lancet, a leading scientific journal, offering evidence of the effectiveness and safety of stem cell progeny in treating diseases.

Lanza, who joined Ocata's predecessor company in 1999, hasn't commented publicly on the agreement to be acquired by Astellas. In an e-mail, he said he was prevented by US securities laws from talking until the deal has been completed. He said Astellas asked him to remain with the company after the buyout "but I need more information before I can make a final decision."


Ocata's chief executive, Paul Wotton, who took over last year and is the chief target of many of the company's critics, declined through a spokesman to comment. The spokesman cited a confidentiality clause in the acquisition deal.

Founded in 1994, Ocata's predecessor, Advanced Cell Technology, gained early notoriety in the emerging field of cloning. In 2001, it reported creating the first human embryos through cloning, though it later acknowledged many had died. The following year, it said it found a way to trick unfertilized monkey eggs into growing as if they were impregnated. Independent scientists suggested the company overstated its claims. In recent years, Ocata has focused on creating red blood cells for transfusions and developing drugs based on cell therapy.

Ocata has attracted some institutional investors, including BlackRock Inc. But its shares, which traded as high as $12 last year, tumbled as low as $3.06 this year. One factor cited by shareholders was an anonymous short seller who leveled criticism at the company on investment sites under the name Mako Research.

Shareholders say communications with Ocata's management were strong in the past but have deteriorated under Wotton. Despite his large stake in the company, Aronson said, he has never been able to set up a face-to-face meeting with the chief executive.


"I made a number of suggestions on how the company should go," Aronson said, referring to e-mail exchanges, "and maybe he [Wotton] didn't like my suggestions."

In a conference call with investors on Nov. 9, Wotton reviewed the company's efforts to commercialize its technology but gave no hint it was considering a sale. Shareholders said they were blindsided when the Astellas deal was announced that evening.

It's still not clear if the purchase will be completed. Many investors have indicated on InvestorStemCell that they don't plan to tender their shares, though others say they sold some or all of their holdings when the stock climbed after the takeover was disclosed. If there is no other bidder, shareholders who register for an appraisal in the coming week could challenge the acquisition value of Ocata in the Delaware Court of Chancery. Ocata is incorporated in Delaware.

A group of shareholders is trying to block the deal outright. Writing on behalf of a constituent, US Representative Eric Swalwell, Democrat of California, last month asked the Securities and Exchange Commission to investigate the transaction. And investors have urged Obama to block the deal and keep Ocata's patents under the US umbrella.

Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.