Case in point is the pressure that hedge funds have applied towards vaccine company Chiron, of Emeryville, California, in the hope of influencing the price that the Swiss pharmaceutical company Novartis offers for Chiron's acquisition. In a report by New York-based investment research firm Sanford C. Bernstein & Co., analyst Geoffrey Porges reportedly wrote that it is possible that Novartis may have to increase their offer from $45 per share to $47or $48 per share, to appease shareholders such as San Francisco, California-based hedge fund ValueAct Capital. Management at ValueAct, the third largest shareholder of Chiron, believes that $45 per share is far below Chiron's appropriate valuation. For that reason, they have recently refused to meet the CEO of Chiron, Howard Pien, to discuss plans by Basel-based Novartis to buy the shares of Chiron it does not already own. This example shows the increasing influence of hedge funds in biotech.
With broad market returns continuing to be sluggish, investors have been turning to hedge funds because these funds continue to outperform the general market (see Box 1). For example, the Greenwich-Van index, a broad index of hedge fund performance, returned 8.4% net of fees in 2005 compared with the Standard & Poor's 500, which returned 4.9%. Arlid Johannsen, manager for FMG Funds, an international hedge fund headquartered in Bermuda, which launched a biotech-intensive healthcare fund in June 2000, estimates that the biotech sector is down 25% since the fund's inception whereas the fund is up 65%.
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