UPDATE 2-Afexa committee to review hostile Paladin bid

Fri Aug 19, 2011 1:42pm EDT

* Afexa asks shareholders to take no action pending review

* Bid comes as drug companies look to expand portfolios

* One of two takeover offers Paladin has in play (Adds details, industry comment, share prices)

By Pav Jordan

TORONTO, Aug 19 (Reuters) - Afexa Life Sciences Inc FXA.TO, maker of the popular Cold-FX flu medicine, urged shareholders on Friday to take no action on a hostile takeover offer from Paladin Labs PLB.TO, saying it undervalues the company at C$56.7 million ($57.3 million).

In an earnings report that trumpeted a bright future for Cold-FX in Canada and abroad, Afexa said a special committee of the board would review the offer and would make a recommendation soon.

"The board strongly urges Afexa shareholders not to deposit any shares to the Paladin offer and not to take any action with respect to the Paladin offer until the board has completed its full review and consideration of the offer," the company said.

The bid for Afexa is one of two acquisition deals being pursued by Montreal-based Paladin, and highlights the growing competition in the industry for access to approved and marketable drugs.

Labopharm Inc DDS.TO, a Canadian biotech company specializing in controlled-release drugs, said earlier this week it agreed to be bought by Paladin after a months-long search for a suitor.

"Both the big pharma and the specialty pharma, which includes Paladin, are all looking to increase their top line revenues and want other good products to sell, and there's a lot of competition for these products," said Cheryl Reicin, head of the life sciences group at Toronto law firm Torys.

Paladin is offering 55 Canadian cents a share or 0.013 of a Paladin share for each Afexa share it does not already own.

The Aug. 10 offer came just weeks after Paladin announced in July that it held more than 15 million shares of Afexa, or 14.94 percent.

Days later, Afexa adopted a poison-pill defense preventing any shareholder from acquiring more than 15 percent of the company. It also said it would discontinue a share buyback while it was subject to the hostile bid from Paladin.

Afexa shares were down 1.75 percent in early afternoon trade in Toronto, at 56 Canadian cents a share. Paladin shares also edged down, to C$38.47 a share.

For the April-June quarter, Afexa's net loss narrowed to C$3.1 million, or 3 Canadian cents a share, from C$4.1 million, or 4 Canadian cents a share, a year ago.

Revenue for the Edmonton, Alberta-based Afexa rose to C$4.6 million from C$1.8 million last year, with most of that coming from Cold-FX, Canada's top selling over-the-counter cold and flu remedy.

Afexa also said it was looking to start selling Cold-FX in China.

($1=$0.99 Canadian) (Additional Reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Rob Wilson)