Biotech merger could bring jitters to some shareholders.

Wall Street got what it wanted--and then some.

The proposed acquisition of Santa Monica-based American BioScience Inc. by its largest shareholder, American Pharmaceutical Partners Inc., should give the Schaumburg, Ill.-based public company the transparency that even its supporters acknowledged it lacked.

But it comes at a price.

The stock deal, valued at $4.1 billion when announced last week, would enable the founder of both companies, 52-year-old Los Angeles billionaire Dr. Patrick Soon-Shiong, to increase his net worth and regain operational control of the two entities he founded in the mid-1990s.

Soon-Shiong, a former UCLA assistant professor of medicine and St. Vincent Hospital surgeon, had been chief executive of both companies but ceded control last year by bringing in an outside chief executive for American Pharmaceutical in advance of the Food and Drug Administration's approval of Abraxane, its valuable, proprietary cancer drug. The drug was approved in February.

That chief executive, Doug Heller, a drug industry executive whose resume includes a division president stint at Baxter International Inc., resigned the day before the American BioScience deal was announced, with Soon-Shiong replacing him.

That sets up Soon-Shiong, whom the Business Journal estimates had net worth of $3.6 billion as of May, to become chief executive of the newly formed and named Abraxis BioScience if the deal is approved by regulators and shareholders next year.

"The motivation, frankly, is to make sure all the shareholders from both companies can benefit from this great technology, and how we can get it to the patient as rapidly as possible," said Soon-Shiong. "This is the right time to do this, since Abraxane has proven itself and we need to focus on how to globally position it for the world market."

That's not necessarily how Wall Street views it.

American Pharmaceutical is a generic drug maker with sales that hit $405 million last year. It also has a growing proprietary drug business with its Abraxane breast cancer drug, whose intellectual property rights it partially acquired from American Bioscience.

The Santa Monica company has essentially acted as a research arm, and is testing other uses of the drug, whose patented "Trojan horse" delivery mechanism was first developed by Soon-Shiong in 1993.

The combined company, which will move its corporate headquarters to Los Angeles, would have an estimated market capitalization of about $6.2 billion, based on American Pharmaceutical's Nov. 28 closing price of $39.25.

American Pharmaceutical Partners shares fell nearly 18 percent on the day it was announced, with the primary concern being the dilutive effect that the transaction will have on minority shareholders. The stock closed at $47.61 in the last trading day before the announcement.

American Pharmaceutical proposed to issue 86 million new shares to American BioScience shareholders to pay for the deal, up from the 72.2 million shares now outstanding. The bulk would go to Soon-Shiong, who owns more than 80 percent of American BioScience and a combined 69 percent of American Pharmaceutical.

American Pharmaceutical has drawn skepticism from Wall Street since its 2001 public offering, in part because of its entwined business dealings. Little was known about American BioScience's assets until last week, and company officials say more details will be released in upcoming regulatory filings.

In addition, Soon-Shiong and his companies have been involved in several lawsuits over the years, on topics ranging from intellectual property claims to contractual disputes with former contractors and business partners, including Soon-Shiong's own brother, Terrence.

Still, analysts expect that Abraxane will eventually generate more than $700 million in annual U.S. revenue, and it's on the brink of worldwide expansion with application to European regulators expected next year. Abraxane net sales totaled $86.3 million in the first nine months of 2005.

American BioScience is sponsoring 74 clinical trials that are testing the drug's effectiveness in combating lung, head and other cancers--applications that could increase its sales multiple times. Seven are in their last stage.

One analyst estimates that post-merger, Soon-Shiong and a handful of American BioScience insiders would control around 87 percent of shares in the combined companies, leaving minority shareholders with just 13.3 percent of the public company. Currently, minority shareholders have a 29.2 percent stake in American Pharmaceutical.

Two of the four Wall Street analysts who follow the company downgraded American Pharmaceutical's shares, citing the near-term dilution in the value of shares held by outside shareholders and increased operational costs related to the merger.