Drug Development

A few key reasons why Biogen has now become a buzzed about takeover target

Struggling with revenue and keeping investors’ interest in its pipeline as its CEO heads for the exits, Biogen has drawn some interest from two big players about a possible takeover. The Wall Street Journal reported Tuesday afternoon that Allergan and Merck have both made overtures to Biogen to sound out their interest in a deal.

Biogen’s shares $BIIB raced up 9%, adding billions in market cap as the investment community looked to jump into a possible deal in the making. But by early Tuesday evening CNBC was following up with a report that Allergan, which may have had a hard time making a buyout work under current tax rules, was unlikely to follow up.

The Journal piece made it clear that there’s no bid on the table and may not be one. The overtures were “informal and preliminary,” its reporting team noted, not signifying much interest in a hostile move if necessary.

CEO George Scangos

CEO George Scangos

The rumors come just days after Biogen CEO George Scangos announced plans to exit the company, planning to hand over the reins to a new executive ready to tackle the next phase. Scangos himself has downplayed any talk of a potential takeover, and analysts have wondered why he would be leaving if the company was about to go into an auction, with big potential payoffs for the top team.

In many ways, Biogen would make a tempting acquisition, with a market cap now sitting at about $75 billion. It has several franchise drugs on the market and a few closely-watched programs in the clinic, including a new late-stage program partnered with Ionis that just cleared a Phase III study for spinal muscular atrophy. But only a handful of players in the industry could pull off a deal that size.

Complicating any buyout, Biogen’s R&D group has made a major investment in fields like Alzheimer’s, where its drug aducanumab represents another big swing at a potentially enormous market. But it’s in the highest risk arena in biotech, making a valuation devilishly hard to reach without a device like a CVR, paying off on milestones.

Biogen’s problem, and the reason why it’s vulnerable now, is that Scangos and his team saddled the company with an ultra high risk pipeline with few near-term catalysts able to whet Wall Street’s appetite as its Tecfidera franchise fades. That forced the company to execute a major reorganization last year to cut costs. And a recent setback in its latest attempt to come up with a new drug that could potentially reverse the effects of multiple sclerosis simply highlighted the fix it is in now.

For many analysts, that weakened position made it all the more likely that Biogen would have to pull off several big deals of its own to replenish the pipeline. In the words of Baird’s Brian Skorney: “We think it’s time for Biogen to buy or be bought.”

Allergan is run by Brent Sauders, a deal-making CEO who just landed a big payoff now that the Teva generics deal has gone through. And while Merck has its new checkpoint drug Keytruda to boast about, it also has plenty of reasons to find value in a company like Biogen.

Everyone loves a rumored buyout deal, so expect lots of smoke as everyone tries to figure out if there’s any fire at Biogen.

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John Carroll, Editor and Co-Founder

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