Biogen Idec in play
Carl Icahn did a masterful job maneuvering Biogen Idec Inc. toward a likely sale of the company. Now get ready for the second act.
The stock market ate up the news, released late Friday, that the Cambridge biotech company had received expressions of interest from Icahn and others to buy the company and had hired investment bankers to work on them. Biogen shares soared $13.08, or 18.8 percent, to $82.51 yesterday.
This wasn't Icahn's first experience as biotech merger provocateur. The man once famous as a corporate raider and today seen in the more constructive role of shareholder activist has found plenty of hidden value in a few biotechnology stocks.
Icahn has one big industry theme working his way. Large pharmaceutical companies have lots of money but sorely need new products to sell, and find many of the kinds of drugs developed by biotech businesses especially attractive. Buying the biotech company is a more attractive option for them today.
But that doesn't mean big deals are happening left and right. I asked Capital IQ, a financial data firm, for information about every biotech merger and acquisition in the past year. There were a total of 157, but only six were worth more than $1 billion and only two were valued at more than $2 billion.
The list of biotech firms large enough to make any actual impact on business in a big drug company is limited. The people running those biotech companies are rarely motivated sellers.
So how does an investor capitalize? Find suitable biotech companies trading well below a likely sale price and push as hard as necessary for an actual deal.
That's what Icahn did after he bought the slumping shares of MedImmune Inc., a company that makes vaccines and antibodies. Icahn wasn't alone, but he led the call for executives to put the business up for sale, threatening a proxy fight if the board didn't cave.
The company agreed, describing events in language that sounded strikingly similar to Biogen's announcement on Friday. Goldman Sachs (also one of Biogen's bankers) found a buyer this year in drug giant AstraZeneca PLC. It agreed to pay $15.6 billion for MedImmune, dramatically more than analysts had expected.
Icahn popped up as a Biogen shareholder for the first time just three months ago, disclosing that he owned 1 percent of the company. The next month, regulators gave him permission to buy more. Finally, Icahn made his own offer to buy the company, reportedly for $23 billion, which now competes with other expressions of interest.
But I'd bet buying Biogen is the last thing Icahn wants to do. The idea was to trigger other, higher offers from the big drug companies. And they seem to be interested.
The second act begins now. It's a sales job, and Icahn is working as hard as possible to talk up the virtues of Biogen.
Biogen makes a solid profit and generates revenue of about $3 billion a year. Last month, the company offered bullish business projections through 2010 that exceeded most analysts' estimates.
Among the assumptions: solid sales of Tysabri, a multiple sclerosis drug that was removed from the market for 18 months after two patients died from a rare brain infection in 2005. Analyst Bill Tanner of Leerink Swann & Co. says Tysabri could meet its sales goal but the possibility of new medical problems remains a risk.
Biogen suggests a minimum sales price for the company would reflect its own robust business forecast for the next three years. A buyer may emerge willing to go along with that but I'm not sure. My forecast: An energetic second act.
BOSTON CAPITAL BLOG Steven Syre is a Globe columnist. Read his daily blog at boston.com/business. He can be reached at syre@globe.com.
