January 21, 2008 4:12 am

Biogen Idec could make a large-scale acquisition following failed sale

This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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Biogen Idec could make a large-scale acquisition this year following its recent failed attempt to sell itself, the company’s CEO Jim Mullen told mergermarket.

In an exclusive interview with this news service, Mullen said the company is always looking at value-add opportunities. Although he said it would be hard to give guidance, he added that prospective targets did not necessarily need to own late stage drugs.

When asked to provide a target range for a buy, the executive responded: “We could spend USD 10bn”. Regarding a merger, Mullen said that would have to be determined. Biogen has a current market capitalization of around USD 18bn.

While Merrill Lynch and Goldman Sachs acted as financial advisors to Biogen in its sale process, the executive said both firms have been on retainer on an “ongoing basis” from previous acquisitions, as they have intimate knowledge about Biogen’s change of control provisions.

Yet, it appears further share buybacks will not be part of Biogen’s imminent business strategy. Last May Biogen authorized a share repurchase of USD 3bn through a modified ”Dutch Auction” tender offer. Despite some heightened tension among the activist shareholder community over reasons leading to the busted sale, Mullen said the company did not anticipate the need to buyback more shares. He did point out, however, that Biogen has some short term debt and a number of other credit facilities it might choose to pay down, including a USD 1.5bn bridge loan currently sitting on the balance sheet.

Mullen also emphasized that two drugs will be launched this year from the existing pipeline of specialty products. With its blockbuster multiple sclerosis (MS) drug Avonex coming off patent in 2013, and Biogen’s patents for Rituxan, for the treatment of rheumatoid arthritis and non-Hodgkins Lymphoma expiring between 2013 and 2018, Mullen said he still sees further growth from the strong pipeline.

Biogen has 15 product candidates in Phase II clinical trials or beyond, as well as the 10 or more data readouts expected between September 2007 and year-end 2008.

He said the company wants to be first in biologics as it focuses on rheumatoid arthritis, in identifying and treating TNF antagonist failures. Biogen will also focus on its lupus products with Genentech and Roche and provide more data on its leukemia products.

Still, Mullen told this news service with respect to Rituxan, there are three to four trials that need to be completed but are already showing indications for primary progressive MS, which composes up to 10% to 15% of the MS market.

“All that will unfold first half of the year,” he said.

Although he would not give specifics on which two drugs will be launched, he remarked that they will be any two from the aforementioned groupings. The company also has a USD 100m venture fund that invests within the organization, noted Mullen. Biogen’s financial reports show the firm upped its total investments in young biotechs by 52% in the first three quarters of 2007.

During a recent investor meeting, Mullen outlined how the company’s sale process unraveled following the initial announcement in October. Confidentiality agreements had been signed as information regarding Biogen’s collaboration agreements and product details were provided. Management held one-on-one company presentations, which led to non-binding offers being submitted by prospective parties.

Mullen said “every corner of the company” was evaluated, from actual site visits to agreements regarding antitrust issues and any material adverse effect clauses. He said in the end Biogen asked potential buyers to submit binding offers, which would have allowed the acquirer direct negotiations with co-promotion partners Genentech and Elan, for Rituxan and Tysabri respectively.

By making buyers sign a CDA, this allowed them to view the company’s private data, but simultaneously forbade the parties from any direct negotiation with Elan or Genentech. A number of activist shareholders claim the CDA led to the failed sale, but Mullen told investors that it was Biogen’s perspective that the CDA did not create impediments. Conversely, he said the company was satisfied with how the process went. He said none of the buyers got to the end of the second step of the process, leading to the announcement in December terminating its review of strategic alternatives.

Elan’s CEO Kelly Martin told this news service that the Biogen process was complicated but declined to comment further.

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