Carl Icahn has struck yet another match in the US drugs sector, knowing that desperate pharmaceutical companies will circle the flame. Biogen Idec, Icahn’s latest activist target, has now agreed to entertain takeover offers. Given Big Pharma’s propensity to overpay for acquisitions, Mr Icahn and other Biogen shareholders may stand to reap substantial rewards. But a deal for the biotech giant may not be such good news for an acquirer’s shareholders.

Biogen’s share price has nearly doubled to more than $82 since mid-April, based largely on takeover speculation. Potential suitors should avert their eyes from that frothy valuation, which equates to 26 times estimated 2008 earnings and values Biogen at about $23.5bn. But Mr Icahn, who expressed interest in buying Biogen himself to get the ball rolling, is betting clear-headedness will not prevail. The world’s drug giants are frantically searching for new treatments to offset revenue losses from blockbuster drug patent expirations. Biogen’s size would give a buyer immediate scale in the biotech field. This is the sort of a potential panacea AstraZeneca used to justify the more than 50 per cent premium it paid in April for MedImmune.