great article on BIIB/ELN
14-Jan-09 14:22 Biogen Idec identified by deal-makers as likely 2009 takeover target; could acquire Elan - analysis
Story Biogen Idec (NASDAQ:BIIB) and Elan (NYSE:ELN) will likely be acquired in one fell swoop towards the end of 2009, in the opinion of three sources that were involved in Biogen’s auction process more than a year ago.
The sources agreed that Biogen, in the eyes of large pharma and other biotech companies, remains one of the last standing great assets in the market. The shortlist of other biotech targets include Amgen (NASDAQ: AMGN), Genentech (NYSE:DNA), which is currently being targeted by Roche, and Gilead Sciences (NASDAQ:GILD) - the latter would represent a hefty USD 45bn deal for a company that primarily focuses on HIV/AIDS.
Although Celgene (NASDAQ:CELG) is on everyone’s “wish list”, one of the sources said it is growing incredibly fast and has become too expensive. “You pass Biogen and then [targets] drop dramatically to that USD 1bn to USD 2bn size,” this source said. “We are not seeing the wave coming. It’s past us and we may be on the back end of it,” he said.
Despite Biogen’s attractiveness, these sources identified the various challenges that cropped up during the company's initial sale process that started in October 2007 – namely the collaboration agreements between Biogen’s co-marketing partners, Genentech and Elan.
At the time, buyers were disallowed from signing confidentiality agreements with the partners. Elan’s agreement with Biogen was considered the greater concern. The Irish-based pharmaceutical company has a 50% interest in the Tysabri collaboration with Biogen. Under the terms of the Biogen/Elan collaboration agreement, if a third party acquires control of Biogen, Elan has several options: the right to acquire for fair value the 50% economic interest in Tysabri currently held by Biogen; under certain circumstances, the ability to sell its 50% economic interest in Tysabri; or, to continue with the existing agreement. Elan also may consider restructuring the agreement in connection with a third party's acquisition of Biogen.
Now bidders are jostling the idea of taking a shot at both Elan and Biogen and cutting out this change of control barrier. The first source pointed out that Elan has a meager USD 3bn market cap, while Biogen’s market cap continues to skirt around USD 12bn to USD 14bn, some USD 10bn less than a projected deal transaction during its process. Biogen and Elan’s shares also dropped precipitously last year after the announcement of the potentially fatal brain infection, progressive multifocal leukoencephalopathy, or PML, occurred in four patients associated with the multiple sclerosis (MS) drug Tysabri.
Still, the sources hardly dismiss Tysabri, describing it as a preeminent drug for MS. “I don't see a scenario where one gets done and not the other. I think over time, if one goes, both will get done,” said the first source.
Both this source and a second source said a Biogen/Elan acquisition will, in their view, be a 2009 event. The second source said the pressure on Biogen is increasing and expects a deal to occur later in the year as both Biogen and Elan assess their own respective strategies.
The first source noted that the credit markets are starting to thaw and the assumption is a party will acquire Biogen rather than it being a merger of equals. Potential bidders that this news service had identified during the initial auction included Novartis, Pfizer, Bristol-Myers Squibb, Merck, Johnson & Johnson and Eli Lilly.
During an investor presentation at the JPMorgan Healthcare Conference Wednesday, Biogen’s President and CEO, Jim Mullen, confirmed that all standstill agreements that were signed by prospective suitors were effectively removed.
A third source familiar with the situation said obviously Biogen's biologics capabilities are still very interesting to many players. However, he said in order to achieve a premium valuation, a bidder would need to put significant value on Tysabri. “People would want to wait and see how the whole PML situation plays out… and see how the drug penetration continues in any further PML cases over the few months at least,” said this source.
Also during this time period, Biogen will be receiving more data on its pipeline, which would enable suitors to see if there is anything of value there and start allocating a price. However, he still considered Tysabri as the most significant driver for the company. Simultaneously, a suitor vying an interest in both Biogen and Elan would also have to be prepared for the additional risk associated with Elan’s Alzheimer drug, bapineuzumab.
Wyeth and Elan’s bapineuzumab, a monoclonal antibody targeting beta-amyloid plaques associated with Alzheimer’s disease, produced disappointing Phase II clinical data in July 2008, causing Elan shares to lose almost a third of their value and Wyeth shares to drop to a four-year low. Bapineuzumab, one of the more closely watched drugs in 2008, failed to achieve statistical significance in the trial and also showed an increased risk of serious side effects.
But what appears to be a more prevalent theme is the likelihood of Biogen acquiring Elan ahead of a possible three-way deal, said a person familiar with the situation. “Biogen would really like to buy Elan,” said the person.
Elan announced Wednesday that it had retained Citigroup to conduct a review of strategic alternatives. The range of alternatives that will be assessed could include a minority investment or strategic alliance, a merger or sale, according to a company release.
When asked by an investor during a breakout session at the JPMorgan conference whether Biogen would be interested in acquiring the co-rights on Tysabri, Mullen said Biogen remains “very bullish” on the MS drug and believes it continues to be a big product. However, he pointed out that Biogen has to take a step back and see how the current process unfolds at Elan. “We are catching up with the news as much as you are," he told investors.
Even more interesting among the investment community is the lack of initiatives that has been disclosed to place the roughly USD 2bn cash and marketable securities that Biogen holds. A spokesperson for Biogen said the company continues to look at all options to utilize its cash position but that the “economic situation continues to weigh in that mix”.
During its 3Q filings, Elan reported it had USD 444m in cash and USD 1.76bn in long term debt. Its current debt has no maintenance or leverage covenants and refinancing does not commence until 2011. However, total debt does exceed total assets, which accounted for USD 1.67bn over the same quarter.
Shane Cooke, Elan’s CFO told this news service that following the company’s strategic review announcement, investors have not pushed the company for one particular strategy, namely a sale. Rather they are asking for the timing rationale behind the announcement. “No-one has a preconceived outcome,” Cooke said.
Elan’s CEO Kelly Martin told investors Wednesday that the timing of the announcement coincides with a series of factors that were discussed internally over the last year-and-a-half to two years between the board and senior management. The big driver was bapineuzumab along with the “enormity of task on the commercial side.”
Posed with the question surrounding Biogen’s significant cash position, Shane responded: “There are lots of options, and we will see what we will do.” He would not comment to this news service on a three-way tie up between Biogen/Elan and a prospective suitor.
As for the change of control provisions under the Elan and Biogen collaboration agreement, Cooke said the latter agreement has some “teeth to it” due to the various stipulations the partners have over Tysabri. He said Wyeth’s agreement on bapineuzumab was not so much of an issue as it contains standard change of control provisions.
Cooke said the review will also evaluate partnerships as one option. However, he noted that the company did not decide to enter the process to assess the pipeline “piece by piece.”
Although Elan and Biogen may have different balance sheets today, initial bid-ask discrepancies asked from Biogen management in 2007 appears to have finally decreased, commented the second source. He said arguably bidders know Tysabri even better, and although considered an immensely important drug, there “is no longer this gigantic upside that people thought was so far removed”.
by Sasha Damouni and Nadia Damouni
Source Pharmawire
AI
