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12:00 AM
Dec 17, 2007
 |  BioCentury  |  Finance

Ebb & Flow

Dashing the hopes of buysiders, Biogen Idec (BIIB) said it had not received any definitive offers and would remain independent. The announcement came after market close on Wednesday and BIIB plunged $17.97 (24%) to $57.91 on Thursday, erasing more than $5 billion in extra market cap that was still remaining in expectation of a takeout.

The shares had run up since July 2 when BIIB completed its $3 billion share buyback, followed by aggressive long-term guidance from management and stock purchases by financier Carl Icahn. Then the company officially said it was considering being acquired after the market closed on Friday, Oct. 12. The frenzy peaked the next Monday, when the shares closed at $82.51.

Now BIIB has returned to near its price prior to the entire string of events. On Friday, BIIB closed at $58.79, down $16.15 (22%) for the week.

Speculation was rampant on the Street as to why the company didn't close a deal. Kurt von Emster of MPM BioEquities argued that BIIB made itself too expensive when it announced it was evaluating strategic alternatives.

"There was purported interest when the stock was trading in the $50s," he noted. But once BIIB hit the $80s, "at that level they priced themselves out of a deal."

Another buysider agreed, noting that BIIB was requiring bids in the $75-$85 a share range.

This buysider, who requested anonymity, said the bidding had made it into a second round with four bidders. But potential buyers had to agree not to negotiate directly with BIIB's two key partners: Genentech (DNA) and Elan (ELN). The inability of the potential acquirers to address the change of control provisions with BIIB's partners was the core problem, the buysider said (see BioCentury, Oct. 22).

BIIB and DNA market Rixutan rituximab for non-Hodgkin's lymphoma (NHL), rheumatoid arthritis (RA) and multiple sclerosis (MS), while BIIB and ELN sell Tysabri natalizumab for MS.

Several buysiders suggested the acquisition saga might not be at an end, with expectations running high that Icahn will weigh in again.

"This is Act I," said von Emster. Now that the price has reset, he suggested there might be renewed interest by potential acquirers.

MPM BioEquities is the hedge fund of MPM Capital, which manages a strategic investment fund for BIIB that was established in 2004 and funded with $65 million over three years.

Good MOGN premium

Eisai's acquisition of MGI Pharma (MOGN) for $41 per share, or about $3.9 billion in cash, may be a sign of more things to come, both from Eisai in particular and Japanese pharma in general, according to Max Jacobs of Ridgemark Capital.

"Japan is obviously looking for something," he noted. "We could see more of that next year - the Japanese are sitting on a ton of cash."

The MOGN acquisition came at a 39% premium to its close of $29.55 on Nov. 28, the last trading day before the company announced it was evaluating strategic alternatives, and a 23% premium to its $33.45 close on Friday, Dec. 7, before the deal was announced.

Jacobs argued that MOGN was "obviously overvalued," but that Eisai had made a strategic acquisition. Indeed, the Japanese company said MOGN's cancer and acute care products and field sales specialists would enable further growth in the U.S. and strengthen the pharma company's cancer business.

In 2006, Eisai (Tokyo:4523; Osaka:4523) laid out a five-year plan to move the company into oncology. At the time, the pharma had a small molecule in oncology research, but no cancer products on the market. Since then, it has bought four marketed cancer products from Ligand (LGND) for $205 million and acquired oncology biologics company Morphotek for $325 million (see BioCentury, March 26).

MOGN's Aloxi palonosetron and Dacogen decitabine account for 90% of its sales. Aloxi for chemotherapy-induced nausea and vomiting (CINV) had 3Q07 sales of $66.3 million, while Dacogen for myelodysplastic syndromes (MDS) had 3Q07 sales of $34.6 million. MOGN has North American rights to distribute Aloxi from Helsinn and exclusive, worldwide rights to Dacogen from SuperGen (SUPG).

At Sept. 30, MOGN had $164.3 million in cash and nine-month operating income of $14.5 million. Eisai said it expects the transaction to be accretive to its cash EPS (excluding goodwill amortization) in FY08 and GAAP EPS in FY09.

The deal is expected to close next quarter. JPMorgan is advising Eisai, and Lehman is advising MOGN.

MOGN finished up the week up $6.86 (21%) to $40.31.

Earlier this month, Japanese pharma Astellas (Tokyo:4503) acquired a much smaller cancer company, Agensys, for $387 million in cash, net of the biotech's $30 million in cash. The company's lead compound is AGS-PSCA, in Phase Ib testing to treat prostate cancer. The human IgG1k MAb against...

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