• Shares drop in early New York trading after 9% gain Tuesday
  • With CEO leaving, company puts up “short-term ‘for sale’ sign”

On July 21, as Biogen Inc. Chief Executive Officer George Scangos announced he would step down, he floated the idea that his company might buy rivals to cement its place near the top of the booming field of biotechnology. Today, Biogen looks more like prey than predator.

Conjecture that the company, a frequent target of M&A rumors, may be acquired increased following a Wall Street Journal report that Merck & Co. and Allergan Plc have each considered a takeover. The Journal said the talks were informal and preliminary. All three companies declined to comment.

Shares of Biogen spiked 9.4 percent Tuesday, then on Wednesday gave back many of those gains, falling 5.2 percent to $313.01 at 10:25 a.m. in New York.

With a market capitalization topping $70 billion, Biogen makes a daunting target. And much of the company’s value comes from a “high-risk/high-reward” portfolio of drugs in its pipeline rather than existing medications, according to Vamil Divan, an analyst at Credit Suisse Group AG.

The experimental therapies Biogen is developing include treatments for Alzheimer’s disease -- a market with vast potential. Today, the company makes most of its $11 billion in annual revenue from drugs for multiple sclerosis, a crowded and competitive field.

‘For Sale’

A successor for Scangos hasn’t been named and some other senior managers have only recently been replaced. That’s left Biogen with a leadership vacuum, said Geoffrey Porges, an analyst at Leerink Partners, increasing the chances of a takeover attempt.

“With the departure of their CEO, Biogen has put up a short-term ‘for sale’ sign,” Porges said. “There isn’t a pharmaceutical company on the planet that wouldn’t like to have a leading Alzheimer’s disease program.”

Many analysts remain skeptical that either of the two potential acquirers will actually make an offer. Biogen is “not a perfect fit” for Merck, though a purchase would bolster the bigger company’s growth prospects and flesh out its development program, Tim Anderson, an analyst at Sanford C. Bernstein & Co., wrote in a note to clients. Credit Suisse said Allergan is also an unlikely buyer because it’s more interested in smaller deals.

Biogen itself may not be interested in a sale, the Journal reported, citing people familiar with the matter. CNBC separately said that Allergan was unlikely to pursue a deal, citing an anonymous source.

An experimental therapy Biogen worked on with Ionis Pharmaceuticals Inc. for a deadly muscle disorder in infants succeeded in a late-stage trial, Biogen said Monday. It’s also developing a potential treatment for Alzheimer’s disease that’s being closely watched by investors.

The shares rose 9.4 percent to $330.11 at the close in New York, their biggest one-day gain since March 2015. That failed to erase most of the losses from the stock’s 31 percent rout since its high of $475.98 in March 2015, and Biogen dropped about 1 percent in early New York trading on Wednesday.

Biogen could be worth $375 to $475 a share in a takeover, depending how optimistic a buyer is about the Alzheimer’s drug or Biogen’s future profits, according to RBC Capital Markets Corp. Brian Abrahams, an analyst with Jefferies Group, cited a potential takeout price of $400 a share.

‘Tuck-In Deals’

Allergan on Tuesday completed a $40.5 billion sale of its generic drugs business to Teva Pharmaceutical Industries Ltd. The deal will give Allergan flexibility to pursue acquisitions, though CEO Brent Saunders said in June he was looking at “more smaller-scale tuck-in deals that will support our therapeutic area leadership and innovation.” In April, it terminated an agreement to be bought by Pfizer Inc. for $160 billion, after the U.S. government announced tax rules designed to limit the benefit of the transaction.

Merck doesn’t have Allergan’s history of large transactions. Its $47 billion purchase of Schering-Plough Corp. in 2009 was its largest ever by five times over. The deal made it the second-largest drugmaker in the world at the time and provided Merck with what eventually became the blockbuster cancer drug Keytruda.

Nevertheless, CEO Ken Frazier has said business development is a priority. Like Biogen, it’s in the late stages of testing an Alzheimer’s drug.

“We remain very active with new partnerships and collaborations and we’re also looking actively for bolt-on acquisitions in key growth areas,” Frazier said during a July conference call with analysts. That means “finding the right assets that can augment our pipeline.”

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