Deals

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

More than most deals, a potential buyout of Biogen will either be a case of buyer's remorse or seller's regret.

At $72 billion, it is a hefty mouthful, even for rumored suitor Allergan , with its $36 billion in cash from selling generics to Teva. It does have an attractive $11 billion-a-year base business. But there are risks to its existing sales, and its drug pipeline has a boom-or-bust feel. It's nearly as binary as some early stage biotechs, at more than 70 times the price tag. 

But if Biogen lives up to its promise, then that $72 billion may seem a bargain and could make the company regret selling itself cheaply.

Already Up
Biogen's shares had already rallied on takeover speculation through July, but it just got a lot more real.
Source: Bloomberg

Biogen is valued at about 6 times its trailing 12-month sales -- and that, believe it or not, is low by biotech acquisition standards. 

Jury's Out
If Biogen's iffy pipeline proves viable, the company could regret selling itself at its current valuation
Source: Bloomberg
*Biotech and pharma deals worth more than $5 billion during the past two years

Some analysts have called for upwards of $400 a share in a takeover, but it's unlikely any buyer would pay such a premium, given the uncertainty. The stock closed at $330.11 on Tuesday. Biogen shares have already rallied since the start of July, partly on takeover speculation -- which only intensified after the company said on July 21 that CEO George Scangos will be leaving and that it didn't yet have a replacement.

If Biogen has any confidence in its experimental Alzheimer's disease treatment and other therapies in its pipeline, and if it thinks its best-selling multiple sclerosis drug Tecfidera will keep market exclusivity, then this might not be the right time to sell.

But those are big "ifs," with big implications for Biogen's future value.

Alzheimer's is one of the largest untapped market in the pharmaceutical industry; more than five million people live with the disease in the U.S. alone. There hasn't been a new Alzheimer's treatment approved in more than a decade, and those on the market treat only symptoms. A disease-modifying drug, as Biogen's could be, would redefine the word "blockbuster." Data from important safety tests on its drug are due later this year, and Phase 3 studies are set to be completed in 2020.  

But the past few decades are littered with failed Alzheimer's drugs, and Biogen's drug turned in mixed results last year. Many prominent researchers think the medical hypothesis underlying Biogen's drug is completely wrong.

As for Tecfidera, some time this year a patent review board could knock out patents that would put the drug's $3.6 billion in annual sales at risk. Or not.

The rest of Biogen's pipeline has a similar binary tendency, which shows up in analyst estimates. The spread between the highest and lowest projections of the company's revenue in 2020 is more than $5 billion. 

Who Knows?
Analysts expect a wide range of possible outcomes when it comes to Biogen's growth potential.
Source: Bloomberg

It all adds up to a potential M&A standoff. Acquirers probably can't afford to risk a big premium for the company, given the amount of debt they'd have to raise. But unless they're bigger pessimists than they seem, Biogen's board members may not be able to accept much less. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. CNBC reported Tuesday evening that Allergan is unlikely to pursue a takeover of Biogen.

To contact the authors of this story:
Max Nisen in New York at mnisen@bloomberg.net
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net