Biogen's Big Buyback Bounce
Biogen Idec (BIIB) shares saw a nice pop May 30 after the company said it would buy back up to 57 million of its own shares in a Dutch Auction process for between $43 and $53 per share. The biotech outfit saw its share price trading around $52 in afternoon Nasdaq trading May 30, up nearly 6% on the session.
The Cambridge (Mass.) based biotech is one of the largest players in the industry. It boasts two programs with more than $1 billion in annual sales: Rituxan for non-Hodgkin's lymphoma, a common cancer, and Avonex for multiple sclerosis. The company has additional cancer and MS therapeutics in its drug development pipeline.
Generally tepid on the stock, analysts also had mixed opinions of the buyback. CIBC noted that scooping up its own shares seemed to contradict the company's plan to expand its pipeline.
"[The buyback] wouldn't be my number one choice, [but] I don't think it's a bad thing," says Michael King of Rodman & Renshaw. "They're not putting the company in any kind of jeopardy financially"
One rationale for the move, he adds could be "some kind of exogenous pressure" on Biogen's management, who would rather increase the stock's value on its own than by the company receiving a public takeover bid. Following pharma outfit AstraZeneca's (AZN) $15 billion bid for MedImmune, a profitable biotech like Biogen could be ripe for a takeover. The company's "franchise of biologics is very attractive to a big pharmaceutical company," he says, noting that Astra wasn't seen as the most likely buyer of MedImmune.
To analyst Eric Schmidt of Cowen, the buyback is a signal that the company will not be hunting for any multibillion dollar acquisitions, but there's "plenty of room to do this size [of a] stock repurchase and still buy smaller companies." But Schmidt notes the company still spends more than a quarter of sales on research and development, among the highest ratios in the industry.
Schmidt agrees that the company could be an acquisition target but "it would be a little messy" given that two of Biogen's leading programs, Rituxan and Tysabri, a multiple sclerosis drug, are part of partnership agreements.
Following the announcement, Standard & Poor's restated its hold rating on Biogen, saying the move confirms its slowing growth outlook for the company. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. [MHP]).
"Slowing growth" may be the operative phrase here as it implies a company reaching a more mature stage of existence. The biotech industry has a flashy reputation but moves like this buyback help to confirm that heavyweights like Biogen can behave quite a bit like outfits in older industries.