Biogen Stock Could Benefit from Bidding War
The takeover rumors surrounding Biogen Inc (NASDAQ:BIIB) are not going away; instead, they are getting stronger. It seems it’s not just Merck & Co., Inc. (NYSE:MRK) and Allergan plc (NYSE:AGN) that have shown interest in buying out the company. The combined noise of all the possible suitors has not helped the valuation of Biogen stock—at least, not yet. A bidding war may be brewing over Biogen shares, though.
Indeed, while still near its 2016 high, Biogen stock closed down 2.66% on Wednesday. Investors were likely expecting a confirmation of the takeover rumors that started brewing during the weekend. Instead, what they got was more speculation about the likelihood of a pharmaceutical giant acquiring Biogen.
Biogen Has Something Everybody Wants
As relayed by The Wall Street Journal, Allergan and Merck would pay BIIB stock within a price range of between $370.00 and $410.00 a share against a closing price of $321.00 on Wednesday. Biogen has developed a product (in the biotech world, it’s known as a “platform”) that heavyweight industry players want because of its potential to treat Alzheimer’s disease symptoms, its quality clinical infrastructure, and its projects in spinal muscular atrophy and multiple sclerosis (MS). This is why the biotech majors will be outbidding each other to get the company. (Source: “Biogen Draws Takeover Interest from Rival Drugmakers,” The Wall Street Journal, August 2, 2016.)
Before the takeover rumors, Jefferies Group said Biogen would be taken at $400.00 per share, given the strength of its Alzheimer’s treatments in the pipeline) by adding the names of Pfizer, Roche, and Shire to the list of potential buyers. An RBC Capital analyst went as far as suggesting a takeout price of $475.00 share. (Source: “Biogen’s Power Vacuum and Alzheimer’s Trial Fuels M&A Talk,” Bloomberg, August 3, 2016.)
Apart from its biotech expertise and efforts in the treatment of MS, Biogen is attractive because of its advances in neuroscience and steady cash flows. But, the takeover opportunity has become most evident, given that there is a power vacuum at the top. Biogen’s CEO, George Scangos, has retired—and on a high note at that, leaving strong guidance for 2016 as his legacy. (Source: “Biogen CEO Scangos to step down, raising questions about the Big Biotech’s future,” Fierce Pharma, July 21, 2016.)
Bidders Want Alzheimer’s and Multiple Sclerosis Blockbusters
But there is no “perfect fit” for Biogen, as the company is almost too specialized. (Source: Bloomberg, op cit.)
At the same time, it has something many of the biotech majors covet. There is no pharmaceutical company on the planet that would not be interested to get its hands on the biggest Alzheimer’s disease treatments program in the world. (Source: Ibid.) Indeed, with an aging population in Europe, North America, and Japan, Alzheimer’s disease is a major medical risk that many companies want to address.
Moreover, Biogen holds three blockbusters (a “blockbuster” is a drug that generates more than $1.0 billion in revenue) in the field of MS, with “Tecfidera” ($3.6 billion), “Avonex” ($2.6 billion), and “Tysabri” ($1.9 billion).
Investors should remain cautious about the ultimate conversion of takeover rumors and bidding wars into an actual buyout.
Yet, there is another “bullish” factor to consider. Biotech is a sector that is sending favorable merger and acquisition (M&A) vibes. In 2015, there was a frenzy of M&A in the biotech and pharma sectors. Not surprisingly, that’s when Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was growing at its fastest pace. After the 2015 peak, the markets seemed to have lost interest in biotechs.
The Bottom Line on Biogen Stock
The fact is that Biogen fell from $475.00 to $330.00 per share at its peak in March 2015. This “cheap” price has sharpened the appetite of pharmaceutical companies, involving potentially less costly acquisitions. However, given its blockbuster potential in the areas of MS and Alzheimer’s treatments, Biogen stock likely won’t stay cheap for long.