Biogen Inc: Merck-Allergan Deal Could Send Biogen Stock Soaring

Biogen IncBiogen Inc Has Something the Pharma Majors Want

Biogen Inc (NASDAQ:BIIB) lost some 10% in one trading day last June. In fact, Biogen stock dropped to its lowest price of the year—$224.60 on June 24. That happened as the company admitted that lab tests of its new multiple sclerosis–targeting drug, “Opicinumab,” failed. But such things happen in the world of biotech.

In fact, Biogen stock has hit a new record high for 2016, gaining 10% in a single day as Merck & Co., Inc. (NYSE:MRK) and Allergan plc (NYSE:AGN) have shown takeover interest. That has sparked major interest in Biogen stock.

Biogen is one of the world’s leading biotechnology groups. That alone explains why Merck and Allergan are lining up for a possible takeover of Biogen stock. (Source: “Biogen Draws Takeover Interest from Rival Drugmakers,” The Wall Street Journal, August 2, 2016.) The negotiations are informal and preliminary because rumors suggest Biogen isn’t interested—but that just raises the stakes.

Biogen May Reject Offer

Still, while Biogen may be willing to reject its bidders, the group has suffered a slowdown in the growth of its flagship drug, “Tecfidera,” a treatment for multiple sclerosis.

That slowdown prompted the company to engage in a deep restructuring strategy to reduce costs and focus on its strengths, especially in neurology and the treatment of Alzheimer’s disease. This leaves Biogen susceptible to offers it might not be in a position to refuse.

That said, a Biogen takeover would be huge—perhaps even the most important event since 2008 and certainly one of the largest ever in the biotech sector.

Shareholders may prefer the safety of pursuing new products with the backing of a biotech major rather than do it alone. As it happens, Biogen’s CEO, George Scangos, has stepped down just after delivering the favorable earnings and guidance. This is yet another sign that the company is ready for a takeover, which would fuel the Biogen stock rally. (Source: “Biogen CEO Scangos to step down, raising questions about the Big Biotech’s future,” Fierce Pharma, July 21, 2016.)

Biogen closed at more than $330.00 per share as rumors of the takeover interest percolated—but this is just the start. Some are suggesting Biogen stock could hit $475.00 per share. (Source: “The $75 billion biotech giant Biogen surged on a report of a potential takeover,” Business Insider, August 2, 2016.)

Many are predicting that Biogen could be the biggest biotech sector takeover since Takeda bought Millennium Pharmaceuticals for $8.2 billion in 2008. Still, rumors have a way of inflating. While there are good reasons for Biogen to accept a takeover—and for Merck or Allergan to pursue it—the deal is not a sure thing.

Stay Cautious on Biogen Stock Rally

Until more news emerges, it would be best to consider Biogen on its own merit. Even after the early August rally, Biogen stock is still trading only 2.45% higher year-to-date. Yet, as we suggested in an article last June, investors should have considered the great Biogen stock’s tumble as a potential bullish opportunity.

In fact, while Opicinumab has failed (for the time being), Biogen also saw three potential blockbusters get approval in Europe and the U.S. just days earlier. These include “Zinbryta” (daclizumab) for multiple sclerosis (MS), and “Flixabi,” which targets arthritis. (Source: “Biogen’s MS drug Zinbryta tied to more serious side effects than Avonex: Advera,” Fierce Pharma, May 31, 2016.)

Biogen has worked with Samsung Bioepis, a joint venture between Samsung and Biogen BioLogics. It got approval for “Benepali,” an arthritis drug marketed in Europe whose sales have multiplied 7.5 times from the first to the second quarter. (Source: “Korean biosimilar drugs lift European market share,” The Korea Times, July 26, 2016.) Moreover, Biogen posted significantly better-than-expected results for the second quarter. This sparked a prompt bullish turnaround for Biogen stock.

The bottom line on Biogen stock is that it’s one to follow closely, because it has the makings of a takeover target. Paradoxically, because of the bullish atmosphere surrounding it, Biogen stock is at risk of over-inflating ahead of more concrete details about a rumored takeover.