Reuters Insider - Breakingviews: Biogen's block

Procter & Gamble Health

05/08/2016 02:12

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        Aug 4 - After reports of acquirer interest, Robert 
                     Cyran tells Richard Beales why a price for the $70 
                     bln Biogen might be tricky to negotiate – even if 
                     the company wanted to sell.                       
 
 
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Transcript (May be auto-generated)

                 Investors got a little excited this week about Biogen – that's about a $70 
billion biotech. Rob, there was a report that Merck and Allergan, a couple of 
big pharmaceutical companies, have been interested perhaps in buying Biogen. 
Now, the company later said actually there's nothing imminent going on, we're 
not actively trying to sell anything like that. But you took a look and 
concluded it might be a really tricky deal to do anyway? Yes, I mean there are 
reasons why people thought that it might be, you know, a takeout, because, first
off, one of the buyers, Allergan, they just closed a deal, so they've got about 
$40 billion in cash, I think. Right, they just sold some assets, right? Yes, 
exactly. And the other thing is Biogen's CEO just agreed to- he's going to step 
down when they replace him- Right, so they're getting a new CEO and he's been 
around, what, six years or something? Yes, so companies, when this happens, 
they're often typically vulnerable. And Biogen also might make a nice takeover 
target for a pharma company that's looking for assets. Right. They've got a lot 
of sales but they're all- pretty much all concentrated on one area – multiple 
sclerosis. 

Right. And so, if you buy that, you can easily, you know, latch onto your 
existing business, cut some costs, and boom, you know- Right, but the big 
unknown piece and part of Biogen's value is there maybe drug for Alzheimer's. 
Exactly. Now, obviously, the changing demographics, if somebody manages to make 
an Alzheimer's drug that works, it's going to be a- it's almost destined to be a
blockbuster. It's almost destined to be probably the biggest drug ever. So, with
that in mind, you know, the problem is that a lot of people have tried and a lot
of people have failed. It's kind of like, you know, Raiders of the Lost Ark - 
it's like you're going to fail if you take this one. The other problem is that, 
last year, Biogen introduced very, you know, early stage trials of this drug and
it seem to be promising. And so, investors tacked on about $10 billion onto 
Biogen's valuations. So there's still a premium in that value for this drug, 
right? Yes. So for a bio that's kind of- it's like, sure, if it proves out, 
you'll look great. But because you have to pay a big premium on top of that 
premium- Exactly, pharma is going to be a bit more skeptical because they've 
seen all these drugs fail. The problem is that it's build on hypothesis that 
it's been kind of- a lot of researchers don't agree with it. They think there 
are different reasons why Alzheimer's occurs. And so the problem if even if 
this- you do this drug and the drug's trial's done well, it won't show anything.
And that's, you know, we've seen similar drugs fail in the past. Right. So 
basically it's a little early for a bio to be willing to pay for it? Exactly. 
But Biogen would want to be paid for the promise. Yes, there are ways and times 
you can close these gaps because they do things called a contingent value, 
right, that's if the drug is approved and it sells then the sellers get a chunk 
of those proceeds. But that's always tough with public shareholders especially. 
They're really hard to do and they're also hard to monitor so that companies, 
you know, don't play games with revenue recognition and other things. So it's 
going to be very, very hard to do a deal. And there were also a news report just
recently out that said that, you know, the management isn't currently looking to
sell. It doesn't mean they won't sell in the future either, you know, but that 
doesn't mean they're currently on the block. So readers have skepticism. Thanks,
Rob. Interesting story. We'll have more Breakingviews for you tomorrow