Carl Icahn: Biogen Idec Marriage Broker?

It’s no secret that major pharmaceutical makers are desperate to fill their thinning drug pipelines. Biotech companies like Biogen Idec, though not without their own pipeline concerns, have products to offer. So it might be reasonable to conclude that Big Pharma would pay a premium for biotech firms—and that major investors like Carl Icahn are more than willing to help such acquisitions take place.

It’s hard to say if that’s exactly why Icahn has recently taken a stake in Biogen and is poised to increase that stake. But one thing is certain: Icahn has a specific agenda for the Kendall Square-based biotech. No one outside his small inner circle, including Biogen executives, knows exactly what it is yet. But an exploration into the style of the self-proclaimed “activist investor,” coupled with carefully worded comments from sources familiar with his plans, indicates that Icahn has long been examining a move on Biogen, which he evidently feels is undervalued. Icahn’s obvious intention is to one way or another increase that value. The biggest question marks surround how friendly this activism will be—and whether he will succeed in his plans. The famed corporate raider and investor has enjoyed significant success with other biotech companies, most notably MedImmune and to a lesser extent ImClone. But he has fallen short of his plans on occasion as well.

Earlier in the month, when SEC filings covering the second quarter were made public, it was revealed that one of Icahn’s entities, Icahn Management, had purchased 2.74 million Biogen (NASDAQ: BIIB) shares, just about a one percent stake worth approximately $160 million. Then came word on Friday afternoon that Icahn had received clearance from the Federal Trade Commission to purchase more shares in the company without violating antitrust regulations. The number of shares was not disclosed.

A call over to Biogen this morning drew the expected, guarded response. “Our feeling is he’s a shareholder and certainly a significant shareholder,” says Naomi Aoki, director of public affairs. She would not comment on whether Biogen’s management had yet had any discussion with Icahn or his representatives.

Still, by examining Biogen’s history and Icahn’s track record, it’s possible to at least make a good guess about how events might play out. First, some context. Biogen is the fifth-largest U.S. biotech company by sales, with $2.7 billion in revenue last year, according to Bloomberg. That puts it behind Amgen, Genentech, Genzyme, and Gilead Sciences. Its chief areas of research are neurology, oncology, and immunology. The company markets a suite of products for multiple sclerosis, and ranks as the world leader in MS drugs. It also produces Rituxan, a treatment for rheumatoid arthritis and non-Hodgkin’s lymphoma developed and co-marketed with Genentech. Rituxan had more than $2 billion in sales last year.

Biogen’s stock has long been struggling. The share price fell off a cliff in February of 2005—after Biogen’s MS drug, Tysabri, was pulled from the U.S. market in light of safety concerns—tumbling from $67.28 to $37.53 in a little over a week. Although Tysabri was reintroduced over a year ago, the stock price didn’t really recover until very recently. Biogen reported strong second-quarter 2007 earnings, and in early July the company completed a stock buyback plan that also helped raise its share price. But it wasn’t until earlier this month that shares again rose beyond $60. The stock got another pop last Friday on word that the FTC had cleared Icahn to purchase more shares, jumping $2.92, or 4.9 percent, to hit $62.89. All told, the stock has gained roughly 30 percent this year.

Meanwhile, here’s what we know about Icahn, the billionaire investor and takeover artist. He has three main investment arms: Icahn Partners, his $7-billion hedge fund, the smaller hedge fund called Icahn Management, and a publicly traded private equity firm called American Real Estate Partners (NYSE: ACP), according to GuruFocus, a website that tracks the activities of leading investors. His style is straightforward, the site reports: “He takes minority stakes in public companies and typically pushes for change.”

There’s no reason to believe he is doing anything different with Biogen, which he has no doubt studied carefully. Indeed, according to a Fortune magazine profile, Icahn makes his investments with the help of two dozen associates. When he takes a stake in a company, although management is often quaking in its boots, it isn’t likely to signal bad news for the firm’s investors, either. Icahn’s team “has boosted the total market cap of its target companies by more than $50 billion in just over two years, spreading the wealth among shareholders far and wide,” Fortune reported.

Icahn doesn’t always get his way. Earlier this year, for example, he lost a proxy vote for a Motorola board seat. But as for his plans for Biogen, a look at Icahn’s strategy with other biotech companies might be more enlightening. One notable success story is MedImmune. Icahn’s group purchased shares in the Maryland firm, helping force its sale to AstraZeneca last April. What’s more, the sales price of $15 billion was twice what the company’s market value had been a year earlier, according to a nice writeup of Icahn’s activities by Bloomberg’s Luke Timmerman.

Another good example, but not yet the home run of MedImmune, is New York-based ImClone Systems (NASDAQ: IMCL). Icahn gained board control of ImClone last fall. In a familiar pattern, he first purchased shares in the company, then began pressing for management changes he felt were necessary to raise the firm’s value. After a brief fight, Icahn forced the resignations of some directors and the interim CEO, and then placed his own hand-picked representatives on the board. ImClone shares, trading earlier today at $32, have gained around 20 percent this year, but are trading well below their one-year high of $47.11.

SEC filings show that in addition to ImClone and Biogen, Icahn and his entities have shares in at least five other biotech and drug concerns: Adventrx Pharmaceuticals, Telik, Regeneron Pharmaceuticals, Cyberonics, and Enzon Pharmaceuticals.

In that sense, Biogen is just one of many Icahn biotech investments. But the company has been the frequent subject of takeover rumors. In May, when Biogen announced the buyback program that ultimately saw it shell out some $3 billion to purchase more than 56 million of its own shares, analyst Michael King of Rodman & Renshaw told BusinessWeek he saw a profitable biotech like Biogen as a compelling target for a large pharmaceutical maker. Pfizer is one company that has frequently been mentioned as a possible suitor.

King speculated at the time that Biogen’s management could well have made the buyback move to dissuade such an attempt. However, it is clear the buyback didn’t turn off Icahn. Things will likely get very interesting in the months ahead as the investor reveals more of his plans for Biogen.

Bob is Xconomy's founder and chairman. You can email him at bbuderi@xconomy.com. Follow @bbuderi

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