Biogen-Icahn? Pfiz-ogen or Pfiz-zyme? Is All of Cambridge Biotech Suddenly Up For Sale?

Thank you Carl Icahn. Thanks for stirring the pot by purchasing a few million shares in the local economy. In just the last 12 days, you’ve raised the market cap of Cambridge’s biotech giants by, oh, I don’t know, a few billion dollars.

It’s nice work if you can get it, this activist investing. But in case you missed it, here’s what’s been going on lately. Back in August, Icahn announced he had purchased 2.74 million shares of Biogen Idec, good for roughly a 1 percent stake. The stock perked up, but it had been looking good pretty much all year, given the company’s strong results and growth prospects (despite yesterday’s disappointing third-quarter results). The stock climbed steadily into the fall, reaching the mid-60s. Then, on October 12, Biogen’s board announced it would entertain offers for the company. Shares shot into the 80s, and suddenly, Boston-area biotech was awash in rumors: Icahn offered $23 billion himself for the company. Pfizer is going to buy it. Hey, wait, Genzyme would also make a good takeover target—in fact, Pfizer is going to buy it. On October 15, Genzyme’s stock jumped nearly 5 percent—but no one is certain whether that was because of Icahn or because virtually simultaneously with the takeover talk came good clinical-trial news for Genzyme’s leukemia drug Campath. Let’s call it a bit of both.

Time to step back and attempt to cut through this fog of rumors and speculation—to the extent that’s possible. We’ve spent the last few days scouring news reports, blogs, and other speculation, as well as talking to a few knowledgeable sources, to try to see a little more clearly into this matter. Firm conclusions are hard to reach, but below are some key points.

First is the very real possibility that Icahn actually holds much more than 1 percent of Biogen. It’s not 5 percent, because he hasn’t filed a 13D form that is required when an investor hits that level. But two good sources tell us his holdings are likely above what has been disclosed so far.

In any case, whether it’s 4.9 percent or 1 percent, when Icahn comes knocking, board members listen. At least at Biogen they did. We don’t know exactly what kind of communications Icahn had with Biogen or its directors, but it’s clear that it was his interest that spurred the company to officially entertain buyout offers. In yesterday’s third-quarter earnings call, Biogen CEO Jim Mullen said that the company wanted to get through the process as quickly as reasonable, but stressed there was no guarantee a sale would take place.

It’s been widely reported (apparently starting with the Wall Street Journal) that Icahn bid $23 billion for Biogen, but we haven’t confirmed it. Even assuming the figure is correct, not everyone is buying that Icahn’s serious. As Fortune noted, “Most observers believe Icahn instigated the company’s sale, then made the bid to gin up an auction atmosphere.” The Financial Times and Boston Globe columnist Steven Syre agreed. Wrote Syre, “But I’d bet buying Biogen is the last thing Icahn wants to do. The idea was to trigger other, higher offers from the big drug companies.”

But if not Icahn, who would buy the company? And is a deal really likely to take place, given the now hefty price tag Biogen would command with its stock trading in the high 70s or low 80s and a market cap of roughly $23 billion?

On the first question, Pfizer is the consensus choice as the most likely suitor—it’s in every report we found on the subject. But what about dark horses? The Financial Times, Fortune, and Sanford C. Bernstein & Co. analyst Geoffrey C. Porges (quoted by Bloomberg) also mentioned Sanofi-Aventis and GlaxoSmithKline. The FT threw in Novartis, Fortune added Wyeth to the list, the Boston Globe mentioned Johnson & Johnson, and a JPMorgan report listed … Next Page »

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