Carl Icahn vs. Evil Corporate Governance

Don’t get us wrong. We think corporate governance, as a general, rule, stinks. We never understood how Pfizer could have gotten itself into the position of paying Hank McKinnell $180 million in retirement benefits – the man who presided over the deletion of tens of billions in the company’s market value.

Or, in an act of proportionately greater idiocy, how the board of Cell Therapeutics, that reliably subpar performer, could in 2006 pay its CEO James Bianco some $1.1 million in cash (and a ton of underperforming stock) along with, among other perks, $220,000 in the use of chartered aircraft.

Chancellor, Sith School of Corporate Governance

The charters must have been some compensation for the loss of Air Cell Therapeutics (the corporate jet) – which the board, in a short-lived fit of financial responsibility – sold at the end of 2005.

So philosophically we’re on board with Carl Icahn’s idea of taking lax corporate governance to task in his new blog (http://icahnreport.com/), still post-less as of this morning. "I may do something to finally focus on more than making money," Icahn told Dow Jones.

We’re sure Carl gives generously to all sorts of charitable organizations (there are, after all, the Carl C. Icahn Foundation and The Icahn Charitable Foundation). But forgive us for a certain skepticism re. icahnreport. Oh, we’re sure those widows and orphans will benefit as board members get religion and really start corporately governing. And we’re also sure that when they do, our economy will just pull itself up by its bootstraps instead of whining for more bailouts.

But we also figure that the more Carl can whip up support for board-bashing, the more likely he’ll be to get additional board seats at Biogen Idec. Then, with that malign group finally paying attention to the shareholders, they'll finally force the deal to allow Carl to off-load his Biogen shares.

He bought them, remember, figuring that Big Pharmas had such poor corporate governance that they'd be begging like dogs at the Thanksgiving table to overpay for an acquisition. (For our take on that ongoing affair, see here and here).

They didn’t? Hmm. Maybe there is some real corporate governance out there after all.

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Deals of the Week: Deal--or No Deal

The debate over Vytorin's medical benefits and, by extension, the utility of all cholesterol meds, continues to rage. Meantime, the Zyprexa marketing scandal reared its head: new this week, the NY Times reports Lilly is in talks with federal prosecutors to settle investigations into its marketing of the antipsychotic. If an agreement is reached, it could cost the pharma $1 billion, the largest fine ever paid by a drugmaker for breaking federal laws governing a medicine's promotion.

And, it was earnings week, with fourth quarter reports from Wyeth (up, but flat forecast for '08 due to generic Protonix), AZ (down), BMS (down, and WSJ's Health Blog highlights concerns that this big pharma may be affected by the sub-prime mess), Novo Nordisk (down, but did beat analysts' expectations sending the stock up), and Merck (down, thanks to Vioxx settlements) among others.

All in all, a crazy week, but not necessarily on the deal-making front. That's prompted this IN VIVO blogger to ponder the deals that happened--and those that did not. Without further ado, the Deal or No Deal edition.

First, a look at the actual deals that got done...

Inverness/Matria: On Monday Inverness announced its third major acquisition in the health management space, buying Georgia-based Matria for $900 million and the assumption of $280 million in debt. Definitely the big money deal of the week, though Wall Street reacted negatively to the news. Inverness continues to build through acquisition: the Matria deal is its twelfth in the past 12 months. (For more on Inverness's acquisition strategy, click here.) The company's recent emphasis on health management suggests another trend we've been following: the expansion of the diagnostic business model to include services not exclusively related to in vitro tests or reagents. Such business activity has muddied the waters stretching the definition of what it means to be a diagnostic company.

Sepracor/Nycomed: A few weeks ago when Nycomed got FDA approval for its inhaled corticosteroid ciclesonide we figured Sanofi-aventis, the original partner of Altana (bought by Nycomed in '06), still had US rights to the drug--we hadn't heard otherwise, after all. So we were a little surprised on Monday when Sepracor picked up rights to the drug (Alvesco) for $150 million upfront plus various development and sales milestones. Nycomed will also receive payments for manufacturing and royalties on sales. Alvesco's route to the US market has been chock-full of speed bumps. Way back in 2002 Altana suggested the drug might be approved in 2003, but an NDA wasn't filed until December 2003. Altana and Aventis received an approvable letter in October 2004 and the drug was launched in 2005 in Europe.

Iroko Pharmaceuticals/ Merck: Specialty pharma Iroko inked a deal with Merck for non-US commercial rights to Aggrastat, a drug used alongside heparin in patients with unstable angina to prevent cardiac ischemic events. Financial terms of the deal were not disclosed. This is the third product Merck has out-licensed to Iroko and the second in the beleaguered cardiovascular space. Last spring the company acquired rights to Indocin, for rheumatoid arthritis, and Aldomet, a hypertension treatment, from the big pharma. As we reported here, the independent futures of many spec pharmas are in question, as product-poor pharmas gobble them up in hopes of fattening their pipelines. Still, primary care remains a popular space for many, especially as big pharma eschews risky products in the cardiovascular and metabolic disease space.

(Clearly someone forgot the briefcase models.)

BiogenIdec/Genmab: Perhaps we should say "No deal, yet." This week BiogenIdec was once again in the news thanks to manueuvers by Carl Icahn to install three supporters onto the company's board. Also swirling in the ether, rumors that BiogenIdec intends to buy Genmab. Certainly, such a deal would scupper any attempts by Icahn to sell the company to another entity. Adding Genmab's pipeline would go a long way to securing an independent future for the Cambridge, MA-based biotech. But such a deal won't come cheap. In part, because it seems likely that GSK might up the ante. The British pharma, after all, has three partnerships with Genmab, including a very rich co-development, co-promotion deal for the biotech's HuMax-CD20, an antibody to treat cancer and rheumatoid arthritis. Until now, GSK's had no real reason to bring Genmab in-house--it's already got rights to the antibody cow's milk, after all. But it may not be willing to stomach the risk associated with a change in Genmab ownership, deciding its worth the hefty price tag to nail down its rights to its partnered products.

Lilly/Gastrotech: Deal or No Deal? Here's an odd one for you. On Jan 28, Denmark’s Gastrotech Pharma announced it was in-licensing Lilly’s GLP-1 analog GTP 010 for IBS and functional dyspepsia. That’s a deal, not a non-deal, surely? Well, depends on how you look at it. Simply turn it over and you get….a non-opt-in by Lilly.

Lilly and Gastrotech had been collaborating on GTP 010 since 2004, when Gastrotech took over Phase II trials of this Lilly compound in IBS and dyspepsia (in part thanks to the biotech’s ownership of some use patents for GLP-1 analogs in IBS, according to chairman Hans Schambye, though no, that wasn’t mentioned in the release).

That—four years ago--was arguably the real licensing deal. And that was also when Lilly received an option to later take over development and commercialization of the compound in return for milestones and royalties.

This week's news is that Lilly didn’t take that option, which means Gastrotech gets to keep the compound, instead, paying Lilly royalties. “Sure,” Schambye acknowledged to IN VIVO Blog, “you could look at it both ways. Either party could have licensed the drug.”

See? Hmm, exactly. Now ok, we know that small biotechs need all the positive spin they can get, but we're getting pretty close to "Press Release of the Week" territory here. Perhaps Gastrotech will do something big with 010, who knows (Lilly did take an equity stake). But please, a bit of clarity and objectivity wouldn’t go amiss.

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Icahn to Biogen: Take a Mulligan

And a Denner and Young, while you're at it.

From Biogen's terse release this morning:

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Biogen Idec (NASDAQ: BIIB - News) today announced that it has received notice from Icahn Partners LP and certain of its affiliates for the nomination of three individuals, Alexander J. Denner, Richard C. Mulligan and Anne B. Young, to Biogen Idec’s Board of Directors at the Company’s 2008 Annual Meeting.

Analysts have suggested this morning that Icahn's endgame may be to restart the failed auction process that concluded late last year. Part of the reason that auction failed, as we've pointed out before, is the restrictive NDA that Biogen management forced potential bidders to sign, essentially preventing interested parties from negotiating in parallel with Genentech and Elan, which hold options on Biogen's two key products in the event of a sale.

Meanwhile ... in news that inexplicably didn't make it into our weekend roundup (what can we say, we bought the Guardian), the Times is reporting that Biogen may make a bid for Danish biotech Genmab. Genmab is up about 7% today on the speculation.

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Biogen Idec and Carl Icant: A Report Card on Shareholder Activism in Biotech

On Wednesday, a panel at Windhover’s Bio/Pharma Partnerships meeting in San Francisco was discussing the prospects for M&A – and in particular the future of activist shareholders.

Less influential, opined Goldman Sachs banker Geoff Parker.

Funny that. More or less as the words were leaving his mouth, Goldman’s best known biotech client, Biogen Idec, was publicly reconciling itself to the equivalent of corporate chastity. No one wanted to buy it. (We point out for the record: we told you so.) At least for a price that would have satisfied the greed of its merger-obsessed shareholders.

And chief among those was Carl Icahn whose colossal and embarrassing failure to foist the company onto Big Pharma was, for many a CEO, the unspoken subtext of the Biogen press release. Kurt von Emster, the fund manager at MPM Bioequities, now dubs him Carl Icant.

Icahn– no doubt still drunk on the profits from AZ’s acquisition of MedImmune—figured that since drug companies were desperate for revenues but had bucketloads of cash, they’d of course be willing to pay $23 billion-plus for a company which could easily lose two of its top-three products to its partners Genentech (which would inherit a bigger share of Rituxan) and Elan (which had a right to buy back Tysabri on a change in control). And that’s precisely what Elan would have done (private equity firms would have clamored to finance the repurchase) unless a buyer made it worth its while to keep the drug in Biogen’s hands.

So much is evident.

But there is also a side story to Icahn’s humiliation. Biogen apparently required bidders to sign a CDA that, while it let them ogle the company’s private data, forbid them from any dealmaking with Elan or Genentech. That means the prospect of buying Biogen wasn’t merely expensive, it was a complete crapshoot. To risk the kind of money Icahn wanted, a buyer would need to be certain it could retain at least Tysabri, which meant it had to come to some pre-acquisition settlement with Elan…to whom it couldn’t talk pre-acquisition.

We assume Carl le Terrible knew about this teensy problem. And we also assume that he won’t let himself be snookered again by the clever folks at Biogen (we had figured that CEO Jim Mullen wanted to sell the company; now – given the sneaky poison pill he inserted into the CDA -- we ain’t so sure any more). Icahn will want his revenge. This is only Act I, says our not merely witty but wise friend Kurt von Emster.

But is there a further meaning to be found in Icahn's loss? We think so—another demonstration of the failure of shareholder activism in the biotech industry.

So far, Icahn is one for three in his most recent attempts to get Big Pharma to buy his shares at big premiums (he certainly made money in ImClone—but was unable to force its sale; and as we note this month in IN VIVO, he didn’t have much effect on Genzyme’s strategy either, which remains soundly diversified).

Meanwhile, the other major hedgie activist in the biotech space has certainly had his effects, but they weren’t what he and his groupies would have liked. Most spectacularly, Dan Loeb and his Third Point fund dismastered PDL by driving Captain Mark McDade from the bridge with a series of entertaining public letters alleging, among less serious business deficiencies, intraoffice kanoodling and geographic self-dealing (like moving the office so McDade could be closer to home and his boat slip) -- the sum of which added up to gross incompetence. Or at least provided the excuse for engaging in Loeb’s subraction-of-parts strategy that involved monetizing its antibody royalty stream and breaking the rest of its business into pieces.

The result: Loeb had bought in at about $18 and apparently exited his position for the tremendous price of … $18. PDL, of course, remains unsold. And it ain’t clear to us that he did anything to improve the shareholder economics of the other companies he’s afflicted—NABI and Ligand.

Now for all we know Third Point did make some money on PDL through some God-knows-what mix of option trading. But the shareholders who jumped into the stock after him didn’t.

And neither did most of the Icahnologers, most of whom rode the stock up on Icahn’s coattails and rode it right down again.

So we’re further downgrading our rating on activist shareholders. Investing in biotech isn't easy. It requires plenty of research; understanding products; contracts; the environment. The best investors in this industry know what they’re talking about because they study hard to figure it out. But by and large, we haven’t seen much evidence that the activists in biotech are doing their assigned homework.

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So What's Next for Biogen?

The word is out, and Biogen Idec's review of its strategic alternatives has apparently turned up zero alternatives that are better than the status quo. And so, Biogen Idec soldiers on, alone.

The lack of a buyer here probably says more about the handful of Big Pharma players said to be interested in the company than it says about Biogen. The Big Biotech, even before the Icahn-induced scramble, was enjoying a relatively purple patch. Big Pharma, on the other hand, has had better days.

Several companies' short- or mid-term woes could have been alleviated with the addition of Biogen's revenues and biologics capabilities. But in the end, as we and others have pointed out: the price was too high. And Big Pharma turned out not to be as desperate as some people thought, or at least they chose not to exhibit that desperation at this time. Even Pfizer, in the wake of the Exubera debacle (a black eye, for sure) and looming loss of Lipitor revenues, decided to pass.

Does this signal the end of the biopharma M&A (and M&A rumor) parade? Probably not. But perhaps Biogen Idec can take a turn on the other side of the table now.

[UPDATE: BIIB shares took quite a knock, giving up about $6.5 billion in market cap/acquisition premium]

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While You Were at ASH

We'll start our weekend-roundup jamboree with some news out of the American Society of Hematology meeting in Atlanta. So in a way this should be called, 'while you weren't' at ASH, but we're sticking with convention. Here are a few bits of late-stage clinical news out of the blood meeting:

• ASH: JNJ and Bayer said on Saturday that their Phase III Factor Xa inhibitor anticoagulant rivaroxaban was superior to enoxaparin (Lovenox) in preventing venous thromboembolism in patients following hip replacement surgery. Rivaroxaban is a once-daily oral, while Lovenox is injected. Boehringer Ingelheim's rival treatment dabigatran, a thrombin inhibitor, has begun a mid-stage trial in acute coronary syndrime says Reuters.


• ASH: Bayer, with Biogen Idec, also posted postive results in oncology, as the companies' Zevalin lymphoma therapy significantly increased progression-free survival in follicular lymphoma.
  
• ASH: Celgene's Revlimid added to dexamethasone in a Phase III study significantly boosted progression free survival in newly diagnosed multiple myeloma patients compared with dexamethasone alone.
  
• ASH: Adding Millennium's Velcade to standard of care in front-line multiple myeloma treatment "achieved a fourfold increase in complete remission rate," according to results of a Phase III study presented at ASH.


• MGI Pharma, the oncology and acute care specialist, was bought early today by Japanese pharmaco Eisai for $3.9 billion. You can read our first take here, and we'll no doubt have more to say on this later when we're, you know, awake.

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While You Were Dealing

The weekend was not without some dealmaking action. More to come on Monday, for sure. But lets kick off the weekend roundup with a big biologics deal between Novartis and Morphosys ...

• Morphosys has signed a "transforming" deal with Novartis. The two companies are building on their existing 2004 alliance with a potential 10-year deal to develop monoclonal antibodies. Morphosys will receive $600 million in committed payments--in addition to potential milestones and royalties and co-promotional options. The deal reduces Morphosys reliance on fee-for-service antibody collaborations, and make no mistake, in terms of guaranteed payments, it's a monster. But it also seems to entwine Morphosys' fate with Novartis Biologics', as Novartis will have near exclusive access to the biotech's platform (Morphosys is ending existing collaborations with J&J's Centocor and Bayer-Schering). We may have more to say after Morphosys' conference call on Monday.
  
• Forest Labs received an approvable letter for its nebivolol beta blocker, a decision related to FDA issues with a manufacturing plant in Belgium. As we wrote last week, approval of nebivolol could buck the trend, and Forest (and partner Mylan's) insistence that FDA found no safety or efficacy reasons to deny the drug will be heartening to the companies. Forest is continuing to plan for a January launch.
  
• Hey, did you know that Biogen Idec was up for sale? No, really, we swear. Apparently they look expensive, given the current credit crunch and aversion to Big Pharma paper.


• The FT points out that the UK's Human Genetics Commission is warning the public off the various consumer genomics information providers. For background, David Hamilton at Venture Beat Life Sciences has been all over the recent consumer genomics news.


• GSK to Viehbacher and Stout: Thanks for playing. Second prize, two weeks in Philadelphia £2 million!


• Addex has announced that it has something to announce--most likely a deal on lead project ADX10059, which is in Phase II trials for GERD, migraine, and anxiety. The details on Monday morning. [UPDATE: Nope, Addex announced an alliance with Merck & Co. this morning to discover and develop positive allosteric modulators targeting the metabotropic glutamate receptor 4 (mGluR4) in Parkinson's disease. Addex gets $3 million up-front and up to $106.5 million in first-product milestones, plus royalties, and retains co-promote options in certain European territories.]

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Who Needs VCs?

Apparently not Neurimmune Therapeutics, a University of Zurich spin out that began operations in April this year. This antibody-focused start up plans to go direct from seed- to deal-funding, according to CEO Ed Stuart, skipping the VCs entirely. “It’s a new business model,” says Stuart, former managing director and CBO at Munich biotech firm U3 Pharma.

So far, so good. The company started out with $5 million of seed money, most of which came from chairman and lead investor Karsten Henco, a former CEO of Evotec and founder of various other biotechs including Qiagen. Yesterday it upped the ante somewhat, and signed a deal with Biogen Idec that could be worth up to $390 million.

Ok, so we’re skeptical about biodollars. But Stuart assured the IN VIVO Blog that it “wasn’t all post-approval milestones,” and that there was a good chunk of up front money too. Those funds, along with the seed finance, “will fund the company for a number of years,” he said.

For now, Neurimmune’s only got about 10 employees, so it’s not a big burn. But this is nevertheless a rich and validating deal for the young firm that’s hardly out of the blocks. So what’s it doing? Something rather simple, actually. It seeks out antibodies among healthy individuals and uses a range of assays and other selection techniques to identify those that might be useful in fighting certain diseases—particularly CNS diseases.

So in the Biogen deal, Neurimmune will identify antibodies that bind to amyloid beta, thought to be the main culprit behind the neuro-degeneration and loss of cognitive function among Alzheimer’s patients. “We have already found a number of antibodies among healthy patients that recognize amyloid-beta,” explains Stuart. And since Biogen now has access to that entire program, it will receive several amyloid-beta-relevant antibodies over the next couple of years that it will go on to develop and commercialize.

Neurimmune calls its platform Reverse Translational Medicine, since “we’re starting not with disease, but with healthy people,” explains Stuart. It’s a logical approach—if someone at risk doesn’t have Alzheimer’s, what’s protecting them? Importantly, it also skirts the IP roadblocks that prevent many new antibody companies from using conventional techniques such as phage display or transgenic mice to create antibodies against certain well-validated targets. “We don’t face the normal IP issues,” notes Stuart, “since we’re not tampering with antibodies in any way at all. We’re getting out of people something that has already been optimized—by Nature.”

Mother Nature’s never that simple. It’s likely that several antibodies are required to protect people against certain diseases, and this range probably varies among different sets of individuals. As with many small molecule drugs, several moieties might be required to interact with several receptors. “It’s too early to tell,” says Stuart. And if Neurimmune's scientists aren't tampering with antibodies, just finding them, what’s to stop others doing the same? It’s all in the selection assays and the clinically-relevant questions asked of those individuals supplying the antibodies, says Stuart.

Anyway, Biogen Idec is apparently sufficiently convinced to have signed what is, in Henco’s words, “among the largest pre-clinical deals,”—and to have done so while much of its management’s attention is on selling the company. So does Neurimmune have a robust change-of-control clause in place? “We’re smart people,” said Stuart.

Maybe that’s why they’re avoiding VCs, too.

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Who Do You Buy?

(Apologies to Bo Diddley and George Thorogood and The Destroyers)

Who Do You Buy?

I walked 850,000-square feet in Cambridge, I got Tysabri for a drug.

A pipeline full of products, and it's a-made out of biologics.

Got Carl Icahn as a suitor, and it's a-made my stock price soar.

Come on take a little walk with me Kindler, and tell me who do you buy?

Who do you buy?

Who do you buy?

It's official. The biotech most likely to be bought as determined by our completely non-random, totally unscientific poll is...drumroll, please...Biogen Idec.

Fifty of the 106 people who completed the poll--a whopping 47%--believe that Biogen Idec is the most likely biotech candidate to be taken out in the coming weeks. We at IN VIVO Blog are certain the result has absolutely nothing to do with the fact that Carl Icahn owns at least 1%--and as much as 4.9%--of the company or that it posted a for sale sign a couple of weeks ago and announced disappointing earnings yesterday.

Still there was clearly some disagreement among the poll takers. Sixteen cowards--15% percent of participants--refused to commit, hedging their bets by checking the "someone else" box. There was a two-way tie for third place, with Amgen and Genzyme each garnering 15 votes. And ImClone, poor ImClone, earned our wall-flower prize. Just 10 iconoclasts--a lowly 9%--think its ripe for the picking.

Now that we have finished mashing our metaphors, we'd like to thank the intrepid souls who devoted the two--maybe three--seconds it took to answer our questionnaire. (The rest of you are immeasurably lazy.) Like you, we are eager to know which biotech name we can eliminate from our Outlook folders. We remain steadfast in our belief that $23 billion--or more--for a company with encumbered products such as Rituxan and Tysabri is crazy money.

But we also understand that these are the times that try pharma execs souls. Your weekly bad news round-up (courtesy of Pharmalot and WSJ Health Blog, and of course IN VIVO Blog): Pfizer torches its costly inhaled insulin, Exubera (10/18); Schering Plough's stock price slumps(10/22); Roche stumbles on Amgen patents (10/23); Lilly anti-clotting drug stumbles on dosing(10/24); and GSK cutting costs as Avandia slumps (10/24).

As the bad news mounts, it's no wonder that pharma has been forced to reconsider its shunning of the large-molecule movement. As DataMonitor reported last week, these molecules really do have lower clinical failure rates, improved safety profiles, and the potential for billion-dollar revenue streams. (Newsflash: specialty drugs can be blockbusters!)

It's no accident that the companies most often rumored to be in the chase for Biogen Idec--Pfizer, Sanofi-Aventis, and GSK--are, as we describe in this October IN VIVO piece, biologics "wannabes". These pharmas have been active on the deal-making front, trying to make up for their past indifference by spending their share-holders dividends. (In the past five years, for instance, Pfizer has inked at least 20 biologics deals and spent $2 billion to acquire 5 companies, while GSK has signed over a dozen partnerships and acquired 2 companies for nearly $2 billion.)
This chart, also from our latest IN VIVO, shows how the "wannabes" stack up to biologics "haves" such as Roche and Lilly. We even have a score-card where we rate the pharmas, but you have to be a subscriber--or buy the article--to see that one.

It's not clear whether Pfizer and it's "have-not" brethren have decided on the optimal strategy for acquiring biologics capabilities. Perhaps they'll continue to opt for serial acquisition, piecemealing capabilities in $500 million chunks. Or maybe, the execs in pharma-land will decide that AstraZeneca was on to something when it paid $15.6 billion for MedImmune and got soup-to-nuts biologics capabilities with one deal.

Who knows? Only time--and the acquisition of Biogen Idec--will tell.

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The Biogen Idec Sale: It’s About Revenues – Not Biologics

Last week, IN VIVO Blog broke the news that Biogen Idec had hired bankers to explore a sale.

Now, we know that companies, like people, don’t always act in their economic best interests. And there are plenty of revenue-desperate Big Pharmas (much speculation surrounds Pfizer, as the Wall Street Journal notes here and here) who might let desperation get the better of common sense. One banker peripherally involved in the transaction noted that there was “so much panic [among Big Pharma] about generating revenues they’ll rationalize as much as they need to about cost-cutting to justify the price. If I was at Biogen, I’d be out looking for a job right now.”

But let’s be clear: buying Biogen at this price doesn’t make sense. First, by contract Genentech/Roche will soon be upping their share of Rituxan revenues (from 60% US and greater ex-US to 70% US). And then there’s Elan’s change-in-control option on jointly marketed Tysabri – which could soon be providing a quarter of Biogen’s revenues (or more: it’s likely that Tysabri sales are already beginning to cannibalize sales from Biogen’s other MS drug, Avonex).

It’s possible, perhaps, that Elan and Biogen have reached some sort of understanding over Tysabri. But unless that understanding is worth a ton of money to Elan (which an acquirer would end up paying for), we think it would be hugely stupid for Elan to leave Tysabri in any Biogen-acquiror’s hands without extracting a huge fee (the huge fee they didn’t get when, in 2000, they signed the original deal with Biogen) and probably a far better ex-US royalty rate (we think they now get about 13%).

And Elan would have no trouble – zero – raising the money to buy out Tysabri: investors (who could smell high-profit re-sale to any number of large companies) would jam Elan’s offices with their checkbooks. Imagine what product-poor Novartis would pay for a drug to spearhead its efforts in developing an MS portfolio? “For Elan, this is the best thing since sliced bread,” says a banker. In any event, Elan’s hired Lehman Brothers to advise on the issue – and we’re pretty sure Lehman agrees with us.

So are there non-crazy reasons to buy Biogen at something north of $90/share? If you were intent on stretching a point, you could argue that senior management could use the necessity of making such a big bet pay off to bomb a primary-care mindset into the new world of specialty-care product development and marketing. And a small-molecule Big Pharma could suddenly acquire the rare soup-to-nuts biologics capabilities required to make a go of large molecules. For an in-depth discussion, see this October IN VIVO story.

But there are certainly more sensible compromises an acquirer should make if indeed biologics is the primary goal. For a lot less money, an acquirer could buy PDL, Genmab, MicroMet, Seattle Genetics, Human Genome Sciences or Xoma, each of which would bring some of the requisite capabilities. Certainly there’s plenty of hair on each of these companies—none of them have ever marketed a biological, so they lack proven development and regulatory expertise. None of them are free from management challenges. And they don’t all have the manufacturing capacity some buyers might want. But each of them has far more freedom than virtually any Big Pharma to operate within the IP constraints of the antibody world; they all have at least some of the expertise needed…and the rest can probably be acquired piecemeal.

But we don’t think a biologics business is the goal. The goal is revenues. And what Icahn hopes is that growth-starved, cash-rich Pharmas will be willing to pay an exorbitant exchange rate to trade balance sheet dollars for sales.

Incidentally, while Genzyme stock is up about 20% thanks to the Icahn put-them-in-play treatment, we’re also leery of a sale. To our eyes, Biogen CEO Jim Mullen looks pretty eager to cash out. Our bet is that Henri Termeer, Genzyme’s boss, probably wants to stay right where he is – the grand old man of biotech – and that he’d put up a significant fight to stay independent.

UPDATE: Be sure to vote in our highly unscientific poll on the top-left of the IN VIVO Blog. Who do you think Pfizer and its ilk will take out next?

UPDATE II: Poll is closed. Big winner? Biogen Idec, with more than 50% of the vote!

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While You Were Considering the Alternatives

"When you come to the fork in the road, take it."

We hope the weekend gave you a chance to look in on the news of the day, Strategic Alternatives: Biogen Idec edition. We saw it coming (and said so here last Thursday). Late on Friday Biogen Idec confirmed that it is up for sale, having received offers from both strategic and financial buyers (the latter being Carl Icahn). We've noted the folly of buying Biogen for its current products, since any acquirer would have to share Rituxan with Genentech and since Elan has a change-in-control right to buy Tysabri (and the Irish drugmaker has brought in Lehman Bros. to help decide what to do with Tysabri in the event of a sale). But beyond a beef-up in biologics, such a move--likely to cost at least $30 billion--would help a primary-care acquirer to radically shift from primary care drugs into specialist marketing, an expensive kind of reality-show makeover for Big Pharma.

But what else happened this weekend?

• A team of scientists at Stanford University and elsewhere have published preliminary bu promising results of a new Alzheimer's diagnostic. The New York Times reports on the Nature Medicine article. Satoris is the company that aims to commercialize the test.


• News out of ECTRIMS in Prague: Bayer and Genzyme's good-news-bad-news Phase II results for Campath in multiple sclerosis. A Phase III is in progress.


• Reformulation specialist Orexo is buying Swedish R&D co Biolipox for SEK 856 million ($133 million). "The acquisition will create an innovative specialty pharma company [there's that term again!] with a broad product pipeline, global partnerships with major financial potential, and established sales channels" says a statement.


• Second prize, two weeks in Philadelphia! Glaxo considers CEO-also-rans for its board, says the Financial Times.


• The FT also interviews Sanofi-Aventis CEO Gerard Le Fur. What do we learn? Well lets just say there's a lot of color. For starters, Le Fur doesn't smoke marijuana. He prefers the Continental two-kiss to the Anglo one-smooch. And he's a rugby guy, so he probably had a very bad weekend!

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While You Were Moving to Higher Ground

Ah, England in summertime.

For our UK readers, we hope you avoided the flooding. Here are a few stories you may have missed whether you were evacuating or simply focused on the last Harry Potter ...

• And then there was one. Of Europe's five big pharma, only Novartis' Dan Vasella will have survived as CEO by next summer, Reuters reports. Roche's recent decision to replace Franz Humer at CEO with Severin Schwan may also put pressure on Novartis to likewise split its chairman/CEO positions. Word on the street is that Vasella may groom vaccines head Joerg Reinhardt as a successor.
  
• They grow up so fast. Tysabri turns one today, sort of. The MS therapy returned to the US market one year ago. Elan and Biogen Idec estimate 14,000 patients receive the infused treatment.
• The quick brown fox jumps over the lazy catheter (or something like that). EV3 is buying Fox Hollow for $780 million in cash and stock. The companies have been working together in peripheral artery disease since early 2007. More to come on this story.
• And the New York Times profiles the Cleveland Clinic's Steve Nissen. Naderesque? OK, maybe consumer rights crusader Nader, not election swaying Nader.
  

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The Wisdom of Buybacks

Last week both Biogen Idec and Genzyme announced significant share buybacks. Wall Street was happy.

Biogen is buying back $3 billion worth of stock, or 57 million shares (16% of its outstanding share capital) via a dutch auction. Genzyme--which announced its buyback on the same day it said it would spend $345 million to buy Bioenvision--is buying back $1.5 billion worth (or 20 million shares) over the next three years.

Genzyme's efforts, the company said, are designed to reduce the dilutive effects of its share-based compensation programs and demonstrate that the company sees its shares as a good investment. Biogen too says that the move will return value to shareholders. Buybacks, according to people with more financial acumen than us, are a tax effective way of returning money to shareholders.

But IN VIVO Blog doesn't quite get it. Biogen Idec and Genzyme aren't banks, or fast food chains, or textbook suppliers. For companies aiming to generate medicines and the long-term gains that go with novel and effective drugs, buybacks seem to us a waste of money. Especially for biotech companies--who ought to be investing in R&D, alliances, M&A, basically any way that builds pipeline value (and whose investors should be in the game for a big return, not just the single-digit short term percentage gains that accompany a buyback announcement). Of course, Biogen and Genzyme maintain that they have ample free cash to both invest wisely in their pipelines and to buy back shares. Perhaps they do, and there's always debt ... though that can come back to bite companies whose share price declines before the convertible matures.

In any case it seems to us that buybacks provide investors with, at best, a short-term bounce in stock price and little long-term value. We're not financial gurus, of course, so tell us what you think. We'll talk to a few bankers and take a look at the buyback issue a little more closely in the next IN VIVO.

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