According to IMS Health (RX), this is the main reason global pharmaceutical market growth will be restricted to the mid-single digits through 2013. Over the next five years, products that currently generate about $137 billion in sales are expected to face generic competition, including Lipitor, Plavix and Seretide.

At the same time, new products are not expected to generate the same level of sales as products losing patent protection. With revenue growth stalling or slowing down, companies have been resorting to cost-cutting and share buybacks to drive bottom-line growth.

M&A Activity

With most of the big pharma companies already facing or likely to face patent challenges for their blockbuster products, the companies have been looking towards mergers and acquisitions (M&A) and in-licensing deals to make up for the loss of revenues that will arise with key products losing patent exclusivity.

We saw huge M&A activity in the recent past. Major deals include Abbott Laboratories’ (ABT) acquisition of Advanced Medical Optics, Johnson & Johnson’s (JNJ) acquisition of Mentor Corp., Pfizer’s (PFE) acquisition of Wyeth and the merger between Merck (MRK) and Schering-Plough.

While these deals took place between large-cap pharma companies, elsewhere companies have been looking towards biotech firms to build their product portfolios. Prime examples include Johnson & Johnson’s acquisition of Cougar Biotechnology, Roche’s acquisition of Genentech, Bristol-Myers Squibbs’ (BMY) acquisition of Medarex, and Sanofi-Aventis’ (SNY) acquisition of Fovea Pharmaceuticals, SA.

We expect this trend to continue. Small biotech companies are also game for such deals. Given the tough economic situation, most small biotech companies are finding it difficult to raise cash, thereby making it difficult for them to survive and continue with the development of promising pipeline candidates. As such, it makes sense for these companies to seek deals with pharma companies that are sitting on huge piles of cash.

There has also been a significant pickup in in-licensing activities and collaborations for the development of pipeline candidates. Instead of developing a product from scratch, which involves a lot of funds, pharma companies are going shopping for mid-to late-stage pipeline candidates which look promising. As such, we would recommend investors to put their money in biotech stocks that have attractive pipeline candidates or technology that can be used for the development of novel therapeutics. Therapeutic areas which could see a lot of in-licensing activity include oncology, central nervous system disorders, diabetes and immunology/inflammation.

Emerging Markets

Another recent trend seen in the pharmaceutical sector is a focus on emerging markets. Companies like Mylan Inc (MYL), Pfizer, GlaxoSmithKline (GSK) and Sanofi-Aventis are all looking to expand their presence in India, China, Brazil and other emerging markets. Until recently, most of the commercialization efforts were focused on the U.S. market — the largest pharmaceutical market — along with Europe and Japan.

However, emerging markets are slowly and steadily gaining more importance and several companies are now shifting their focus to these areas. According to IMS Health, China’s pharmaceutical market is expected to continue to grow more than 20% annually, and contribute 21% of overall global growth through 2013. Growth in emerging markets could help stabilize the base business during the industry’s 2010-15 patent cliff.

OPPORTUNITIES

In the pharma space, we are positive on Alcon (ACL). We believe Alcon will continue witnessing revenue growth based on continued international penetration, new product launches and market share expansion. Pipeline expansion through in-licensing deals and acquisitions should also add to growth.

Although we have Neutral ratings on names like Johnson & Johnson and Abbott, we maintain a positive outlook on these stocks given their diversified revenue base, strong business segments, contributions from recent acquisitions and impressive late-stage pipeline. We also have a positive outlook on Bristol-Myers, which has a strong presence in attractive areas like biologics, cancer and cardiovascular drugs.

In the biotech space, we are positive on names like Gilead Sciences (GILD) and Biogen Idec (BIIB) even though we have Neutral recommendations on these stocks. Gilead’s HIV franchise has been helping the company post better-than-expected earnings over the past few quarters, and we expect this trend to continue.

Biotech companies that could be acquisition targets provide opportunities for significant returns. Here, we would like to mention two companies that could be potential take-out targets – Biogen Idec and Acorda Therapeutics (ACOR). In addition to holding a leading position in the multiple sclerosis market, we believe Biogen has the best pipeline in all of biotech and could be an attractive takeover candidate for pharma companies interested in biologics.

Meanwhile, Acorda is one of the more interesting biotechnology companies under our coverage. We have an Outperform rating on the stock, which recently received a favorable recommendation from an FDA advisory panel on its key pipeline drug, Fampridine-SR, which could have blockbuster potential worldwide.

WEAKNESSES

We recommend avoiding names that offer little growth or opportunity for a take-out. These include companies which are developing drugs that are likely to face regulatory hurdles. The FDA has been exercising more caution before granting approval to new products and several candidates have been facing delays in receiving final approval.

We currently have an Underperform recommendation on GlaxoSmithKline (GSK). Although the company’s diversified base and presence in different geographical areas should help support revenues, we remain concerned about future growth prospects given the patent challenges being faced by several of Glaxo’s products.

With several products expected to lose exclusivity and the swine flu opportunity likely to miss expectations, we expect the company’s top-line to remain under pressure in the coming quarters. Glaxo’s pipeline needs to deliver in order to make up for lost revenues and any development or regulatory setbacks would be a major disappointment for the company.

We would also avoid companies like Eli Lilly & Co. (LLY), which are facing patent expirations on key products and do not have a solid pipeline to make up for the loss of revenues that will take place once generics enter the market. Another name that comes to mind is The Medicines Company (MDCO) — our biggest concern with the stock is that lead product, Angiomax, will most likely lose patent exclusivity in the U.S. in September 2010.

Meanwhile, we continue to believe Pfizer’s acquisition of Wyeth will create an even bigger struggling company. Both companies have significant patent expirations in the years to come, and both have been severely lacking in their R&D productivity over the past few years. We recommend avoiding these names.

In the biotech sector, we would avoid Genzyme Corporation (GENZ) which has been under a lot of pressure over the past few quarters following the temporary shutdown of its Allston manufacturing facility due to contamination problems. Although the company is now working on emerging from the impact of its manufacturing issues, it may have to face additional challenges before it is able to go back to a normal production and supply schedule. The recurrence of manufacturing issues would be a major setback for the stock.

We would also recommend avoiding biotech companies that are struggling to survive and are unable to strike partnership deals for their pipeline candidates. A name that comes to mind is MannKind Corp. (MNKD), which has been looking unsuccessfully for a partner for its key candidate, Afrezza. The company has, in fact, postponed its search for a partner until it receives approval for Afrezza. At present, there is limited visibility on the timeline for receiving FDA approval.

Another name to avoid would be Alkermes, Inc. (ALKS) which is awaiting FDA approval for its type-II diabetes candidate, exenatide once-weekly. Although the efficacy data on exenatide once-weekly is impressive, we are concerned that the approval of the product could be pushed back beyond the first quarter of 2010, given the current regulatory environment and concerns regarding the safety of the candidate.

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(RX) Pharma & Biotech Stock Review – Industry Outlook

Ampyra, previously known as Fampridine-SR, is an extended release tablet formulation of dalfampridine (4-aminopyridine, 4-AP), which was previously referred to as fampridine. The drug enjoys orphan drug designation from the U.S. agency, thereby providing it with seven years of market exclusivity.

Ampyra will be manufactured under a license and supply agreement with Elan Pharma International Limited, a subsidiary of Elan Corporation, plc (ELN). However, Ampyra will be marketed and distributed in the U.S. by Acorda.

Ampyra was found to be effective in patients with all four major MS types (relapsing remitting, secondary progressive, progressive relapsing and primary progressive). The drug can either be used alone or with existing treatments for MS, including immunomodulator drugs.

However, the U.S. agency stated that Ampyra can cause seizures if patients take higher-than-recommended doses, and it should be avoided by those suffering from moderate to severe kidney disease. Ampyra is administered orally as a 10 mg tablet twice daily. The tablets should preferably be taken approximately 12 hours apart.

The MS market has big players such as Biogen Idec (BIIB), Pfizer (PFE) and Teva Pharmaceutical Industries (TEVA). MS is a chronic, usually progressive disease which affects the brain and nervous system, resulting in loss of balance, muscle spasms and other movement related problems. More than 400,000 Americans suffer from the disease. MS is estimated to affect 2.5 million people globally.

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(ACOR) Acorda Therapeutics’ Multiple Sclerosis Drug Gets FDA Clearance

In addition to reporting Tysabri sales, Biogen provided an update on other products and pipeline candidates. The company stated that it intends to grow Avonex and Rituxan sales through lifecycle management.

Meanwhile, Biogen recently submitted a marketing authorization application seeking approval from the European Medicines Agency for Fampridine prolonged release tablets. The company is seeking approval for the use of the candidate to improve the walking ability of adult patients with MS. Biogen is also seeking approval in Canada. Partner, Acorda Therapeutics (ACOR) has filed for approval in the US.

Biogen also has plans to commence a registrational trial with its recombinant Factor IX Fc fusion protein in hemophilia B patients and a phase I study with anti-LINGO-1 for MS in the first half of 2010.

While we are pleased to hear that Tysabri is now a blockbuster drug, we are concerned about the slowdown in the number of new patients adopting Tysabri. As of the end of December 2009, Biogen estimates that about 48,800 patients have been on commercial and clinical Tysabri therapy worldwide, up from 46,200 patients at the end of September 2009.

This means that approximately 2,600 new patients adopted Tysabri in the fourth quarter of 2009. The company reported 2,900 and 3,300 new patient additions in the third and second quarters of 2009, respectively. We note that the number of new patients adopting Tysabri has been declining over the past few quarters.

We remain concerned that an increase in the number of cases of progressive multifocal leukeoencephalopathy (PML), a deadly brain infection, associated with the use of Tysabri could lead to a slowdown in Tysabri sales going forward. About 28 cases of PML infection have been reported by the company.

We continue to expect additional cases of PML to be reported over the next several quarters. Additional instances of PML cases could hamper Tysabri’s acceptance in the medical community thereby limiting its sales growth. Tysabri is the second multiple sclerosis product in Biogen’s portfolio and is a major growth driver for the company.

We currently have a Neutral recommendation on Biogen. Although Biogen’s core business should remain stable in the coming quarters, we believe investor focus will remain on the occurrence of additional PML cases associated with the use of Tysabri. This could remain as an overhang on Biogen’s shares in the coming quarters.

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(BIIB) Biogen’s Tysabri is a Blockbuster!

Earlier this month, Biogen had come back with a revised offer of $17.50 per share (up from the previous offer of $14.50) and said that this is its “best and final” offer. The offer represents a 21% premium over the previous offer and a premium of approximately 98% over the closing price of Facet’s common stock on September 3, 2009, the day before Biogen announced its proposal to acquire all the outstanding shares of Facet. The offer is scheduled to expire at 12:00 midnight, New York City time, on Dec 16, 2009.

As a reminder, Biogen launched a hostile bid in September to acquire Facet by taking its offer directly to Facet’s shareholders. Biogen had initially approached Facet with an offer of $15 per share on August 17, 2009. However, Facet did not accept the offer as the company doubted its benefit for its shareholders. Soon thereafter, Facet entered into collaboration with Trubion Pharmaceuticals (TRBN), a move that was criticized by Biogen.

According to Biogen, the Trubion deal led to a reduction in Facet’s value with the company’s stock price reducing by 22% since the announcement of the deal. Based on Facet’s reduced value, Biogen came back with a reduced offer price of $14.50 per share.

Biogen and Facet have been working together since 2005 on the development of daclizumab for the treatment of relapsing multiple sclerosis and volociximab (M200) aimed at solid tumors. Besides these two candidates, Facet has three other candidates in its pipeline, one of which is being developed in collaboration with Bristol-Myers Squibb (BMY).

The acquisition of Facet would help Biogen boost its pipeline. Moreover, the company would not be required to make any milestone payments related to the development of daclizumab and volociximab. Under the terms of the collaborative agreement, Biogen is required to make certain development and commercialization milestone payments upon the achievement of certain program objectives totaling up to $660 million over the life of the agreement.

The proposed acquisition of Facet is the second major deal announced by Biogen in 2009. Earlier this year, the company signed a licensing deal with Acorda Therapeutics (ACOR) for a multiple sclerosis candidate.

We currently have a Neutral rating on Biogen.

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(FACT) Facet Biotech Rejects Biogen Idec Again

According to IMS Health (RX), this is the main reason why global pharmaceutical market growth will be restricted to the mid-single digits through 2013. Over the next five years, products that currently generate about $137 billion in sales are expected to face generic competition, including Lipitor, Plavix and Seretide. At the same time, new products are not expected to generate the same level of sales as the products losing patent protection have.

With most of the big pharma companies already facing patent challenges for their blockbuster products or likely to face them going forward, the companies have been looking toward mergers and acquisitions (M&A) and in-licensing deals to make up for the loss of revenues.

We saw huge M&A activity in the first half of 2009. Major deals include Abbott Laboratories’ (ABT) acquisition of Advanced Medical Optics, Johnson & Johnson’s (JNJ) acquisition of Mentor Corp., Pfizer’s (PFE) acquisition of Wyeth and the merger between Merck (MRK) and Schering-Plough (SGP).

While these deals took place between large-cap pharma companies, others have been looking toward biotech companies to build their product portfolios. Prime examples include Johnson & Johnson’s acquisition of Cougar Biotechnology, Roche’s acquisition of Genentech, Bristol-Myer Squibbs’ (BMY) acquisition of Medarex, and Sanofi-Aventis’ (SNY) acquisition of Fovea Pharmaceuticals, SA.

We expect this trend to continue. Small biotech companies are also game for such deals. Given the current economic situation, most small biotech companies are finding it difficult to raise cash, thereby making it difficult for them to survive and continue with the development of promising pipeline candidates. As such, it makes sense for these companies to seek deals with pharma companies that are sitting on huge piles of cash. We would recommend investors to put their money in biotech stocks that have attractive pipeline candidates or technology that can be used for the development of novel therapeutics.

Another recent trend seen in the pharmaceutical sector is a focus on emerging markets. Companies like Mylan Inc (MYL), GlaxoSmithKline (GSK) and Sanofi-Aventis are all looking to expand their presence in India, China, Brazil and other emerging markets.

Until recently, most of the commercialization efforts were focused on the U.S. (the largest pharmaceutical market), Europe and Japan. However, emerging markets are slowly and steadily gaining more importance and several companies are now shifting their focus to these areas. According to IMS Health, China’s pharmaceutical market is expected to continue to grow more than 20% annually, and contribute 21% of overall global growth through 2013. Growth in emerging markets could help stabilize the base business during the industry’s 2010-15 patent cliff.

In addition to patent challenges, pharma companies have been facing headwinds in the form of foreign exchange fluctuations. Increased generic competition and foreign exchange headwinds will continue impacting revenues of major pharmaceutical companies. Johnson & Johnson recently reported that third quarter revenues were down due to the impact of generics and foreign exchange headwinds. With revenue growth stalling or slowing down, companies have been resorting to cost-cutting and share buybacks to drive bottom-line growth.

Valuations, however, are attractive, with several of the largest players trading at PEs below 10x, including: Pfizer (8.3x), Eli Lilly (LLY) (7.7x), Sanofi-Aventis ( 7.7x), and AstraZeneca (AZN) (7.2x) based on fiscal 2009 estimates. Attractive valuations, along with big dividend yields and diversified revenues bases, should protect investors from significant downside risk even if the economy continues to languish in the coming quarters.

OPPORTUNITIES

In the pharma space, we are positive on stocks like Alcon (ACL) and Novartis (NVS). We believe these companies will continue witnessing revenue growth based on continued international penetration, new product launches and market share expansion. Pipeline expansion through in-licensing deals and acquisitions should also add to growth.

Novartis should see strong vaccine sales this flu season. The company has received approval from the U.S. Food and Drug Administration for its swine flu vaccine, which should drive revenues.

Although we have Neutral ratings on names like Johnson & Johnson and Abbott Labs, we maintain a positive outlook on these stocks given their diversified revenue base, strong business segments, contributions from recent acquisitions and impressive late-stage pipelines. We also have a positive outlook on Bristol-Myers, which has a strong presence in attractive areas like biologics, cancer and cardiovascular drugs.

In the biotech space, we are positive on names like Gilead Sciences (GILD) and Biogen Idec (BIIB) even though we have Neutral recommendations on these stocks. Gilead’s HIV franchise has been helping the company post better-than-expected earnings over the past few quarters and we expect this trend to continue.

Biotech companies that could be acquisition targets provide opportunities for significant returns. Here, we would like to mention two companies that could be potential take-out targets — Biogen Idec and Acorda Therapeutics (ACOR). In addition to holding a leading position in the multiple sclerosis market, we believe Biogen has the best pipeline in all of biotech and could be an attractive takeover candidate for pharma companies interested in biologics.

Meanwhile, Acorda is one of the more interesting biotechnology companies under our coverage. We have an Outperform rating on the stock. Acorda recently received a favorable recommendation from an FDA advisory panel on its key pipeline drug, Fampridine-SR, which could have blockbuster potential worldwide.

WEAKNESSES

We recommend avoiding names that offer little growth or opportunity for a take-out. These include companies which are developing drugs that are likely to face regulatory hurdles. The FDA has been exercising more caution before granting approval to new products and several candidates have been facing delays in receiving final approval.

We would also avoid companies like Eli Lilly & Co. (LLY) which are facing patent expirations on key products and do not have a solid pipeline to make up for the loss of revenues that will take place once generics enter the market.

Meanwhile, we continue to believe Pfizer’s (PFE) acquisition of Wyeth (WYE) will create an even bigger struggling company. Both companies have significant patent expirations in the years to come, and both have been severely lacking in their R&D productivity over the past few years. We recommend avoiding both names.

In the biotech sector, we have an Underperform rating on Genzyme Corporation (GENZ), which is facing issues like lower revenues, contracting gross margins, supply constraints, manufacturing hiccups and delays in new product launches.

We would also recommend avoiding biotech companies that are struggling to survive and are unable to strike partnership deals for their pipeline candidates. One name that comes to mind is MannKind Corp. (MNKD) which has been looking for a partner for its key candidate, Afresa. The company’s stock declined significantly on the news that it will not be able to enter into a partnership deal by year end, contrary to earlier expectations.

Another name to avoid would be Alkermes, Inc. (ALKS) which is awaiting FDA approval for its type-II diabetes candidate, exenatide once-weekly. Although the efficacy data on exenatide once-weekly is impressive, we are concerned that the approval of the product could be pushed back beyond the first quarter of 2010, given the current regulatory environment and concerns regarding the safety of the candidate.

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(RX) Big Pharma and Biotech – Industry Outlook

Outside the U.S., Acorda has partnered with Biogen Idec under very favorable terms. Fampridine-SR has blockbuster potential worldwide in our view. Plus, the company is extremely well-capitalized with over $290 million in cash, and management has commercial experience with current approved product Zanaflex.

These are among the best fundamentals in all of biotech. We reiterate our Outperform rating on the stock.

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(ACOR) Acorda Therapeutics – Bull of the Day

Tysabri sales came in at $207 million, up 21% from the prior period. The company estimates that as of the end of September 2009, about 46,200 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 43,300 patients reported by the company in the second quarter of 2009.

Tysabri is an important growth driver and we expect the product, which is partnered with Elan (ELN), to cross $1 billion in worldwide sales in 2009.

Meanwhile, Biogen’s lead multiple sclerosis (MS) product Avonex posted sales of $580 million (up 1%) with U.S. sales growing 8% to $348 million. However, we were disappointed to see Avonex rest of world sales decline 8% to $232 million.

Biogen recognized $284 million in Rituxan revenues, which is co-promoted with Roche in the U.S. U.S. net sales of Rituxan increased 2% to $670 million. Revenues from other products came in at $15 million, as compared to $14 million in the year-ago period. Royalty revenues remained unchanged at $35 million.

In order to return cash to shareholders, Biogen’s Board of Directors authorized a share repurchase program worth $1 billion. This is in addition to the company’s previous share repurchase program under which 6 million shares remain outstanding. The repurchase of shares should help boost the bottom-line.

Biogen provided an updated outlook for 2009. The company now expects revenues to grow in the mid-to-high single-digit range as compared to its earlier expectation of high-single-digit growth.

The company maintained its guidance for operating expenses which are expected in the range of $2.1 to $2.2 billion. Both SG&A and R&D guidance remained unchanged at 19-20% of revenues and 28-30% of revenues, respectively. The company expects to deliver earnings in excess of $3.85 in 2009.

Biogen is the market leader in therapies for the treatment of multiple sclerosis. We believe the company will continue to retain a leading position in the MS market. We are encouraged to see that the company is working on expanding its MS and oncology pipeline.

The company recently launched a hostile bid to acquire Facet Biotech Corporation (FACT). The proposed acquisition of Facet, which should help strengthen Biogen’s pipeline, is the second major deal announced by the company in 2009. Earlier this year, Biogen signed a licensing deal with Acorda Therapeutics (ACOR) for a multiple sclerosis candidate. We currently have a Neutral rating on Biogen.

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(BIIB) Biogen Reports Higher Earnings

Earlier this month, Facet’s board of directors unanimously recommended that its stockholders should reject Biogen’s tender offer under which the company is seeking to acquire for $14.50 per share in cash. The board determined that the offer is inadequate and not in the best interests of the stockholders.

As a reminder, Biogen launched a hostile bid in September to acquire Facet by taking its offer directly to Facet’s shareholders. The deal is valued at approximately $356 million. Biogen had initially approached Facet with an offer of $15 per share on August 17, 2009. However, Facet did not accept the offer as the company doubted its benefit for its shareholders. Soon thereafter, Facet entered into a collaboration with Trubion Pharmaceuticals (TRBN), a move that was criticized by Biogen.

According to Biogen, the Trubion deal led to a reduction in Facet’s value with the company’s stock price reducing by 22% since the announcement of the deal. Based on Facet’s reduced value, Biogen came back with a reduced offer price of $14.50 per share.

Biogen and Facet have been working together since 2005 on the development of daclizumab for the treatment of relapsing multiple sclerosis and volociximab (M200) aimed at solid tumors. Besides these two candidates, Facet has three other candidates in its pipeline, one of which is being developed in collaboration with Bristol-Myers Squibb (BMY).

The acquisition of Facet would help Biogen boost its pipeline. Moreover, the company would not be required to make any milestone payments related to the development of daclizumab and volociximab. Under the terms of the collaborative agreement, Biogen is required to make certain development and commercialization milestone payments upon the achievement of certain program objectives totaling up to $660 million over the life of the agreement.

The proposed acquisition of Facet is the second major deal announced by Biogen in 2009. Earlier this year, the company signed a licensing deal with Acorda Therapeutics (ACOR) for a multiple sclerosis candidate.

We currently have a Neutral rating on Biogen.

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(BIIB) Biogen Extends Hostile Bid For Facet Biotech Corporation

As a reminder, Biogen launched a hostile bid in September to acquire Facet for $14.50 per share by taking its offer directly to Facet’s shareholders. The deal is valued at approximately $356 million. Biogen had initially approached Facet with an offer of $15 per share on Aug 17, 2009. However, Facet did not accept the offer as the company doubted its benefit for its shareholders. Soon thereafter, Facet entered into a collaboration with Trubion Pharmaceuticals (TRBN), a move that was criticized by Biogen.

According to Biogen, the Trubion deal led to a reduction in Facet’s value with the company’s stock price reducing by 22% since the announcement of the deal. Based on Facet’s reduced value, Biogen came back with a reduced offer price of $14.50 per share.

Biogen and Facet have been working together since 2005 on the development of daclizumab for the treatment of relapsing multiple sclerosis and volociximab (M200) for aimed at solid tumors. In addition to these two candidates, Facet has three other candidates in its pipeline, one of which is being developed in collaboration with Bristol-Myers Squibb (BMY).

The acquisition of Facet would help Biogen boost its pipeline. Moreover, the company would not be required to make any milestone payments related to the development of daclizumab and volociximab. Under the terms of the collaborative agreement, Biogen is required to make certain development and commercialization milestone payments upon the achievement of certain program objectives totaling up to $660 million over the life of the agreement.

The tender offer will expire at 12:00 midnight, ET, on Oct 19, 2009. With Facet currently trading at $17.39, we think Biogen’s current offer price will not find many takers. The proposed acquisition of Facet is the second major deal announced by Biogen in 2009. Earlier this year, the company signed a licensing deal with Acorda Therapeutics (ACOR) for a multiple sclerosis candidate.

We currently have a Neutral rating on Biogen.

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(FACT) Facet Investors Urged to Deny Biogen Idec Tender Offer

As a reminder, Biogen had initially approached Facet with an offer of $15 per share on Aug. 17, 2009. However, Facet did not accept the offer as the company believed that it was not in the best interests of its shareholders. Soon thereafter, Facet entered into a collaboration with Trubion Pharmaceuticals (TRBN), a move that was criticized by Biogen.

According to Biogen, the Trubion deal led to a reduction in Facet’s value with the company’s stock price reducing by 22% since the announcement of the deal. Based on Facet’s reduced value, Biogen came back with a reduced offer price of $14.50 per share.

Biogen and Facet have been working together since 2005 on the development of daclizumab for the treatment of relapsing multiple sclerosis and volociximab (M200) for the treatment of solid tumors. In addition to these two candidates, Facet has three other candidates in its pipeline, one of which is being developed in collaboration with Bristol-Myers Squibb (BMY).

The acquisition of Facet would help Biogen boost its pipeline. Moreover, Biogen would not be required to make any milestone payments related to the development of daclizumab and volociximab. Under the terms of the collaborative agreement, Biogen is required to make certain development and commercialization milestone payments upon the achievement of certain program objectives totaling up to $660 million over the life of the agreement.

Facet’s Board has advised the company’s shareholders to refrain from acting on the offer — the Board expects to advise the shareholders on its position regarding the offer within 10 business days. With Facet currently trading at $17.09, we think Biogen’s current offer price will not find many takers.

The proposed acquisition of Facet is the second major deal announced by Biogen in 2009. Earlier this year, the company signed a licensing deal with Acorda Therapeutics (ACOR) for a multiple sclerosis candidate.

We currently have a Neutral rating on Biogen.

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(BIIB) Biogen Launches Hostile Bid for Partner Facet Biotech