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Biogen Idec CEO says suitors saw buy as risky

Mullen: Drug firms are more conservative

Email|Print| Text size + By Todd Wallack
Globe Staff / January 11, 2008

SAN FRANCISCO - Biogen Idec Inc. surprised Wall Street last month when it called off its search for a buyer, saying it didn't receive a single offer. Biogen Idec chief executive Jim Mullen thinks he knows why: Major pharmaceutical companies decided it was too risky to buy the Cambridge biotech.

In an interview this week, Mullen said major pharmaceutical companies tend to be more conservative than smaller biotech firms such as Biogen Idec and Genzyme Corp.

"They never would have pursued some of the drugs we pursued or Genzyme pursued," he said. Genzyme, also based in Cambridge, and Biogen Idec have reaped billions of dollars in annual sales by introducing cutting-edge therapies.

Some analysts predicted Biogen Idec would sell for $25 billion to $30 billion, making it one of the biggest deals in the history of the biotechnology industry. But some industry executives and analysts said the deal was also enormously expensive, based on Biogen Idec's $3.1 billion in sales.

Specifically, Mullen said some firms were concerned about Tysabri, Biogen Idec's promising multiple sclerosis drug. Biogen Idec predicted 100,000 patients will be taking the treatment by 2010, up from about 20,000 today. But Tysabri has faced safety problems in the past. Biogen Idec temporarily pulled Tysabri off the market almost three years ago after it was linked to a rare brain disease. Some fear the problem could happen again, even though Biogen Idec has repeatedly tried to reassure Wall Street by noting that there haven't been any recurrences of the disease since the drug returned to the market in 2006.

"I think there is a fair bit of fear, loathing, and tort out there," Mullen told investors at the JPMorgan investor conference in San Francisco this week, referring to the threat of lawsuits, in addition to the concern for patients' health. Just this week, Bear Stearns analyst Mark Schoenebaum said Tysabri sales will have to accelerate for the company to meet its targets, something he called an "aggressive assumption."

In addition, Mullen said some prospective Biogen Idec buyers were uncomfortable with the company's partnerships for its two other major drugs. Biogen Idec shares the rights to Tysabri with Elan Corp. of Ireland. And it works with Genentech Inc. to market Rituxan, which treats non-Hodgkins lymphoma and rheumatoid arthritis. Both Elan and Genentech had options to buy Biogen Idec's stake in the drugs in the event of a sale, leading some to wonder whether they could potentially block a deal.

But Mullen disputed reports that Biogen Idec's sale process was so restrictive that it may have kept some potential buyers at bay. While they were barred from trying to negotiate with Elan or Genentech before submitting an offer, he said, they would have had a chance to do so before completing the deal.

"I think the process was thorough," Mullen told investors. "I thought it was professional."

In October, Biogen Idec hired two investment banks to consider outside offers after it said it received several "expressions of interest" to buy the company, including one from billionaire investor Carl Icahn, who owned 4 percent of the firm at the time.

Icahn turned a quick profit earlier last year by pushing MedImmune Inc., another major biotech, to find a buyer. Shortly afterward, British drug maker AstraZeneca PLC bought MedImmune for $15.6 billion.

Many investors, confident Biogen Idec would similarly be sold quickly, bid Biogen Idec's shares up to as much as $84 per share. But the stock fell sharply after the sale was called off. Shares closed yesterday at $59.18, up 78 cents. Mullen said Icahn, like some other investors, have since expressed surprise that the company didn't find a buyer.

Even so, Mullen said Biogen Idec remains strong as an independent company. On Monday, the company predicted its 2007 and 2008 earnings would be better than many analysts expected.

"Some say we need a business relationship with big pharma - for what?" Mullen said, noting the company already has brought several drugs to market and has a pipeline of drugs in development. "There's nothing we need help from strategically or in terms of operations from big pharma."

Todd Wallack can be reached at twallack@globe.com.

(Correction: Because of a reporting error, a story about Biogen Idec Inc. in Friday's Business section misidentified a drug the company jointly owns with Elan Corp. The drug is Tysabri.)

Despite there being no takers, chief executive Jim Mullen said Biogen Idec remains strong as an independent company.

CONFIDENT STRENGTH

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