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Biogen Idec goes into buy mode

Biogen Idec looks to fill its pipeline by going on buying binge

CAMBRIDGE -- With the merger with Idec Pharmaceuticals of San Diego complete, a new title as CEO of Biogen Idec, and the combined companies' shares trading -- and gaining ground -- under a new symbol, James C. Mullen has a new job.

He's going on a shopping spree.

Over the next two years, Biogen Idec will spend a good part of its $1.5 billion cash reserve to fill its pipeline of drug candidates. Mullen said the buying binge will, in large part, determine the success of the $6.4 billion merger, which created the country's third-largest biotech company.

"You'll see us do a couple of deals every year in the $50 [million] to $100 million range," said Mullen recently. "You might see us do a deal in the hundreds of millions to $1 billion range. The proof of the merger is, does the pipeline look a lot better 12 to 24 months from now than it otherwise would have?"

Give Mullen points for honesty. In an industry where companies routinely tout their ability to discover drugs faster or more efficiently than their competitors, Mullen is in essence admitting that Biogen's world-class immunology research operation is not going to predictably offer up blockbusters like Avonex, a multiple sclerosis treatment with sales of more than $1.1 billion. Nor will Idec's impressive cancer research organization in San Diego.

The situation underscores the ironic dilemma faced by the most successful biotechnology companies: A blockbuster drug is only the beginning. Biogen began selling Avonex in 1996. By 2001, it had reached almost $1 billion in sales. But for years, analysts have warned that Biogen was largely a one-product company, and that growth of Avonex would ultimately plateau.

Amevive, the second drug to come out of Biogen's labs, has gotten off to a slow start, with 2003 sales estimated at $50 million. The psoriasis drug faces stiff competition from Amgen's Enbrel and Genentech's Raptiva.

In recent years, Mullen has tried to persuade investors that Biogen would not become a one-trick pony dependent on slowing Avonex sales. In January 2001, he told investors he would double the number of drugs in clinical development. Later that year, he said the company would reach $2 billion in revenues by 2005.

The decision to merge with Idec repudiates that approach. Mullen -- again with welcome honesty -- admits it's tough to get an edge in drug development in an industry populated with physicians and PhDs.

"You can be delusional and say you're smarter than everyone else in this business, or you can think you're going to be luckier than everybody else. It's great if that works but that's not a business strategy."

The new strategy is growth through acquisition and licensing products from other companies.

"We're going to learn how to do some dumpster-diving," said Dr. Burt A. Adelman, Biogen Idec's executive vice president of development. The focus, he said, will be on products in late stages of clinical development. Such products have a higher chance of success, because they have already passed safety and effectiveness hurdles in earlier stages. They also require less money to bring to commercial approval.

But it may also be crowded in that corner of the dumpster.

"There's pretty stiff competition for drug candidates that meet that criteria," said R. Dana Ono, director of Venture Investment Management Co. LLC, a Boston life sciences venture capital firm. "They're competing with the pharma guys and the pharma guys have been playing this game with savvy business development guys who have been pounding the pavement a lot longer than Biogen Idec."

Said Dr. Mark Monane, a biotechnology analyst at Needham & Co. in New York: "The sweet spot in product development is compounds in Phase III trials with large potential markets. Those products will have a lot of suitors."

Monane said he doesn't hold shares in Biogen Idec and his firm doesn't have an investment banking relationship with it.

Biogen Idec was formally created through a stock swap Nov. 12. The new company stayed true to its "merger of equals billing" with board and executive team members selected equally from both firms. Idec's chief, William H. Rastetter, is executive chairman of the combined firm, which had 2002 revenues of $1.55 billion.

Biogen Idec will spend more than $550 million on research and development and will have 1,000 dedicated R&D employees out of a total work force of 4,000. The company has three large-scale manufacturing facilities and a biologics plant under construction in California -- part of Idec's contribution.

Still, Adelman admits that Biogen Idec has a long way to go. In an interview a few weeks before the merger was completed, he said: "We do not have a fully defined strategy to tell you why we'll be more successful than somebody else who has a lot of money. All the big guys are searching far and wide. We can't begin to compete with them. We need a strategy to search near and narrow."

As an example, he described how Biogen recently inked a deal with Fumapharm AG of Switzerland. Biogen had a team in place to grow Avonex sales in Europe. They heard about the Swiss company with a best-selling product in Germany to treat psoriasis -- Biogen's second key disease after multiple sclerosis.

The two companies began talking, and in October, while the merger was pending, Biogen completed a deal with Fumapharm giving it worldwide rights to develop a successor product for psoriasis. Fumapharm retains marketing rights to the successor drug in Germany.

Mullen has already fine-tuned part of Biogen Idec's sales pitch. The company is big -- but not too big.

"We talk biotech," he said. "If we bring a product into the company, it's not one of 100, it's one of the top five products of the company." The message is that Biogen Idec will become a partner of choice for smaller biotechs.

Biogen Idec is also more flexible than its big pharma competitors, he said. For instance, the company is willing to consider deals for European marketing rights where the partner retains US rights. A big pharmaceutical firm might not be willing to share the pie.

When it was announced in June, the merger drew some yawns and raised eyebrows from analysts who couldn't see a compelling rationale behind the deal. Combining the two companies, they said, didn't change the fundamental problem: not enough drugs in the pipeline. Some early critics are coming around.

"I actually think there's some interesting potential for the joint entity," said Jennifer Chao, managing director of equity research at RBC Capital Markets. "Growing the company organically would have been a long and uncertain process."

Jeffrey Krasner can be reached at

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