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Sep 17, 2009

Biogen Idec and Facet—Following the Money

Facet considers Biogen’s $356 million takeover attempt a low-ball offer.

Biogen Idec and Facet—Following the Money

If Biogen successfully acquired Facet, it could save up to $630 million in total success-based fees that it owes Facet.

  • On September 4, Biogen Idec announced a bid to acquire Facet Biotech for $356 million in cash, or $14.50 a share. This represents a 64% premium over Facet’s closing price on September 3, while the firm’s 52-week high was $50 per share. Yet Facet outright rejected the deal, calling the offer inadequate and not in the best interests of its stockholders.

    Facet CEO, Faheem Hasnain, contends that given his company’s June 30 cash position of $371.1 million and its fulsome product pipeline Biogen’s offer “places no value on the operating and other assets of the company.” Tell that to the 80 individuals who lost their jobs in Facet’s restructuring in January, a month after the firm was spun out of PDL BioPharma. The layoff was part of a move to narrow the company’s focus and reduce its operating costs.

    Facet was formed after a group of PDL’s biggest shareholders mounted a revolt against the company's management. The divestiture separated PDL’s biotech assets from its royalty-producing assets. Hasnain was the president and CEO of PDL and previously worked at Biogen Idec most recently as its evp, oncology/rheumatology strategic business unit.

    BMO Capital Markets analyst Jason Zhang estimates that Facet currently has closer to $288 million, or $11 a share, in cash when lease obligations and payments to Trubion Pharmaceuticals as per a deal inked on August 28 are factored in. Biogen actually made its first offer to purchase Facet on August 17 and said that it was willing to pay $15 per share. After Facet inked the deal with Trubion, Biogen went public with the takeover proposal and dropped the price to $14.50 a share, saying that the arrangement with Trubion reduced Facet’s value as far as it was concerned. Facet shares have indeed fallen more than 20% since the Trubion agreement was announced. Trubion received $20 million upfront for its lead drug candidate, TRU-016, currently in Phase I development for chronic lymphocytic leukemia.

    Weighing the Losses and Gains

    If Biogen successfully acquired Facet, it would also acquire $176.5 million worth of milestone obligations to Trubion. But it could save up to $630 million in total success-based fees that it owes Facet under their ongoing alliance centered around daclizumab as a potential treatment for multiple sclerosis (MS). In the near term at least, the acquisition would relieve Biogen from a $30 million milestone due upon the beginning of a planned late-stage trial early next year. A successful buyout would also make Biogen eligible to up to $680 million from Bristol-Myers Squibb under BMS’ deal with Facet for the development of elotuzumab for multiple myeloma. 

    Recently released early data on daclizumab may have sparked Biogen's interest. Daclizumab is an immunosuppressive, humanized IgG mAb that is already approved for renal transplant rejection and is marketed by Roche as Zenapax® under a license from Facet. It selectively inhibits the IL2 receptor on activated T cells.  Results from an ongoing, blinded Phase II, randomized, placebo-controlled, dose-ranging study of the compound as a monotherapy encouraged Facet and Biogen Idec to request a special protocol assessment from the FDA even before the start of Phase III trials.

    Driver of Acquisition Bid

    Rodman and Renshaw’s Simon Simeonidis, Ph.D., believes that Facet is willing to sell itself “not at $14.50 a share but somewhere between $18 and $20.” Of course Hasnain is holding out for exactly such a higher offer. He too believes that it is no coincidence that Biogen made its offer within weeks of the companies’ decision to begin Phase III trials for daclizumab during the first half of 2010. The development has had little impact on Facet’s stock price, though. 

    Additionally, Hasnain is no doubt aware of the barrage of criticism Biogen has faced from blunt new board seat holder and 5.6% Biogen owner, Carl Icahn. Icahn’s comments have focused on Biogen’s lack of effective leadership, rising expenses, and its inability to develop any new drugs since 2004. 

    Meanwhile, back in Facet’s boardroom, the company adopted a poison pill measure to deter any one person or group from acquiring more than 15% of its common stock without board approval. 

    Biogen’s Race to Safeguard Its MS Franchise

    A further twist to this dizzying plot is the recent threat to Biogen’s stake in the Tysabri franchise. This MS drug generates $1 billion annually for Biogen and partner Elan. The latter formed an alliance with Johnson & Johnson (J&J) on July 2, which would allow J&J to finance Elan’s purchase of Biogen’s Tysabri stake if Biogen was acquired. A federal judge subsequently ruled that this provision was a breach of contract. Elan reported on September 15 that the terms of its agreement with J&J had been adjusted to remove certain financing and collaboration terms.

    Biogen Idec and Elan reported earlier this month that besides improving physical and cognitive disability, Tysabri also allowed regeneration or stabilization of myelin sheath damage. Patients also reported that it improved their quality of life. The stakes for both companies are very high, as several physicians commenting on the Tysabri clinical findings have said that the antibody’s ability to actually reverse the demyelination thought to be a primary cause of MS symptoms may redefine treatment standards for the disease.

    The mutual mudslinging by Biogen Idec and Facet is all about money. The willingness of MS patients to snag any opportunity for relief from this debilitating disease despite extremely serious side effects is advantageous to firms operating in this market. Tysabri made it back onto the market after patients asked for its restoral in spite of the antibody’s link to progressive multifocal leukoencephalopathy (PML) after its sales suspension by the FDA in 2005. PML is a viral infection of the brain that usually leads to death or severe disability.

    And despite Tysabri’s daunting side effect profile, other companies, notably Genzyme, have immunosuppressive antibody drug candidates in the works. Genzyme reported on September 11 that  the four-year analysis of early relapsing/remitting MS patients showed that those taking once-yearly cycles of alemtuzumab had a 72% reduced risk of relapse and a 73% lower risk of sustained accumulation of disability compared to patients treated with Rebif (EMD Serono and Pfizer).

    On July 24, Biogen Idec reported the eleventh confirmed case of PML. The death occurred in a person in the U.S. who had taken 29 doses; the reported duration of use among these 11 people has ranged from about 12 to 35 doses. Nonetheless, Tysabri, approved in 40 countries, remains in demand by patients who have not responded to other approved therapies such as Copaxone (Teva Pharmaceuticals) and Rebif. Should a safer alternative with similar effects come along, the market will certainly be ripe considering the number of people who have already accepted great risk to achieve some good.

     


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