Is Biogen the latest big biotech M&A target? Allergan and Merck are circling, WSJ says

Biogen

Editor's note: Adds analyst comments.

Industry watchers have been predicting for months that buyers would come for Biogen--and now, one report says, they have.

Merck and Allergan have both reached out to the Big Biotech about a tie-up, The Wall Street Journal reported on Tuesday--and other potential suitors could be circling, too. So far, advances from the pair have been informal and preliminary, and there’s no indication yet that Biogen is interested, sources told the newspaper.

Biogen buyout speculation has been swirling since last year, when worries about the growth trajectory of key multiple sclerosis med Tecfidera sent shares southward. And although Biogen's stock price has close to doubled since the beginning of the year, it’s still a long way off the high of nearly $500 that it hit last year, the WSJ notes. Even after spiking on news of a potential buyout Tuesday, the company's shares closed at $330.

And more trouble could be ahead: Cancer powerhouse Roche is looking to break into the MS field with promising candidate ocrelizumab, an entrant analysts predict could put serious pressure on Biogen’s lineup.

Plus, as Biogen announced last month, it’s about to see some change at the top, with CEO George Scangos set to depart as soon as the drugmaker nails down his replacement. "The unusual announcement of the imminent departure of CEO George Scangos is certainly consistent with the company mounting a temporary 'For Sale' sign to acquirers," Leerink Partners analyst Geoffrey Porges wrote in a Wednesday investor note.

The drugmaker's portfolio is in flux, too, with May’s announcement that the company plans to spin off its hemophilia offerings.

Meanwhile, it will come as no surprise to many that serial buyer Allergan is in the mix. Analysts began matchmaking for the Dublin pharma as soon as its megamerger with Pfizer fell through, and some put Biogen near the top of the company’s potential target list. Others predicted Allergan could have eyes for Biogen even before it signed its ill-fated Pfizer pact.

As for Merck, it’s looking for ways to grow as key meds Remicade and Januvia square off against stepped-up competition--from biosimilars and SGLT2 diabetes meds, respectively. “Business development is a top priority, and we are actively pursuing the best external science through licensing or bolt-on acquisitions to bolster our pipeline and grow our company,” CEO Ken Frazier said in a May statement.

But Bernstein analyst Tim Anderson points out that there's not a "great 'fit' between Merck and Biogen in terms of disease overlap;" Biogen's biggest strength is in multiple sclerosis, a field where Merck has never sold a drug. Though bringing Biogen's sales into the fold would add to Merck's EPS by about 13% over five years, "from a strategic perspective it is more difficult to see the rationale," Anderson said in a Tuesday investor note.

Still, buying Biogen would partly address a couple of Merck's perceived weaknesses--pipeline and growth trajectory, Anderson figures. "[E]ven though we are skeptical that this deal will happen, Merck acquiring Biogen would likely be a value-enhancing event for the company, causing investors to re-think the Merck story," he wrote.

Other pharmas might make a better fit, but it any case, it would take a big buyer to snap up Biogen: The company's market cap stood at about $72 billion Tuesday. For comparison's sake, consider Medivation, the cancer-focused biotech that several of the world's biggest drugmakers are eyeing; its most recent offer from Sanofi was in the $10 billion range.

- read the WSJ story (sub. req.)

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