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Biogen seen vulnerable to takeover after sell-off

$20b drop in value could spur buyback

A sign outside a Biogen building in Cambridge.
A sign outside a Biogen building in Cambridge.Biogen/AP

Biogen Inc. may have to make a bold move to reassure investors — buying back shares or acquiring a smaller company — or the Cambridge biotechnology giant could become a takeover target, some stock analysts warned Monday.

The speculation followed a massive sell-off Friday that pared $20 billion in market value from Biogen’s stock, a 22 percent drop that was one of the largest single-day losses in value in the biotech industry’s recent history. Investors were reacting to a disappointing quarterly earnings report and the company’s lowering of its near-term financial forecasts.

Biogen shares regained some ground Monday, climbing 3.1 percent to $309.55 on a day when financial markets took another tumble.

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The company is sitting on a cash stockpile of $4.5 billion, money that analysts say could be used to expand its product portfolio by buying another drug maker. Alternatively, Biogen could use the money to repurchase its stock, as other biopharma companies have recently done.

“We are in a world of eat or be eaten,” said Eric Schmidt, an analyst at the investment bank Cowen & Co. in New York. “If they don’t redeploy their cash efficiently or properly, there’s always a chance that somebody may come in and monetize their assets for them.”

On Monday, a spokeswoman said Biogen would not immediately comment on its strategy.

Some analysts debated whether the big stock sell-off made Biogen a takeover target. Michael Yee, at the investment bank RBC Capital Markets in San Francisco, said the stock was oversold, potentially making it attractive to buyers. “At this level, the company could become vulnerable to being a target,” Yee said. “If there was an offer, it would be taking advantage of a lower share price.”

Brian Skorney of R.W. Baird & Co. said an acquisition of Biogen is feasible but still expensive at a market value of more than $70 billion.

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A straw poll of 90 investors conducted over the weekend by Umer Raffat, specialty pharmaceuticals analyst for the New York research firm Evercore ISI, listed Biogen and Illinois-based drug maker AbbVie Inc. as top takeover candidates for Allergan PLC, an Irish pharma company thought to be on the prowl.

The survey was done before Allergan on Monday disclosed the sale of its generic drug business to Israel’s Teva Pharmaceutical Industries Ltd. for $40.5 billion, bolstering the Irish company’s capacity to mount a bid.

In a conference call Friday after Biogen posted second-quarter earnings, chief executive George Scangos said the company will focus in the second half of 2015 on “improving the trajectory of Tecfidera,” its top-selling multiple sclerosis pill, while “ensuring that we execute important clinical trials to move our pipeline forward as quickly as possible.”

Biogen surprised investors on both fronts last week: Tecfidera sales fell short of estimates, hurt in part by rival therapies from Novartis AG and Genzyme. Biogen also reported mixed results from the trial of an experimental Alzheimer’s drug.

Analysts appeared divided on Biogen’s prospects in the aftermath of Friday’s stock plunge. Some slashed their financial outlook in response to the company’s warning of lower sales, while others remained bullish because of the number of promising drugs in Biogen’s pipeline.

Skorney downgraded his rating on Biogen’s stock from “outperform” to “neutral.”

“I just really don’t have great clarity about their growth prospects,” he said. “They do have a very attractive pipeline, but it’s very speculative. So I’m just in a wait-and-watch mode.”

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But Schmidt reaffirmed his “outperform” rating. He said the big run in Biogen’s stock price over the past year, lifting it more than 25 percent before last week, may have drawn short-term and generalist investors who are quick to sell at the first sign of trouble.

“We saw a pretty fast-and-furious reaction to the change in their growth trajectory,” Schmidt said. “They’re going to grow at a slower pace than Wall Street projected. There’s still a lot of good reasons for owning the stock, based on the pipeline Biogen has and how it moves to redeploy its cash.”

Yee, who also stuck to his “outperform” rating, was optimistic about Biogen’s pipeline, saying he expects the stock to rebound as Biogen’s prospects become clearer.

He predicted the Alzheimer’s drug candidate has a 60 percent chance of success. Another possible bright spot is an experimental drug known as anti-Lingo, designed to help cells repair nerve damage from multiple sclerosis. If successful, it could be the first drug to reverse the progression of the neurodegenerative disease rather than treat its symptoms.

“This company has the potential to double its earnings as the pipeline plays out,” Yee said.


Robert Weisman can be reached at robert.weisman@globe.com. Follow him on Twitter @GlobeRobW.