More than a year after Biogen Idec Inc. (BIIB) took itself off the auction block, takeover rumors surrounding the company are up in the air again. Given the recent spurt of takeovers in the pharmaceutical industry, the rumors come as no surprise since the biotech giant with antibody expertise has long been considered a potentially attractive acquisition target. However, James Mullen, the CEO of Biogen Idec, has reportedly denied the rumors.

Biogen Idec is itself the result of a 2003 merger of Massachusetts-based Biogen Inc., and San Diego, California-based Idec Pharmaceuticals. The company markets four drugs, two of which are blockbusters, namely multiple sclerosis drug Avonex and cancer drug Rituxan. The other two drugs marketed by the company are psoriasis drug Fumaderm and Tysabri indicated for the treatment of multiple sclerosis and Crohn's disease.

It was in August 2007 that activist investor Carl Icahn set his eyes on Biogen Idec. Icahn is known for buying stakes in companies he deems are undervalued and vigorously thrusting an agenda on those companies. Icahn purchased 2.74 million shares or about 1% of Biogen Idec in August 2007 and was cleared by the Federal Trade Commission to acquire more shares. He reportedly offered $23 billion, equating to $80 per share for the company, which was a 19% premium over the stock price at the time.

Pressured by Icahn, Biogen Idec put itself up for sale in October 2007, hoping a takeover would provide a better value for its stockholders than it is able to accomplish as a stand-alone company. In the days following the company's disclosure that it is considering selling itself, shares spiked as high as $84.75 from $69. Pfizer Inc. (PFE), Sanofi-Aventis SA (SNY), Wyeth, Merck & Co. Inc. (MRK), and Johnson & Johnson (JNJ) were rumored to be in the bidding fray for Biogen Idec.

On a more pragmatic level, analysts predicted that Biogen Idec would be a difficult sell at a top dollar, given the risks faced by Tysabri and Avonex.

Tysabri, manufactured and distributed jointly by Biogen Idec and Elan Corp. plc (ELN), was approved by the FDA for multiple sclerosis in November 2004. The drug was voluntarily withdrawn from the market in February 2005 after it was found that three patients taking the drug developed progressive multifocal leukoencephalopathy, or PML, a rare but potentially fatal brain disease. The drug proved fatal in two cases.

The drug was allowed back on the U.S. market by the FDA in July 2006 and was launched in several European countries, but with certain restrictions and enhanced safety warnings. The FDA has also recommended that Tysabri should be used as a stand-alone treatment and not combined with other drugs that suppress the immune system. Previously, Tysabri was prescribed along with Avonex.

The company's multiple sclerosis drug Avonex was also not trouble-free as it was already battling competition from rival Rebif, co-promoted by Serono S.A. and Pfizer, in addition to facing generic threat in the future.

True to analysts' predictions, the company failed in its attempt to find a buyer as it couldn't agree on a price offered by potential acquirers. On December 13, 2007, the company took itself off the block and announced its decision to remain independent. Following the news, Biogen Idec shares fell nearly 24% to close at $57.91.

In the wake of the failed sale, in January 2008, Icahn, who had by then acquired about 4% stake in Biogen Idec, nominated three directors to the company's board. In April of that year, he sued Biogen Idec alleging that it had deliberately undermined the sale process and demanded that he be given access to the documents related to the failed sale.

Icahn won the lawsuit and Biogen Idec was forced to disclose the documents. However, investors failed to buy his argument that the company's auction was intentionally rigged to discourage buyers. Icahn lost the proxy fight in June 2008 as shareholders voted down the corporate raider's slate of directors.

Even after more than a year, the rift between Icahn and Biogen Idec appears not to have been healed. The company is again embroiled in a proxy war with Icahn. In February 2009, Icahn nominated 4 individuals to Biogen Idec's board and sought to amend the company's bylaws to fix the size of the Board of Directors at 13 members. In addition, he proposed moving the company's state of incorporation from Delaware to North Dakota.

However, Biogen Idec, which has nominated its own slate of 4 directors, has asked shareholders to reject Icahn's proposals, setting up the second proxy fight with the investor activist. Icahn Partners LP and certain of its affiliates own a combined 5.4% stake in Biogen Idec. The annual meeting of shareholders is slated to be held this summer.

Twists And Turns Of Tysabri

Tysabri, one of the company's main money making drugs, indicated for the treatment of multiple sclerosis and Crohn's disease, is not out of woods yet as safety concerns continue to haunt the drug. Since July of 2008, five new cases of progressive multifocal leukoencephalopathy, or PML, have been reported in patients receiving Tysabri as a monotherapy for multiple sclerosis. But left with few good choices, multiple sclerosis patients clamor for the drug, despite the risks associated with it. According to Biogen Idec, 4 out of the 5 PML patients in post marketing are alive.

Since renewed safety concerns could impact the drug's future sales, Biogen Idec is working to find a cure for the potentially fatal side effect of Tysabri. After screening about 2,000 compounds that are known to fight brain infections, Biogen Idec has zeroed in on Mefloquine, a malaria pill marketed by Roche as Lariam, to test its efficacy in treating the brain disorder PML. Mefloquine is being investigated in 40 patients with PML and the study is expected to be completed by the end of this year.

In 2008, Tysabri logged $813 million in global sales, up 137% from a year before. The profits on the drug are split between Biogen Idec and Elan. Biogen Idec's share of revenue from Tysabri totaled $589 million, an increase of 156% over 2007. According to the company, Tysabri is well on its way to becoming a blockbuster.

As of the end of 2008, 36,500 patients were receiving Tysabri worldwide, up from 21,300 a year before. The company expects this number to exceed 100,000 by year end 2010.

Avonex - Preparing For A Makeover

Avonex, approved by the FDA in 1996, is Biogen Idec's lead revenue driver. Last year, the drug raked in $2.2 billion in sales, an increase of 18% over 2007. Though Avonex continues to be the most prescribed multiple sclerosis therapy globally, its market share has been slightly on the decline. Rebif, which Serono markets with Pfizer Inc., Schering AG's Betaseron, and Teva Pharmaceuticals Industries Ltd.'s Copaxone and Biogen Idec's very own Tysabri are the other competing multiple sclerosis therapies.

The patent expirations for Avonex begin in 2011 and the company is gearing up to defend its turf. Biogen Idec plans to begin a phase III study of a long-acting pegylated version of Avonex by the middle of this year. If proven effective, the company expects the drug to be approved by 2012, which will help to sustain the profitability of Avonex.

However, with the President's budget proposal for 2010 supporting a regulatory pathway for bio-generics and seeking to put an end to evergreening by which branded drugs companies reformulate their drugs with minor changes to renew or extend the patent life of the drugs, it remains to be seen if the success of Avonex will be an ongoing story for Biogen Idec.

Rituxan - A Profit Pill

Rituxan, an intravenous drug used to treat cancer and rheumatoid arthritis, is one of Biogen Idec's key revenue drivers. The drug was developed through a partnership with Genentech Inc, which was recently acquired by Swiss drug giant Roche Holding Limited. Last year, Rituxan fetched $1.13 billion in sales, up 22% over 2007 for Biogen Idec.

Rituxan, the first anticancer MAb, (monoclonal antibody) was approved by the FDA in 1997 to treat only a specific subset of patients with non-Hodgkin's lymphoma, or NHL as a single agent. Over the years, the drug has received approval for additional indications like rheumatoid arthritis and also for other types of NHL.

The company is seeking to further widen Rituxan's use by getting it approved for rheumatoid arthritis patients who have had an inadequate response to prior treatment with DMARDs and/or one anti-TNF alpha agent. The FDA is expected to decide on the expanded indication later this summer.

Rituxan is also on track to be approved as a treatment for first-line chronic lymphocytic leukemia, or CLL, in combination with chemotherapy, according to Biogen Idec. The drug is already used off-label for CLL indication in the U.S.

The patent covering Rituxan is scheduled to expire in 2013 in the E.U. and in 2015 in the U.S.

Financial Scorecard

Biogen Idec's fiscal year ends on December 31. According to the company, over the past six years from 2003 through 2008, per share earnings and revenue have grown at a CAGR (compounded annual growth rate) of 25% and 17%, respectively. In 2008, earnings were $783.2 million or $2.65 per share, compared to $638.2 million or $1.99 per share a year before. Revenue for the year was $4.1 billion, up from $3.2 billion in 2007.

The company is slated to report its first quarter 2009 financial results after the financial markets close on Thursday, April 16. Analysts tracked by Thomson Reuters expect the company to earn $1.01 per share for the quarter, up from $0.83 per share in the comparable year-ago quarter.

Analysts have pegged quarterly revenue at $1.08 billion, which reflects a 15% increase over the reported revenue last year. Looking ahead to 2009, the company expects revenue growth to be in the high single digits.

Pipeline

Research & Development is the lifeline for any drug company. Biogen Idec spends $1 billion on research and development annually. The company has over 20 new investigational drugs in phase II and beyond, including treatments for multiple sclerosis, cancer, and Parkinson's disease. The quality of its late-stage pipeline has been rated the highest by Moody's Investors Service Research.

Biogen Idec's investigational drugs under phase III development include BG-12 for the treatment of multiple sclerosis; Galiximab, an anti-CD80 MAb for relapsed non-Hodgkin's lymphoma, or NHL; Lumiliximab, an anti-CD23 MAb for relapsed or refractory chronic lymphocytic leukemia; Ocrelizumab, a humanized anti-CD20 MAb for rheumatoid arthritis and lupus nephritis; Lixivaptan for acute hyponatremia (low concentration of sodium in the blood) and Adentri for acute decompensated heart failure patients with renal insufficiency.

Balance Sheet

In the quarter ended December 31, 2008, the company had cash, cash equivalents and marketable securities of about $2.3 billion, while annual free cash flow totaled $1.3 billion. Over the past five years from 2004 through 2008, free cash flow has increased at a CAGR of 37%. Current assets are more than 2.5 times current liabilities.

Deal or No Deal?

In light of the global financial meltdown, valuations of potential takeover targets have become very attractive, favoring the buyers. Biogen Idec's CEO, who has denied the takeover rumors, has made it clear that his company is not in a hurry to find a buyer. However, with billionaire investor Carl Icahn reviving his proxy fight with the company, the takeover guessing game is set to grip investors in the days to come.

BIIB has so far hit a 52-week low of $37.21 and 52-week high of $73.59. The stock closed Monday's trading at $52.52, above both its 50-day and 200-day moving averages.

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