Analyst Mulls Over The Possibility of Shire Acquiring Biogen

Analyst Mulls Over The Possibility of Shire Acquiring Biogen
March 8, 2016
By Mark Terry, Breaking News Staff

With the ink barely dry on the Shire-Baxalta deal—which hasn’t closed yet—analysts are speculating on a Shire-Biogen merger.

After a six-month-long seduction of Bannockburn, Ill.-based Baxalta by Dublin-based Shire , the two companies agreed to a deal in January for about $32 billion. Baxalta spun off from Baxter International on July 1, 2015.

But before that deal was agreed to, some analysts proposed that Cambridge, Mass.-based Biogen, Inc. (BIIB) might consider acquiring Baxalta. Now Ed Wijaranakula, an analyst with NMS Investment Research, has written a blog post on Seeking Alpha, arguing that Shire should consider buying Biogen .

Some of this speculation about a Biogen deal is related to a Bloomberg Intelligence phone survey conducted in July 2015 that had more than 30 investors indicating they thought Biogen should buy a company ASAP to boost its revenue.

“Investors think Biogen’s top priority should be to acquire an asset that will have meaningful top-line growth within the next 18 to 36 months,” said Asthika Goonewardene, an analyst with Bloomberg Intelligence, at the time. “So, not one of those really small biotech companies that will only deliver something very promising five to seven years down the line.”

And Biogen’s chief executive officer, George Scangos, said at the February BIO CEO & Investor Conference held in New York that, “As we looked at potential acquisitions over the past year or two, there were a lot of companies that were quite interesting, but we couldn’t get there on the valuation.”

One plus for Biogen would be Shire’s domicile in Ireland, which would create a tax inversion, saving Biogen a lot of tax dollars. Tax inversions have been taking a lot of political heat lately, partly because it’s an election year, but driven some by the Pfizer-Allergan deal that, at least one advocacy group, Americans for Tax Fairness (ATF), claims will allow Pfizer to dodge $35 billion in taxes. The statement on the surface is accurate, but there are very few scenarios in which Pfizer was likely to pull that money which is currently in offshore accounts, into the U.S. with that kind of a tax bite. It was going to stay in those accounts or be spent elsewhere.

Biogen has a dominant position in the multiple sclerosis market, with two drugs approved for hemophilia with a recent shift in focus to Alzheimer’s drugs. It has a market cap of $59 billion, which is very close to what the merged Shire-Baxalta’s would be, of about $58 billion.

Aside from the advantages of the tax inversion, Wijaranakula, argues that a Shire acquisition of Biogen would help both companies quickly grow revenues. In addition, Baxalta’s hematology business created $3.63 billion in revenue in 2015 with various drugs, including Advate, Adynovate, Bebulin, Feiba NF, Hemofil M, Recombinate, and Rixubis. Biogen has two hemophilia drugs on the market, Alprolix and Eloctate, with had combined revenues last year of $554.

He also suggests that Biogen’s reliance on Tecfidera, for multiple sclerosis, might make the company vulnerable to competition and that a deal with Shire would, he writes, “create a stronger and more robust central nervous system (CNS) portfolio, which would consist of Biogen drugs, including Avonex, Tecfidera, Tysabri, Plegridy, and Fampyra, and Shire drugs such as Vyvanse, Adderall XR, Replagal, Elaprase, Intuniv, and Fosrenol.”

One question that doesn’t really get addressed is whether such an acquisition would allow Biogen to continue it’s high-risk gamble on Alzheimer’s drugs, which is a wasteland of failed clinical trials. If a company were to invest in Biogen, such as Shire, it would likely do so for its solid pipeline and dominance in the MS market, rather than the shot it’s taking on Alzheimer’s research.

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