Biogen's Hemophilia Spinoff Suggests M&A Activity Could Be On the Horizon

Biogen’s Hemophilia Spinoff Suggests M&A Activity Could Be On the Horizon May 4, 2016
By Mark Terry, Breaking News Staff

After yesterday’s announcement by Cambridge, Mass.-based Biogen that it was spinning off its hemophilia business, analysts and investors are pondering, somewhat quizzically, just what it means.

The spinoff lets Biogen focus on central nervous system disorders, its primary strength. The company’s multiple sclerosis (MS) franchise dominates the market, and it’s actively pursuing Alzheimer’s disease, Parkinson’s disease, amyotrophic lateral sclerosis (ALS), spinal muscular atrophy (SMA) and neuropathic pain.

Its hemophilia A and B assets, Electate and Alprolix, haven’t ever really fit in very well with the company’s focus, but they’ve been profitable, generation about $640 million in combined sales in the last 12 months, which is to say, about 8 percent of the company’s product sales in this year’s first quarter. Analysts have projected that unit could hit $1 billion.

But since the spinoff doesn’t generate cash for the company, analysts are wondering what the actual strategy is, some speculating that by slightly downsizing the company it might make it more palatable for an acquisition.

“In our view, the deal doesn’t help transform the company’s growth outlook, as the entire commercial business faces competitive threats and the pipeline remains quite speculative,” said Joshua Schimmer, an analyst with Piper Jaffray in an investor note. “As such, this move is a bit perplexing to us. That said, there may be something strategic going on behind the scenes beyond shifting of franchises, so we’re still waiting to see what the management team is capable of delivering.”

Others are speculating that Biogen’s hemophilia unit’s valuation might not be quite as high as assumed. Analysts typically placed the hemophilia unit’s valuation at $4 billion to $6 billion.

Biogen’s “underlying business is a fairly mature, flattish-to-low single-digit growth multiple sclerosis business that has future competition and various intellectual property questions on Tecfidera,” Michael Yee with RBC Capital Markets wrote. “Thus, investors theoretically want more growth and diversification, not less. So this seems odd and, perhaps, implies the valuation is not what (Wall Street) perceives if a buyer was not willing to pay up.”

There’s been a lot of speculation recently on whether someone will buy Shire, or who Shire might buy. In early March, analysts were discussing a possible merger between Biogen and Dublin-based Shire . Then some suggested Biogen might buy Baxalta .

Some of the speculation about a Biogen deal revolves around a Bloomberg Intelligence phone survey conducted in July 2015 that had more than 30 investors saying 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, back in July 2015.

And Biogen’s chief executive officer, George Scangos, has indicated the company is keeping an eye out for strategic acquisitions if the price was right.

Other analysts think Roche would be an interesting choice to buy Biogen, particularly with the hemophilia business out of the way. “You now have a company fully focused on neuro, and a lot of investors and the Street are kind of wondering what’s the next step,” said Alethia Young, an analyst with Credit-Suisse to The Boston Herald. Any company interested in buying Biogen “won’t be put off by concerns about long-term competitive threats in hemophilia. Despite Roche’s commentary on the significant growth potential within the neurology market, the firm has struggled to enter, with recent failures in depression and schizophrenia, and disappointing progress in Alzheimer’s.”

But Young also speculates that Biogen might pick up some companies as well, citing San Diego-based Acadia Pharmaceuticals and Neurocrine Biosciences , Carlsbad, Calif.-based Ionis Pharmaceuticals and Cambridge, Mass.-based Sage Therapeutics .

Back to news