Dinosaurs and Drug Companies

Published: Nov 20, 2007

Dinosaurs and Drug Companies

If all goes to plan, we'll soon be bidding adieu to PDL Biopharma and Biogen Idec. Both companies are shopping themselves around to the highest bidder, and will likely be retiring their stock tickers in the weeks ahead. They aren't the first large biotech companies to go--remember Chiron? MedImmune?--and they may not be the last.

Billionaire corporate raider Carl Icahn recently took a stake in Genzyme, raising some very plausible speculation that this venerable biotech stalwart could be the next on the block. If this continues, just how many large-cap biotechs will remain a couple years hence? Are biotechs simply not suited to be large, stolid herbivores in an industry of small meat-eaters? Will the largest among them sink under their own weight into the swamps of memory?

Well, one thing you can say about this trend is that it can't last long, because there just aren't that many profitable biotechs with multi-billion dollar market caps to choose from. And those are the companies most likely to attract big-time activist investors. These guys, by definition, want control: Control of boards, control over corporate strategies, control over decision-making. It's why they pony up large investments and start throwing their weight around. They certainly don't want a company whose fate is hanging on the outcome of a single clinical trial; they'd rather avoid the vagaries of biology altogether.

That makes for a short list, indeed, yet there are still a few reasons to think that Genzyme may not go on the block. For one thing, it is sort of the anti-big pharma. It has created a hugely profitable business by pursuing not large markets but rather laser-targeted rare disease indications. Its products, with the exception of Cerezyme, don't bring in blockbuster sales; it instead has a lengthy roster of niche products most big pharmas would be looking to sell, not buy. And, with all due respect to those other companies under the gavel, it isn't struggling or being mismanaged.

Perhaps a more likely scenario than outright sale is splitting up and selling off divisions that admittedly don't have much relation at first glance. But Genzyme itself tried doing the same thing through individual tracking stocks back in the 1990s, and it didn't work so well. Since drawing those operating divisions back into the fold, the whole has proven greater than the sum of its parts.

I don't pretend to know the mind of Icahn or to see all paths to unlocking the considerable value in Genzyme. But it seems possible--just possible--that Icahn is merely being an investor this time. (Hey, ImClone is still around after Icahn's involvement, right?) And that may be a good thing. Biotech needs a few brontosauruses roaming the plains.

Have a great Thanskgiving--we all have plenty to be grateful for. Here's hoping the wishbone snaps your way.

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