A Chilly Reception for Biogen-Idec Marriage

If Wall Street was looking for a biotech deal that would validate the sector's lofty valuation and provide more fuel for the recent rally, Monday's merger of Idec Pharmaceuticals (IDPH:Nasdaq - news - commentary - research - analysis) and Biogen (BGEN:Nasdaq - news - commentary - research - analysis) probably isn't it.

That's not to say the $6.5 billion merger isn't a good one. It's just that the wedding of Idec and Biogen represents a conservative -- some would say defensive -- strategy that addresses the companies' respective weaknesses more than it plays up any strength.

The Idec-Biogen merger is the second-largest deal in the history of the biotech sector, behind Amgen's (AMGN:Nasdaq - news - commentary - research - analysis) $10 billion acquisition of Immunex in December 2001. But while Amgen saw immediate benefits from its acquisition, it may take longer for the Idec-Biogen combination to prove itself. In many ways, Idec and Biogen are very much alike. Both are profitable, yet depend largely on single drugs. Biogen markets Avonex, a billion-dollar drug for multiple sclerosis that faces slowing growth due to new and formidable competition in the U.S. market. Idec co-markets with Genentech (DNA:NYSE - news - commentary - research - analysis) the cancer drug Rituxan, the most successful biotech-derived cancer drug ever developed, but again, a drug that is maturing.

Likewise, both Idec and Biogen have recently launched new products with lackluster results. Last year, Idec launched Zevalin, a new cancer drug, but so far, sales have been disappointing. Biogen's psoriasis drug Amevive has been slow out of the gate because of insurance-reimbursement issues, and it's also about to run into serious competition from rival drugs.

Lastly, neither company has the most robust drug pipeline in the sector. The brightest prospects are Biogen's experimental drug Antegren, which is currently in multiple Phase III studies as a treatment for Crohn's disease and multiple sclerosis, and Rituxan, which could see expanded use as a possible treatment for rheumatoid arthritis, in addition to cancer.

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Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback.