What's Biogen Worth?

Now that Biogen Idec ( BIIB) is entertaining offers to be acquired, how much is the company worth?

There are no guarantees that Biogen can attract a buyer interested in paying what is expected to be a top-dollar price, but here are some thoughts (and guesses) on what the company might fetch:

  • At its Friday after-hours price of $81.60 per share, Biogen Idec is valued at $23.5 billion. At this valuation, a prospective buyer would be paying 7.6 times expected 2007 revenue of $3.1 billion, or about 6.5 times expected 2008 revenue of $3.6 billion.

    That doesn't seem too outrageous for health care M&A, where high-growth companies can sell for five to eight times sales. But the bulk of Biogen's revenue comes from two products -- the multiple-sclerosis drug Avonex and the cancer drug Rituxan -- that have basically flat-lined in the growth department. That means a buyer would have to be a full-on believer in the uber-growth story of Tysabri, the company's newest multiple-sclerosis drug.

    Biogen believes the number of Tysabri patients can grow from 17,000 today to 100,000 by the end of 2010. That equates to about $2.4 billion in Tysabri revenue, but remember, Biogen Idec and Elan (ELN) share those sales equally.
  • Billionaire investor Carl Icahn (whose stock portfolio can be viewed at Stockpickr.com) is reported to have made a $23 billion offer for Biogen last week, according to The Wall Street Journal, which quotes Icahn as saying that his preference would be for Biogen to be acquired by a large pharmaceutical company.

    A $23 billion offer for Biogen equates to an 18% premium to the company's Friday's closing price of $69.43, which gave Biogen a market value of just under $20 billion.

    The average purchase premium in five of the most recent M&A deals involving biotech and pharmaceutical companies was 22%, according to an analysis done by Citibank biotech analyst Yaron Werber.

    The last two big-cap biotech firms to be acquired, Medimmune and Chiron, were acquired for a 21% and 23% premium to their market value, respectively.

    Applying a 22% purchase premium to Biogen gets an $85 takeout price, calculated from the company's Friday close of $69.43. Calculated off the after-hours price of $81.60 gets to a potential takeout price of $99.55.
  • AstraZeneca (AZN) paid a bit less than $16 billion to purchase MedImmune last April, or 12 times MedImmune's expected 2007 sales. On that metric alone, nearly everyone outside the two parties agree that AstraZeneca overpaid.

    But putting aside that argument, a MedImmune-esque sales comp would mean Biogen could fetch $37 billion, or $129 per share.

    Biogen, like MedImmune, has the capability and know-how to manufacture biologic drugs like monoclonal antibodies that can target a host of diseases, including cancer and multiple sclerosis. This is an expertise that is in short supply and very much in demand by Big Pharma, which could help Biogen extract a heavy price.
  • It may take a bidding war for Biogen to fetch the lofty purchase prices outlined above because more conventional valuation exercises suggest the stock is already fairly valued.

    Twenty sell-side analysts have "hold" ratings on Biogen, which generally means an analyst believes a stock to be fairly valued. There are also five buys and two sells, according to Thomson First Call.

  • Citibank's Werber is one of those analysts with a hold on Biogen. He initiated covered on the company last month with a $74 price target. Werber's sum-of-the-parts analysis pegged Biogen's valuation at $70 per share. Tacking on a $15-per-share premium suggests a takeout price of $85 per share. (Citibank has a banking relationship with Biogen.)

    Bear Stearns biotech analyst Mark Schoenebaum has performed a similar analysis that pegs Biogen value in the mid-$60s per share. Adding in a takeout premium and cost synergies that come out of an acquisition pushes his projected purchase price into the $70 range. If Tysabri can achieve peak annual sales of $3 billion or more, Schoenebaum says a takeout price for Biogen in the $80 range isn't out of the question. (He as a "peer perform" rating on Biogen, or the equivalent of a hold, and his firm has a banking relationship with the company.)
  • As noted above, the multiple-sclerosis drug Tysabri is the key to any potential Biogen acquisition. Biogen's forecast calls for 100,000 Tysabri patients by the end of 2010. That equates roughly to $2 billion to $3 billion in revenue. Today, there are approximately 17,000 multiple-sclerosis patients on Tysabri.

    Whether Biogen and its partner Elan can meet its ambitious Tysabri forecast remains to be seen, but so far, analysts appear skeptical. Analyst estimates for 2010 Tysabri sales ranges from $700 million to $1.6 billion, according to Citibank's Werber.

    If Tysabri sales do fall short, it won't be the first time that a biotech drug at the center of a takeout story disappointed.

    Back in 2001, Amgen (AMGN) CEO Kevin Sharer justified a $16 billion acquisition of Seattle-based biotech firm Immunex by predicting that Enbrel, the rheumatoid arthritis blockbuster and the jewel in Immunex's crown, would grow to more than $3 billion in 2005 from about $1 billion in sales in 2001.

    It turns out that Sharer's prediction was two years off. Enbrel isn't expected to reach $3 billion in annual sales until this year.

    Enbrel didn't meet Amgen's initial expectations in part because of competition from other anti-inflammatory drugs. Tysabri could also face similar competition from multiple-sclerosis drugs in mid- to late-stage clinical trials, including drugs from Novartis (NVS) and Genentech (DNA).
  • I already discussed the AztraZeneca-Medimmune deal as a potential sales comp for a Biogen acquisition, but what about the Amgen-Immunex deal? Well, it turns out that Amgen's $16 billion purchase in December 2001 came at a 20% premium to Immunex's stock price at the time. Amgen paid about 16 times sales for Immunex.

Adam Feuerstein writes regularly for TheStreet.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. Feuerstein appreciates your feedback; click here to send him an email.

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