Takeover Likely? Management Says No!

Editor's note: An earlier version of this article was written and edited while trading of shares of Facet was halted. The article has been updated.

Biogen Idec (Nasdaq: BIIB  ) announced today that it's willing to buy Facet Biotech (Nasdaq: FACT  ) for $14.50 per share. Trading in shares was halted, but once it began again, the price rose quickly. In fact, late afternoon prices seem to indicate that investors hope that Facet's management changes its initial "no" to a "yes."

I don't know whether the latter will happen, given the circumstances. Facet's management appears uninterested in even talking to Biogen, which says it originally proposed a $15-per-share offering to the board of directors. Biogen subsequently cut the offer, after Facet licensed a phase 1 drug from Trubion Pharmaceuticals (Nasdaq: TRBN  ) last week.

Given Biogen's lowering of the offer price, it seems unlikely the company will turn around and up its bid. Furthermore, because Facet's board seems unwilling to negotiate, a stalemate seems likely here. A second bidder could come in and top Biogen's offer, but that seems unlikely, since Biogen and Facet are partners on its two most advanced drugs, giving Biogen the best knowledge in valuing the company.

Facet, a spinoff of PDL Biopharma (Nasdaq: PDLI  ) , ended the quarter with $278 million in cash and short-term investments. Even subtracting out the $20 million it owes Trubion, Facet was trading for less than its cash and short-term investments. With a pipeline still in fairly early stages, investors were right to assume that Facet will burn through most of that cash as it tries to get a drug to market.

Interestingly Myriad Pharmaceuticals (Nasdaq: MYRX  ) , a spinoff of Myriad Genetics (Nasdaq: MYGN  ) , is also trading for less than cash on hand. When such companies pop up on investment screens, they sure look like promising investments on the surface. Who doesn't want free money? But dig a little deeper, and you'll realize that the parent companies just gave them a good cash base to burn through -- and there's a real possibility of both these companies being value traps if their drugs don't pan out.

For better or worse, or until a buyer comes along, drug developers are always valued on their potential to bring drugs to the market. To this Fool, investors were right to believe that Facet and Myraid had a long road ahead. Now, with the offer made public, Facet's investors seem instead to be telling management, "Take it!"

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


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  • Report this Comment On September 04, 2009, at 4:02 PM, DrXer wrote:

    umm, trading in FACT was halted after the annoucement.

  • Report this Comment On September 04, 2009, at 4:52 PM, TMFTortoise wrote:

    Hi DrXer,

    We were too efficient on this one. Brian wrote the article and I edited (and fact checked) it during the period when trading was halted. However, our editing team caught the share price change during a reading of the article after it had been published (which we do for every article). Brian and I then worked to get an updated version out which still reflects his thinking, but takes into account the new share price.

    Thanks for your comment and have a good holiday weekend.

    Cheers,

    Jim Mueller

    TMF biotech/pharma editor

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