Biogen Can't Find a Buyer

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Maybe big pharma has some sense after all. After formally putting itself up for sale two months ago, Stock Advisor pick Biogen Idec (Nasdaq: BIIB) announced yesterday that it couldn't find any takers.

Biogen didn't give a reason why it never found a buyer, but the biggest obstacle was probably the buyout provisions for two of its lead drugs, Rituxan and Tysabri. In the event of a change of control at Biogen, Genentech (NYSE: DNA) and Elan (NYSE: ELN) had the option to buy out Biogen's half of their partnerships for Rituxan and Tysabri, respectively.

Those provisions effectively meant that any Biogen acquirer would either get a stripped-down Biogen without its two most interesting assets or would be paying billions more above the acquisition price to get full control of Rituxan and Tysabri. The former scenario made Biogen a less attractive acquisition target, and the latter made Biogen too expensive for pretty much any drugmaker, save perhaps Pfizer (NYSE: PFE).

The Biogen saga began in October, when investor Carl Icahn disclosed that he had made an informal $23 billion "expression of interest" bid in the company. Then on Oct. 12, Biogen revealed that it was seeking a buyer.

Shares surged from the mid-$60 range to a high of around $84 on the news. Investors figured that biotech fever would take hold at Biogen the way it had with MedImmune and AstraZeneca (NYSE: AZN) earlier in the year, after Icahn took a stake in MedImmune and then urged the company to sell itself.

Icahn has had a mixed record in biotech. Some of his investments, such as ImClone Systems (Nasdaq: IMCL), are trading near 52-week highs, but others, such as Telik (Nasdaq: TELK) and now Biogen, haven't been nearly as successful.

Does this lack of a buyer mean that the biopharma buying frenzy is over among big pharmas? Probably not, considering that biologics have an important advantage -- namely, generic competitors have a harder time gaining entry in biologics than in comparable small-molecule drugs. In addition, plenty of other biopharma assets remain available at cheaper prices.

The lack of a buyer in this case meant that Biogen was apparently just too big and expensive for any takers. As for what investors should do, I mentioned it before when Biogen put itself up for sale. It's virtually a pharma and biopharma golden rule at this point: Buying shares of a drugmaker based on the proposition of a buyout is often a losing strategy.