Biogen (BIIB 4.56%) might be in deep trouble. The biotech's core multiple sclerosis franchise has been hit hard by generic competition this year, and its plan to recoup these lost sales with newer medicines like Vumerity simply isn't working. What's more, Biogen and Ionis Pharmaceuticals' spinal muscular atrophy medicine, Spinraza, has clearly peaked from a sales standpoint. The drug's global sales slipped by a hefty 10% in the third quarter, compared to the same period a year ago.
Biogen's master plan was to wash away these problems by grabbing a surprise approval for its much-maligned Alzheimer's disease drug candidate aducanumab. After a stinging defeat during last week's advisory committee meeting, however, the chances of the Food and Drug Administration actually approving this high-value asset appear to be slim to none.
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Self-inflicted wounds
Worse still, Biogen's brass didn't do much to prepare the company for a possible aducanumab rejection. Despite a clear need to bring in a fresh source of revenue or at least a high-value late-stage candidate, the biotech's braintrust only struck two modest collaboration deals with Denali Therapeutics and Sangamo Therapeutics earlier this year, along with a smallish buyout deal with the gene therapy company Nightstar Therapeutics last year.
The Nightstar deal did bring in the late-stage asset BIIB111 (timrepigene emparvovec) as a possible treatment for a rare, degenerative, X-linked inherited retinal disorder known as choroideremia. But this experimental therapy -- if approved -- doesn't have the type of commercial potential to be a true cornerstone product for a large-cap biotech like Biogen.
The biotech's top line is thus in serious danger of dropping by double digits next year. Therefore, Biogen will likely have to go shopping soon to beef up its near- and long-term outlooks.
3 possible takeover targets
Biogen could comfortably spend around $10 billion on business development deals without having to leverage its balance sheet in a significant manner (assuming management nixes its latest $5 billion share repurchase plan). This amount should be more than sufficient to take advantage of this target-rich environment, and get Biogen back on track from a growth standpoint. Here are three intriguing buyout targets the biotech could easily afford and that would dovetail nicely with its core areas of expertise.
1. Aurinia Pharmaceuticals (AUPH -1.18%) is marching toward a January decision date with the FDA for its lupus nephritis drug candidate voclosporin. If approved, voclosporin is expected to generate between $770 million and $1 billion as a treatment for lupus nephritis. Even so, Aurinia's market cap is only $1.7 billion at present. The market seems to be betting against a fast launch for voclosporin, presumably as a result of Aurinia's limited commercial infrastructure.
What's key to understand is that Biogen has a deep interest in lupus medications, and Aurinia might be able to be had for as little as $3.5 billion to $4 billion. A buyout would also take the risk of a commercial launch off the table for Aurinia shareholders. A merger would thus be a win-win for the stakeholders of both Aurinia and Biogen.
2. Cassava Sciences (SAVA 0.93%) is a small-cap biotech with enormous potential. The key reason is the drugmaker's late-stage Alzheimer's disease candidate sumifilam. Sumifilam, like all Alzheimer's drug candidates, is a long shot, to be sure. But this drug did impress in a mid-stage trial earlier this year, paving the way for a pivotal stage trial. That's an exceedingly rare feat among experimental Alzheimer's treatments in general.
The only problem is that Cassava does not have the funds to pay for such a trial. As such, the biotech is more than likely on the hunt for either a partner or a buyout offer. Biogen, for its part, could probably pick up this intriguing asset for less than $700 million -- given Cassava's tiny market cap of $255 million and weak financial position.
3. Heron Therapeutics (HRTX -5.36%) makes this list for three reasons. First, Heron's non-opioid pain medication HTX-011 has blockbuster potential. The drug is already approved in the EU under the brand name Zynrelef and an approval in the U.S. should occur sometime in the second half of 2021.
Second, Biogen does have aspirations of building out a top-notch pain drug portfolio. HTX-011 would thus dovetail nicely with the biotech's future product portfolio. Finally, Heron could likely be bought out for less than $4 billion, which is a bargain for a company with a potential blockbuster pain medication. In short, Heron checks a lot of boxes for Biogen as a bolt-on acquisition.
Bottom line
Biogen may continue to shy away from larger merger and acquisition deals and simply wait for its clinical pipeline to mature. But if the biotech was ever going to pull the trigger on a mid- to large sized acquisition, the next few months seem like the most likely time frame for a deal to materialize -- especially if the FDA formally rejects aducanumab as most industry insiders expect. Aurinia, Cassava, and Heron are all logical fits for the biotech from both a portfolio and price standpoint.
