An Analysis of Icahn’s Biogen Idec Strategy: Why Three Board Seats When Four Will Be Open?

1/31/08Follow @bbuderi

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of Biogen will take time—indeed, another year or so of safety data could help quell fears about PML—and that the investor is prepared to wait. But recent events nudged him to get more active in the meantime. Basically, as Icahn laid out in his press release, he was miffed by Mullen’s widely reported comments—in an interview with Mergermarket quoted in the Financial Times—that Biogen could spend up to $10 billion on an acquisition. Icahn’s statement referred to such an acquisition as a potentially “toxic” action that could greatly raise the price for Biogen and discourage future suitors. And the Mergermarket interview was followed by reports that Biogen was looking into a potential purchase of Danish biotech firm Genmab (While Biogen doesn’t comment on possible acquisitions, a source close to Biogen says that neither deal is likely).

Icahn decided to act. As Rebecca reported on Monday, he put forth his slate of Alexander Denner, the managing director of two of his investment funds; Richard Mulligan, a professor of genetics at Harvard Medical School and the director of the Harvard Gene Therapy Initiative; and Anne Young, another Harvard Medical School professor and chief of the neurology service at Massachusetts General Hospital. Both Mulligan and Denner are also members of the ImClone board and were part of Icahn’s 2006 takeover of that company.

Biogen’s board has staggered three-year terms, with four of its 12 directors coming up for vote each year. Icahn wanted to put three in place this year. And the reason for three is if in fact things don’t go well, shareholders could then on the next election cycle put in another four directors. That would give Icahn seven seats, if his slate won again, enough to control the board. Icahn saw it as important to put that threat in place.

But there was another reason Icahn chose to put forth only three director candidates this year: to leave room for Biogen co-founder Sharp to remain on the board. (Whether that’s because he likes Sharp or just doesn’t want to mess with such a weighty figure, or both, is unclear. And Mulligan, as we also noted previously, did part of his training in Sharp’s lab at MIT’s Center for Cancer Research.) The current terms for Sharp, Cecil Pickett, and longtime board member Lynn Schenk are all expiring this year. (A fourth director, Thomas Keller, will have reached mandatory retirement age by the time of the annual meeting).

Icahn is a veteran boardroom battler and must have reasons to believe he can pull this off. But whether he does or not, he is a major Biogen shareholder, with around 4 percent of the company’s stock at this point. He will continue to push for a sale at the right price.

There simply are just a very small number of companies that have the ability to make a biologic drug, and Biogen is one of them. That’s seen as a very valuable asset to one of the Big Pharma companies that is not in this space but wants to be. Pfizer has been widely speculated to be the most likely suitor for Biogen. Novartis, Wyeth, Johnson & Johnson, GlaxoSmithKline—and pretty much every other major drug company—have been mentioned as potential buyers as well. The pharma companies are contending with enough of their own problems that it may take them a while to make the move on Biogen. But, presuming they do get there, one way or another Icahn will be on hand to help.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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