Biogen Idec: Earnings Up, Gauntlet Down, Headhunters All Around?
We at Xconomy are anxiously waiting to see what activist investor Carl Icahn has to say about the B word (Biogen Idec) when he puts bits to screen on his newly announced blog. But in the meantime, yesterday’s quarterly earnings call gave us a little taste of what Biogen CEO Jim Mullen has to say (directly and indirectly) about Mr. I., his recent attempts to force a sale of the company and put his own people on the board, his fiery press release from last week, and the potential effect of all that on Biogen’s staff.
Mullen opened with the news that Biogen (NASDAQ: BIIB) has achieved its 2007 growth targets. The company had $3.2 billion in revenues, an 18 percent increase over 2006, and its non-GAAP earnings grew by 22 percent. The last quarter was particularly strong, he added, “and I think that is despite some of the uncertain events in the fourth quarter.”
Chief among those “uncertain events,” of course, was the attempted sale of the company. Mullen outlined why Biogen embarked on that effort: “We had received expressions of interest, first. Second, after the MedImmune and AstraZeneca transaction, [editor's note: a $15.6 billion Icahn-orchestrated deal] there was a prevailing view in the market that big pharma companies were very interested in acquiring biotech companies like Biogen Idec. The timing of our process was ultimately triggered by Mr. Icahn’s offer and our investors, which include Mr. Icahn and many others, strongly encouraged us to do so. The management and the Board felt we should test the thesis in a comprehensive and objective way to see whether it could result in a transaction that would result in greater returns to shareholders than the plan that we have described.”
Mullen went on to outline and defend the sales process, expanding a bit on what he said on the subject last month at the JPMorgan conference in San Francisco: “Our Board, in consultation with management and advisers, developed and executed a sale process that was professional, objective and thorough and was designed to elicit the highest possible value for the company’s shareholders. We engaged two investment banks that were already intimately familiar with the company’s business. These two investment banks happened to be the same two that executed the MedImmune/AstraZeneca transaction. These bankers proactively contacted a range of potentially interested buyers, close to 20 in all, to solicit interest.”
Interested parties had the chance to do “thorough due diligence,” Mullen went on to say—a counter to Icahn’s complaint that would-be buyers didn’t have sufficient opportunity to negotiate with Biogen partner Elan early enough in the process. “Despite the Monday morning quarterbacking going on about this or that decision around the process, all of which was done in concert with our financial advisers and other advisers, the basic fact remains that no company put a bid on the table.”
Mullen added—and here’s a rare point of agreement between him and Icahn—that in the end he thinks that potential buyers likely balked at the risks associated with Tysabri, a Biogen drug for multiple sclerosis and Crohn’s disease, that has been linked to a rare and potentially fatal brain infection called progressive multifocal leukoencephalopathy (PML). And he refuted the much-reported speculation that Biogen itself is considering making a big acquisition—an idea that particularly irked Icahn. “In late 2006 and early 2007, we concluded that there were no significant acquisition targets that met the test of strategic fit at attractive valuations and we, therefore, returned $3 billion to shareholders in a Dutch auction,” Mullen said. “We do occasionally see smaller acquisition targets that could be executed for cash and accommodated into our current business forecast. At this time, our valuation of the acquisition market for a large company is that no company meets the dual test of strategic fit at attractive valuation.”
In the Q&A portion of the call, Bill Tanner, an analyst at Leerink Swann, asked how disruptive Mullen thought it would be if the company was forced to revisit the idea of a sale in the case of a board shakeup. “It sounds like the last iteration was somewhat painless,” Tanner added.
“Well, somewhat painless is probably an overly optimistic description of the last process,” Mullen responded. A key challenge, he added, “is how do we keep people focused on the ball and how do we recruit in great talent to continue the momentum in the business? Certainly, a lot of distractions around that aren’t helpful for that or business development…I don’t think the right way to run the business is to have, for anybody’s sake, a permanent ‘For Sale’ sign out on the front lawn. So I think we have to get back to the business, focus on prosecuting and going forward and if circumstances and conditions change, we will address those at that time.” Though employee turnover rates were solid in the fourth quarter, Mullen said, “I am actually more interested in what happens in the first six months of this year, because every headhunter used that as an opening to call everybody in the place.”