Icahn’s Plan to Split Up Biogen Idec Would “Destroy Shareholder Value,” Company Says

5/15/09Follow @xconomy

Biogen Idec delivered a second counterpunch today against Carl Icahn—this time against the billionaire investor’s proposal to split the company into two parts. The company said Icahn’s idea would add administrative costs, make Biogen less attractive to a potential buyer, and “destroy shareholder value.”

The Cambridge, MA-based biotech company (NASDAQ: BIIB) offered its latest salvo to shareholders in the escalating proxy war in a filing today with the Securities and Exchange Commission.

Icahn got the ball rolling earlier this week when he launched a scathing critique of virtually every important aspect of the company’s business, concluding that it suffers from “failed leadership.” He went so far in that filing to suggest that if his nominees are elected to the Biogen board at the annual shareholder meeting on June 3, they will study whether it’s a good idea to split the company into two entities. One would be focused on cancer drugs, and the other on neurology drugs—to see if that would improve management focus, Icahn said.

Biogen fired back yesterday, but only partially. The company challenged Icahn’s assertion that the R&D pipeline is weak, and offered data to suggest new momentum is building for sales of its multiple sclerosis drug, natalizumab (Tysabri). Today, Biogen offered a detailed response to the idea of the company breakup.

“Icahn’s proposal would destroy shareholder value on multiple fronts,” the company argued in the filing. A split would not make Biogen more attractive as an acquisition target of a larger drugmaker, it would create administrative redundancies, add costs, and eliminate opportunities for drugs that might work in both cancer and neurology, the company said. The smaller companies might also have a harder time borrowing money on favorable terms, the company said.

The real agenda, the company suggested, is that Icahn just wants to make a quick buck by ginning up an acquisition. “Breaking up Biogen Idec in order to facilitate a sale is not, in itself, a business strategy,” the company said.

Specifically, Biogen said it doesn’t need to break into two parts to attract an acquirer. If it did such a thing, there would likely be only one buyer for Biogen’s cancer unit, the company said, meaning the unit would be unlikely to attract multiple bidders who would pay a premium for it. (Biogen didn’t name which company might want to buy its cancer assets, but said only that it would be a cancer-focused company.)

A breakup would also throw a wrench into collaborative R&D agreements, and could have tax implications, the company said. It would drive up R&D spending as a percentage of sales by 4 percent, and cause sales and administrative costs to climb 14 percent, the company said. It would nullify the company’s ability to take advantage of global facilities.  Then there are intangibles to consider. “Having a perpetual “for sale” sign is detrimental to employee morale, recruiting senior staff, and business development opportunities,” Biogen said.

One of the harshest comparisons Icahn made in his earlier filing was how poorly Biogen stacks up against peers like Genentech and Gilead Sciences in terms of stock price gains in recent years, as well as in R&D productivity. Biogen’s response was that many of those companies are successful because they have product diversity, and aren’t overly dependent on one product or product line. Being integrated and diversified gives it a better chance to compete, the company said.

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