June 24, 2003, When Amgen (NASDAQ: AMGN) announced plans to acquire Immunex in December 2001, it was clear that the combined company would benefit from synergies marketing Enbrel and Kineret for rheumatoid arthritis, as well as Amgen’s ability to address Enbrel supply constraints. Analogous synergies from yesterday’s announced merger between IDEC (NASDAQ: IDPH) and Biogen (NASDAQ: BGEN) are less clear. Both companies have a major blockbuster on the market, but synergies between Rituxan (primarily a cancer drug) and Avonex (for multiple sclerosis) are not apparent. Even possible marketing synergies such as Rituxan for rheumatoid arthritis and Amevive for psoriasis are a stretch.
The most important benefits for the combined company appear to be defensive. Both companies have weak pipelines and limited near-term growth potential. Rumors of an IDEC takeover by Genentech (NYSE: DNA) have been rampant. The combined company hopes to cut operating costs and at the same time achieve advantages of scale.
Advantages to shareholders will be long-term at best. The combined company may be more effective at building its pipeline, especially through acquisition of either drugs or companies, over the next several years. But new drugs (other than Biogen’s Antegren) are likely to be at least five years in the future.
A major question raised by Amgen’s acquisition of Immunex was whether biotech companies are able to grow to rival pharmaceutical companies’ size, yet still remain innovative. The Biogen / IDEC merger will fan the flames of this debate. But it can be argued that since neither Biogen nor IDEC had a pipeline full of interesting drugs, there may not have been an innovative spirit to crush. Developmental biotech companies are less attractive acquisition targets because their profits are years away. Since the number of remaining mid-size biotech companies with profitable drugs can be counted on one hand, we expect the Biogen / IDEC merger to be an isolated event.
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