MRK Merck and Co Inc

By Dana Mattioli, Jonathan D. Rockoff and Dana Cimilluca 

Biotechnology giant Biogen Inc. has drawn takeover interest from drug companies including Merck & Co. and Allergan PLC, raising the possibility of another huge deal in the health-care industry.

Merck and Allergan have each sounded out Biogen on the possibility of a takeover, people familiar with the matter said. The communications were informal and preliminary, and they may not result in a deal -- in part because Biogen may not be interested, they added.

Biogen had a market value of $68 billion on Tuesday afternoon. It isn't clear whether other large drug companies also are contemplating a purchase of the company, which is searching for a new chief executive.

Whether there is a deal or not, the interest in Biogen shows the hunger big pharmaceutical companies have for new sources of growth.

After years in which their pipelines were depleted, new-drug approvals are up. But the companies have become so large that adding a new blockbuster drug in many cases isn't enough to increase growth substantially -- especially given the pricing pressures that they face. Merck had a market value of $162 billion; Allergan's was $101 billion.

Biogen had sales of $10.8 billion last year, up 11%. The company, based in Cambridge, Mass., dominates the lucrative market for multiple-sclerosis drugs, now worth nearly $20 billion a year. Its Tecfidera treatment for the condition had one of the best new-drug launches after its 2013 approval, and Biogen stock has roughly doubled since the beginning of that year, even after a sharp recent drop.

Following The Wall Street Journal report Tuesday, Biogen shares closed up 9.4% to $330.11.

Biogen shares have dropped from a high of nearly $500 they touched early last year, amid worries about its growth prospects. Tecfidera sales have slowed as competitors like Roche Holding AG develop rival treatments.

The decline in Biogen stock may be seen as an opening for prospective suitors who also may view the company as vulnerable to a takeover because it is in flux.

Last month, Biogen Chief Executive George Scangos said he would step down in coming months -- just as the company topped second-quarter expectations, provided an upbeat earnings outlook and unveiled a $5 billion share buyback. Biogen said it is searching for a new CEO. It also is spinning off its faster-growing but small hemophilia-drugs unit.

To be sure, Biogen's pipeline of drugs in development is considered by some on Wall Street to be highly risky. The company has spent heavily on potential treatments for Alzheimer's, a disease that has consistently frustrated drugmakers.

But Biogen's research in Alzheimer's and strength in multiple sclerosis would also make it attractive to the likes of Merck and Allergan.

One of Allergan's top-selling products is Alzheimer's drug Namenda. Biogen's multiple-sclerosis therapies would add to Allergan's portfolio of drugs that treat central-nervous-system disorders.

Dublin-based Allergan has been an active deal maker in recent years, usually with friendly targets, as it has sought to leverage a low-tax domicile and build a portfolio that is among the industry's fastest-growing.

In April, Allergan and Pfizer Inc. walked away from a proposed $150 billion merger after the government took steps to deter deals known as tax inversions. The combination would have helped Pfizer lower its corporate tax rate by moving its headquarters abroad.

Allergan on Tuesday closed the $40.5 billion sale of its generic-drugs business to Teva Pharmaceutical Industries Ltd. The sale provides a windfall of cash Allergan could use to help pay for a large acquisition.

Adding Biogen's drugs for multiple sclerosis -- a condition that affects more women than men -- would complement Merck's portfolio of female-health products, including birth-control device NuvaRing. Like Biogen, Merck is investing heavily in finding new Alzheimer's treatments.

Merck is trying to return to consistent sales growth after several years of declines, as some of its older drugs have been hurt by generic competition. Sales in its Januvia franchise have slowed because of intense competition in the diabetes market.

To help rejuvenate its pipeline, Merck, based in Kenilworth, N.J., has been on a buying spree of late. Last year, it bought Cubist Pharmaceuticals for about $8 billion. In July, it acquired biotech Afferent Pharmaceuticals for about $500 million.

Merck's biggest deal to date was its roughly $50 billion acquisition of Schering-Plough Corp. in 2009.

Any deal for Biogen would provide a jolt for a mergers-and-acquisitions market that has been more subdued this year following a record surge in 2015, when some $4.4 trillion of deals were struck.

Total announced takeover volume world-wide stands at $1.97 trillion so far this year, down 19% from the same period in 2015, according to Dealogic. Market volatility and the collapse of a number of high-profile mergers have put a damper on deal making this year, bankers say.

Health care has been hit particularly hard, with the government scuttling Pfizer-Allergan and now seeking to block two big health-insurer tie-ups announced last year: the proposed mergers of Aetna Inc. and Humana Inc. and Cigna Corp. and Anthem Inc. Companies involved in both deals have indicated they were ready to fight to save their transactions.

Health care is the third-busiest sector for M&A globally this year, after technology and real estate; last year it was second after technology.

Year to date, there have been $185 billion in announced health-care deals globally, according to Dealogic. That is less than half the volume for the same period in 2015.

Write to Dana Mattioli at dana.mattioli@wsj.com, Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

August 02, 2016 19:44 ET (23:44 GMT)

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