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Biogen’s ‘cold and calculated’ offer to buy Sage receives a mixed reaction on Wall Street
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Late last week, Biogen made an unsolicited offer to buy one of its partners, brain drug developer Sage Therapeutics.
The two biotechnology companies have worked together over the past four years on a mood-stabilizing medicine known as Zurzuvae. They split research costs and, after the medicine got approved as a treatment for postpartum depression , began sharing profits.
But Biogen now wants Zurzuvae all to itself. In a Jan. 10 letter to Sage’s top executive Barry Greene, Biogen CEO Christopher Viehbacher wrote that his company’s experience selling nervous system drugs would “enable more streamlined operations and efficient commercial execution” around Zurzuvae, which, in turn, should improve patient access.
Biogen proposed to buy all outstanding shares of Sage’s common stock at $7.22 per share — a 30% premium to their price at Friday’s market close. Altogether, the deal values Sage at nearly $470 million. The smaller biotech confirmed its board of directors will “carefully review and evaluate the proposal” to determine what’s in the best interest of the company and shareholders.
While Sage’s stock price naturally spiked Monday morning, Biogen’s was down a little over 1%, perhaps indicating Wall Street isn’t sure how to feel about the deal.
Analysts had varying takeaways. Stifel’s Paul Matteis described it as “cold and calculated,” noting how Zurzuvae is on pace to generate around $100 million in sales over the next year. With Sage shares trading at a steep discount due to a string of recent setbacks , Biogen could take control of the other half of Zurzuvae for a “really, really cheap price,” he said in an interview.
The setbacks also put Sage in a precarious position that could make it more open to an offer like Biogen’s. As is the case for many biotechs, Sage spends far more on science than it makes back in drug sales. Across the first nine months last year, the company recorded $189 million in research and development expenses and a $330 million net loss from operations.
Twice over the past year and a half, Sage has restructured its research and laid off a large portion of its staff to save money.
To Brian Skorney, an analyst at Baird, Biogen’s proposal is reminiscent of a scene from The Godfather , in which protagonist Michael Corleone offers to buy out Moe Greene’s casino and hotel business. “If Sage says no, well, it didn't work out so well for Moe Greene,” Skorney wrote in a note to clients.
“If Sage just walks away and doesn't want to negotiate at all, well then their stock is going to go back down 30% or 40%. And they don't really have a plan B,” said Matteis. “A couple quarters from now, the stock could just be lower with them burning more cash. So Biogen has put them in a really challenging spot where, if you're Sage, this is an out.”
At RBC Capital Markets, analyst Brian Abrahams doesn’t think Zurzuvae or Sage’s earlier-stage drug programs will be enough to make the biotech profitable. As such, “there could be some merit to housing the asset at a larger company like [Biogen] ... rather than remaining as a standalone,” he wrote his own note.
Biogen’s offer, though, essentially ascribes no value to Sage beyond the cash the company has on hand. Both Matteis and Abrahams believe it’s possible — if not likely — that Sage asks for better deal terms.
If the deal goes through, analysts don’t expect it to move the needle for Biogen. Revenue from the company’s biggest drugs has been in decline for the past few years, and its attempts to market new Alzheimer’s therapies have so far underwhelmed investors. Biogen is in “such a hole” that investors “want to see a home run,” Matteis said. “They want to see something majorly impactful. This is not going to massively change things.”
“We kind of wonder why they would bother,” Skorney wrote, adding that his team isn’t sure Biogen’s efforts are worth the time without Zurzuvae having a “much clearer path” to becoming a $500-million-a-year drug.
Skorney, though, did acknowledge the deal is “not a bad one” for Biogen and could ultimately be profitable.
Under Viehbacher, Biogen has sought to expand beyond neuroscience into research fields that investors consider less risky, namely immunology and rare diseases. In that pursuit, the company recently bought Reata Pharmaceuticals for $7.3 billion and HI-Bio for $1.2 billion.
Yet Biogen is under pressure to do more deals, according to Matteis, and a “small potatoes” acquisition like Sage likely won’t appease investor concerns.
“This is purely buying the other half of an asset that looks like it's worth considerably more based on your high visibility into it,” Matteis said. “But as it relates to the broader narrative of Biogen, I think if this happens, I think it'll come and go and people will move on to the potentially bigger things the company is going to do next.”
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