Facet Cuts Shareholder Deals To Fight Off Hostile Biogen Bid

Biogen Idec will drop its $450 million tender offer, but the companies still must work together to develop two key drugs.

Biogen Idec ended on Thursday, Dec. 17 its hostile $450 million bid to buy its multiple sclerosis development partner Facet Biotech, leaving Facet to look for suitors with more lucrative offers.

To fend off Biogen's sweetened $17.50-a-share tender offer, Facet struck a deal with its top two shareholders, The Baupost Group and Biotechnology Value Fund, both of whom agreed Wednesday not to tender shares. In exchange, they received the right to boost their Facet holdings to between 15 percent and 20 percent of total shares without triggering a poison-pill plan. Facet's board launched the plan in September as a response to Biogen's first hostile bid of $14.50-a-share, or $355 million.

The Redwood City, Calif. biotech has charged its bankers at Centerview Partners to find higher bids, and it left the door open for Biogen Idec to jump back in, too. Biogen spokeswoman Amy Reilly declined to comment other than to say, "We're moving on."

Biogen Idec's hostile approach had been brewing since at least August, when it first made a private bid for Facet of $15-a-share. The Cambridge, Mass. firm took its offer public in September, lowering the price to $14.50-a-share, soon after Facet struck a licensing deal with Seattle antibody firm Trubion Pharmaceuticals .

Biogen boosted its price earlier this month to no avail (Also see "Facet Rejects Biogen Again, Opens Up to Other Bids" - Pink Sheet, 10 Dec, 2009.).

The companies still have to work together on development of Facet's most advanced asset, daclizumab, an anti-CD25 humanized antibody for multiple sclerosis, and volociximab, under development to treat solid tumors. (The two firms have outlicensed the ophthalmology indication for volociximab to Ophthotech.)

"Though Biogen has referred to the offer as its 'best and final,' we see potential for a further raised bid as Facet solicits additional offers, given synergies stemming from the firms' partnership on daclizumab and voloxicimab," wrote Standard & Poor's equity analyst Steven Silver in a research note Thursday.

Phase III trials and big milestones coming

Facet is now enrolling patients in SELECT, the first of two registrational trials for daclizumab. Enrollment for the second trial, dubbed DECIDE, is due to start in the first half of next year and will trigger a $30 million milestone payment to Facet. Facet is running the trials with Biogen reimbursing half the costs.

Facet officials argue that Biogen Idec is grossly undervaluing their company, which has more than $300 million in cash and equivalents and should earn with "extremely high probability" $60 million in milestones by mid-2010. In addition to $30 million from Biogen, the company stands to receive the same amount from Bristol-Myers Squibb, which optioned two anti-CS1 compounds from Facet in 2008. At Thursday's market close, Facet's market capitalization was $429 million. Its shares closed up 72 cents, or 4.4%, to $17.12.

Facet was once the R&D side of PDL BioPharma, nee Protein Design Labs, a pioneering biotech that held key patents underpinning several top-selling humanized monoclonal antibodies, including Avastin (bevacizumab), Herceptin (trastuzumab), Lucentis (ranabizumab injection) and Biogen's own Tysabri (natalizumab).

But under shareholder pressure, PDL split in two last year, with the so-called Queen patents going one way, into a holding company that kept the PDL name, and the R&D shop turning into Facet. In addition to $375 million in startup cash from PDL, Facet also received a pipeline that included the two compounds that Biogen Idec has co-owned since 2005. In that deal, Biogen paid $140 million upfront--including $100 million in equity--for the rights to daclizumab, volociximab, and the now-discontinued autoimmune candidate HuZaf (Also see "Deal Update: Taking Stock of Biogen Idec" - In Vivo, 1 Sep, 2005.).

Biogen's tender offer expired on midnight Wednesday, one day after Biogen threatened to run a proxy contest if board members didn't comply with shareholder votes. But shareholders did not tender a majority of shares. Biogen spokeswoman Reilly declined to say how many shares were tendered, exactly. But at the lower price of $14.50, Facet shareholders in October tendered only 0.1 percent of shares, which forced Biogen to extend its tender offer by two months.

Facet rescinded the ownership ceiling of 15 percent for Baupost and BVF, which can now go as high as 20 percent if they wish. Both investors agreed, however, that if they do exceed the 15 percent limit they will vote any shares above that threshold either in proportion with other Facet shareholders or according to the direction of the Facet board in future voting situations. For the rest of Facet's shareholders the poison-pill plan remains in effect until September 2010.

-Alex Lash ( [email protected] )