Biogen Idec Acquisition ThesisNovember 30, 2007.ppt

Biogen Idec Acquisition ThesisNovember 30, 2007 Umesh Baheti (MBA) Jason Chen (MD) Akshay Dhiman (MBA) Huaping Tang (PhD) Market Trends Pharma sector under rough weather Lack of blockbuster drugs through internal RD Concerns surrounding drug safety and patents Increased scrutiny by the FDA on new and existing products FDA approvals to RD dollars spent has declined ($64Bn,13 approved compared to $27Bn, 24 approved in 1998)1 Increased competition from generics Possibility of control on drug prices by new Administration could further erode industry profits Pharma seeking new growth avenues Increasing focus on niche areas Alliances offer enhanced discovery capability through beefing up the pipeline and filling strategic gaps Biotech valuation multiples higher than Pharma due to higher growth potential Pressure on management to improve shareholder returns Increased shareholder activism Pfizer under pressure! Pfizer’s rationale for acquisition Acquisition Evaluation Benefits Access to Biogen’s pipeline Product Diversification Access to Avonex and BG-12 Access to Biogen’s RD resources Knowledge diffusion into Pfizer’s existing RD Access to niche and profitable MS market Financial Higher valuation multiples due to biotech slant Higher gross margins on biotech Synergies Technology Leverage Pfizer’s global sales and distribution capability Risks Organizational Divert attention from internal rationalization Different RD cultures and priorities; RD diseconomies of scale Limited cost synergies: Geographically diverse locations Transaction Uncertainty Complications due to CoC provisions Rituxan may not end up with Pfizer Risk of overpay due to higher valuation Liability Efficacy and safety of Tysabri Revenue Erosion Flagship product Avonex under threat from generic substitution and competition Timeline may not match MS mechanism and treatments Comparison of existing MS drugs Valuation Assumptions Sum of the parts analysis: 3.0-4.0x multiple on ’10 expected revenu