NEW YORK (CNN/Money) -
Biotech firm IDEC Pharmaceutical Corp. is combining with larger rival Biogen Inc. in a stock deal worth about $6.7 billion, the companies said Monday.
Under the merger announced early Monday, Biogen shareholders will get 1.15 shares of IDEC for each of their shares, a premium of only 2 percent based on Friday's closing prices. Biogen (BGEN: Research, Estimates) closed at $43.80, up 55 cents, while IDEC (IDPH: Research, Estimates) closed down 3 cents at $38.97.
Wall Street failed to embrace the deal, sending shares of both companies down about 5 percent in heavy trading on Nasdaq.
Biogen shareholders will hold 49.5 percent of shares in the new company after the deal is complete, according to the company's release. Biogen had revenue of $1.1 billion in 2002, while IDEC had 2002 revenue of $404 million, although it has been seeing far faster revenue growth than Biogen.
Biogen CEO James Mullen will be CEO of the combined company, while IDEC CEO William Rastetter is to be executive chairman. The company will be based in Cambridge, Mass., Biogen's current home.
The companies' statement said the merger will allow the combined company 15 percent compound annual revenue growth and about 20 percent compound annual cash earnings per share growth through 2007. The companies said by combining they should be able to save $300 million in operating costs and $175 million in capital expenditures through 2007.
"Bringing our companies together accelerates both companies' strategic plans and creates a biotechnology leader with the products, pipeline, infrastructure and financial resources to grow faster and create sustainable shareholder value beyond what either company could achieve separately," Mullen said in a statement.
Biogen's key drug is Avonex, which treats relapsing forms of multiple sclerosis. IDEC's main drug is Zevalin, which it launched in April 2002 for treatment of B-cell non-Hodgkin's lymphomas.
The merger comes amid concerns that Biogen's earnings growth is too dependent on Avonex for multiple sclerosis, whose sales growth has been hurt by the U.S. introduction of Serono SA's rival multiple sclerosis drug, Rebif, more than a year ago.
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In the first quarter, sales of Avonex edged up 3 percent to $274 million, compared with 21 percent growth in the same quarter of 2002.
"The price IDEC is paying looks a little rich considering that Biogen has become so dependent on Avonex and its sales are now sputtering," David Saks, chief investment officer of the Saks MedScience Fund at Ladenburg Thalmann, told Reuters.
But Biogen also issued a warning Monday, saying it expects to miss second-quarter forecasts with earnings of 32-to-38 cents a share, up from 31 cents a year ago, but down from the 42 cent consensus forecast by earnings tracker First Call. The company blamed lower royalties from Schering-Plough Corp. for the lower-than-expected results. It reconfirmed its earlier guidance of full-year earnings of $1.72-to-$1.85, roughly in line with First Call's forecast of $1.79.
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The companies said that immediately after the merger IDEC earnings per share should gain 15 percent, excluding merger-related expenses such as the research and development writeoff and amortization of identifiable intangible assets. It said that on a net income basis, earnings per share should gain within two or three years.
"By being a big, broad powerhouse biotech company, and with the cost savings from the merger, the combined company will be less vulnerable," Saks added.
-- from staff and wire reports
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