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Is Biogen An Offer Pfizer Can't Refuse?


With a market cap of $19.25 bln, Biogen would seem to be a pretty nice fit for the drug-starved giant Pfizer.

Calogero: "Is it better to be loved or feared?"
Sonny: "That's a good question. It's nice to be both but it is difficult... but if I had my choice, I would rather be feared. Fear lasts longer than love."

-A Bronx Tale

A Bronx Tale is a great movie you can take a lot of life lessons from, but for me the love versus fear message in particular rings true everyday regarding the market. Everybody has loved the market the last few months. Each day is another confetti party as the Dow continues to make new highs.

Yesterday, however, the dark side reared its ugly head and fear took hold: if you happened to watch any of the market coverage yesterday you would have sworn it was the end of civilization. Fear not, I say!

While I agree that it seems like this subprime contagion has oozed its way into other areas and where I also agree that the credit markets may be getting a bit squirrelly - corporate America by and large has never looked better. Say what you want about Sarbanes-Oxley, but it seems to me that U.S. companies have never been run better and balance sheets by and large have never been in better shape.

Now one can argue that Pfizer's (PFE) sale of its consumer brands business to Johnson & Johnson (JNJ) last summer for slightly north of $16 bln could fetch around $20 bln with the M&A frenzy of today. That being said, although things are terrible for Pfizer on the pipeline front, its balance sheet, due in part from that sale to JNJ, is looking pretty good. I am thinking that Pfizer is going to put that money to work and I need look no further than Biogen Idec (BIIB) as a potential candidate.

Yesterday, Biogen reported a solid 2Q and guided higher for the balance of the year. It also said revenue growth should come in anywhere between 16%-18%. But I don't think this is just an earnings story and BIIB is not your typical biotech company. With four major drugs, in Avonex, Rituxan, Tysabri and Zevalin, Biogen has about four times as many drugs as the usual run-of-the-mill biotech. On top of that, on May 29 it announced a $3 bln share repurchase plan, which again is rather atypical of your usual name in that space.

Now with the stock trading with a $56 handle we have seen quite a move since March, when the stock bottomed out around $43. But it seems to be firing on all cylinders right now and, with a Thomas Weisel Partners upgrade this morning, the tailwinds seem to be growing.

With a market cap of $19.25 bln, Biogen would seem to be a pretty nice fit for the drug-starved giant Pfizer. But even without any M&A chatter Biogen has it all going on right now.

To borrow a scene from A Bronx Tale, let's just hope Biogen is not Kryptonite at Aqueduct and I am not Eddie Mush cheering him on.
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