Biogen-Icahn: Call it a Draw and Get Back to Business

Proxy battles are all the rage these days. On the heels of a major proxy battle between Bill Ackman and Target (TGT) last week (Ackman Missed His Target), the results of the fight between Biogen Idec (BIIB) and Carl Icahn appears to have ended in a draw. Icahn, a well known activist investor, was trying to get four board members elected to BIIB’s Board of Directors, and after preliminary results were released it appears that two of them were elected in a contentious battle. Icahn had been busy with a similar attempt to replace members of the Amylin (AMLN) board last week, he succeeded in getting two of his appointees seated as well.

The two newest directors of Biogen will be Dr. Alexander Denner and Dr. Richard Mulligan, who are the same two that Ichan put on the board during his 2006 proxy fight with ImClone. ImClone was later sold to Eli Lilly (LLY) for $6.5 billion. Icahn envisions splitting Biogen and Idec into two companies, but that will likely be difficult with only two likely advocates on the board.

Not everyone was prepared for the fireworks that the Biogen shareholder meeting would produce. Reportedly, the actual meeting did not disappoint for drama, according to the Wall Street Journal.

“Wednesday’s meeting was marked with unexpected acrimony. The company’s chairman, Bruce Ross, recessed the meeting for more than three hours over shouted objections from Mr. Icahn’s nominees.

In an interview, Mr. Icahn called the delay “despicable.” “What’s wrong with Biogen is, they just run it as a country club,” Mr. Icahn said. “They can’t have the class to say we won one or two seats.” He issued a news release saying Biogen was “hijacking the election.”

A Biogen spokeswoman said the company’s actions involved “absolutely no procedural foul.”

During the recess both sides began to lobby major shareholders to support their side. This is the second such attempt by Icahn to get his preferred board members installed at Biogen. Last year, Icahn was roundly defeated garnering just about 20% of the votes. This year however, more shareholders shared Icahn’s distaste for the performance of the company. Through the turbulent year so far in the stock market, Biogen Idec’s share price has been fairly range bound between $44 and $52. This is unacceptable to Icahn who owns more than 5% of the biotech company’s stock. For Icahn, BIIB has simply too much potential as they have nine drugs in the late stages of development.

As you can see from the historical valuation chart for Biogen Idec, Ockham has been positive on the shares for nearly two years and it currently receives our most bullish rating of Greatly Undervalued. The strong fundamentals of Biogen are easily apparent, earnings are expected to come in at about $4.15 for this fiscal year and growing slightly to $4.33 in FY2010. The company earned $3.66 per share last year, and BIIB has met or beaten earnings expectations each quarter dating back to 4th quarter 2007. Currently, we find it somewhat surprising that the vast majority of Wall Street analysts that cover Biogen Idec have a neutral or hold rating on the shares and the average price target is right where shares are currently at $53.

The market is not trading on fundamentals, at least not at for the time being, but at Ockham, we believe that Biogen Idec has strong earnings and sales trends. If the company, now with more influence from Icahn, can start to rollout some of its new products successfully its likely the market will start to look more favorably on BIIB. The proxy battle has dominated the headlines, but analysts being lukewarm on the shares could be an opportunity to buy into this stock with significant appreciation potential.

“That I’ve been following a lot of headlines crossing related to Nasdaq traded point out what is going on with Biogen. Carl Icahn waged a proxy fight to win board seats on the company board. The “Wall Street Journal” confirming that Carl Icahn has won two board seats on Biogen Idec board. Trying to not only sell the company but shape up the company, and the investors liking the prospect he is will bring to their future.” Fox Business Network 6/3/2009

Biogen and Icahn: Call it a Draw and Get Back to Business

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Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

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