Multi-faceted deal

Abbott expands pipeline with $450 million Facet Biotech acquisition

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ABBOTT PARK, Ill.—Seeking to boost its biologics capabilities and pharmaceutical pipeline, Abbott Laboratories on March 9 announced its acquisition of biotechnology company Facet Biotech Corp., for $27 per share in cash for a net transaction value of approximately $450 million.

The transaction, approved by both companies' boards of directors, includes a purchase price of approximately $722 million less Facet's projected cash and marketable securities at closing of approximately $272 million. Pending regulatory and other customary conditions, the purchase is expected to close in the second quarter. Abbott said it does not expect the transaction to impact its previously issued ongoing earnings-per-share guidance for 2010.

Abbott was not the only suitor for Facet, which last year rebuffed overtures from development partner Biogen Idec to acquire to company for $17.50 a share. Abbott's offer of $27 a share was 67 percent above the company's closing price at the beginning of March.

"We believe this transaction provides full and fair value for our stockholders and validates the potential of Facet's clinical and technology assets, all of which has resulted from the effort and dedication of our employees," said Faheem Hasnain, president and CEO of Redwood City, Calif.-based Facet, in a statement. "Abbott's depth of expertise in immunology and oncology makes it an excellent organization to maximize the full potential of these promising clinical programs and technologies."

Despite rejecting Biogen Idec's offer, Facet says it will still continue to work with the company on daclizumab, an experimental multiple sclerosis (MS) treatment that the companies are expected to move into late-stage development in the second quarter. Daclizumab is a humanized antibody that binds to the high affinity IL-2 receptor and selectively inhibits this receptor on activated T cells. Studies to date have shown that daclizumab may reduce the inflammatory lesions associated with MS and has the potential to offer enhanced efficacy over many existing MS therapies, along with a favorable safety profile.

Facet also has several oncology compounds—notably, to treat multiple myeloma and chronic lymphocytic leukemia—in early- to mid-stage development with other partners, as well as programs for conditions such as Alzheimer's disease, schizophrenia, hepatitis C and pain.

All of these programs are what attracted Abbott to Facet, says company spokesman Scott Stoffel. In particular, daclizumab has the potential to fulfill an unmet patient need and shows great promise for MS treatment.

"Many current MS treatments have limited efficacy and/or safety issues, but daclizumab has the potential to deliver the balance of that," Stoffel says. "Facet also has many programs in its pipeline for neuroscience, oncology, infectious disease and vascular disease—which made them a very attractive partner from a pharma perspective because those are primary focus areas."

Stoffel notes that unlike other large pharmas, which are engaging in or eyeing acquisitions to help stave off patent losses, Abbott is in a good financial position and not worried about falling off the patent cliff.

"We don't have a lot of treatments going off-patent, and we're one of the companies least impacted by patent expirations," he says. "The primary driver of this acquisition was to broaden our pipeline."

Stoffel declines to speculate on whether Abbott is seeking other partners, but adds, "we always have our eyes open for things that might continue to diversify our business or provide items for our pipeline."

For the most part, analysts have looked favorably upon this acquisition. Goldman Sachs analyst Jami Rubin stated, "'targeted small- and mid-sized deals are notably minor when viewed in isolation, but could be meaningful when viewed collectively, given the diversified 'shots on goal' approach to accessing large addressable markets."

However, shares of Abbott took a dive after Citi analyst Matthew J. Dodds downgraded the company to "Sell" from "Hold" and reaffirmed a $52 price target, saying the company "appears to be masking underlying profitability trouble" and any benefit Facet brings to Abbott's pipeline won't begin before 2013.

"The earnings-per-share lift should trail off in 2011," Dodds wrote in a note to investors. "With a thin pipeline, this only increases Abbott's dependence on Humira," which is Abbott's best-selling drug for inflammatory disease.


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