Why Doesn't Biogen Idec Just Buy Out Targeted Genetics?

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Includes: BIIB, TGEN
by: H.S. Ayoub

Shares of Targeted Genetics (NASDAQ:TGEN) jumped more than 30% on Monday after the company announced it has entered into a debt restructuring deal with Biogen Idec (NASDAQ:BIIB).

Under the terms of the agreement, Biogen Idec will increase its position in TGEN to over 19%, and TGEN will practically erase its $8 million debt. This debt reduction deal was originally entered into between TGEN and BIIB back in 2000, and restructured for the first time in September of 2005.

Obviously BIIB is hoping TGEN's gene therapy clinical candidates will eventually acquire FDA approval. These candidates include tgAAC94 for treatment of inflammatory conditions such as arthritis, and tgAAC09 for treatment of HIV/AIDS.
TGEN image
BIIB is really excited about tgAAC09, which is currently in phase II trials. The market potential for an HIV/AIDS treatment could be tremendous, both in Westernized developed nations, and undeveloped nations. The sheer number of disease sufferers in Africa for example could mean great bulk sales for the company that can far outweigh the lower drug costs.

The perplexing question is then, why doesn't Biogen Idec go ahead and buyout TGEN already? After three financing deals it would seem that BIIB keeps giving TGEN a new lifeline, but is it worth it? TGEN's market cap on the market was just shy of $30 million. BIIB could easily afford this price tag, so why not?

One theory could be that BIIB would like to distance itself from any possible negative press that could potentially occur from deleterious or harmful clinical trial events. TGEN does deal in gene therapy, which has always been a hotly debated issue in public forums.

It seems that Biogen Idec could be holding onto exciting and potentially lucrative research, while at the same time protecting its corporate image.

It would not be surprising if another such debt restructuring deal takes place between these two companies, as surely without any sign of a marketable drug on the horizon Targeted Genetics will rebuild its debt levels.

TGEN vs. BIIB 1-yr chart:

Tgen biib chart