US biotech giants in $7 billion merger

The merger wave in America's biotechnology industry gathered pace yesterday as Idec Pharmaceuticals announced a $7bn (£4.1bn) deal to acquire its rival Biogen, hit by stagnating sales growth in Avonex, its flagship drug for the treatment of multiple sclerosis.

The deal would be the largest in the sector since Amgen paid some $10bn for the Immunex company in 2001. The initial reaction on Wall Street was cool, as traders sent shares in both companies down by over 5 per cent on the Nasdaq market in early trade. But analysts said the merger would enable a combined group to offer a more diversified product range, reducing reliance on a very few specialty drugs.

While Biogen specialises in multiple sclerosis and psoriasis treatment, Idec focuses on cancer drugs, in particular for non-Hodgkin's lymphoma.

The dependence on Avonex, whose sales grew just 3 per cent in first quarter of 2003 compared with 21 per cent in the same period of 2002, is seen as having made Biogen vulnerable. Even before the latest deal was made public, the company warned that second-quarter earnings would fall below Wall Street forecasts.

The new company, Biogen Idec Inc, will have sales of some $1.55bn in 2003, and more than $1.5bn of cash on its balance sheet. It claims the merger will produce savings of $500m over the next four years. Idec's principal product is the non-Hodgkin's lymphoma drug Rituxan, which registered a 32 per cent sales growth in the latest quarter - an impressive increase, but a distant cry from an 83 per cent surge in first quarter of 2001.