Abbott Experiments with a $450 Million Deal for Facet

If you take a look at the website of Facet Biotech (FACT), there are two sections that standout: "Solid Financial Position" and "Promising Pipelines." With messages like these, it should be no surprise that the company has been the target of several buyout offers.

Late last year, Biogen (BIIB) made a $17.50-per-share unsolicited bid for Facet, but the offer failed to get enough shareholder votes. In the meantime, the company looked for other possible suitors.

Well, this week Abbott Labs (ABT) announced it would acquire Facet for $27 per share. The acquisition is valued at $450 million (this is adjusted for the company's $272 million cash balance). The friendly deal is expected to close in the second quarter of this year and has been approved by the boards of both companies.

A Small Company with Cutting-Edge Technologies

While still fairly small, Facet has lots of potential. The company has developed cutting-edge technologies that allow for rapid and comprehensive mapping of entire proteins. This allows for so-called "biobetter" drugs, which essentially improve existing offerings on the market. So far, Facet has identified variants of drugs like Avastin, Erbitux, Herceptin, Humira and Xolair.

For example, Facet's daclizumab has the potential to be a safer and more effective treatment for multiple sclerosis than current therapies. Assuming there is regulatory approval, this next-generation drug is likely to take a growing share of the $10.9 billion market opportunity. To pursue this, Facet has partnered with Biogen.

Another key drug is elotuzumab, which is focused on treating multiple myeloma. The estimated market opportunity is $7.1 billion by 2014. Facet has a strategic partnership with Bristol Myers Squibb (BMY) to develop this drug.

Assuming Facet can reach its milestone on these two drugs, there will be a combined $45 million payment for the first half of this year (according to the investor presentation).

Risksin the Biotech Market

While the prospects look bright for Facet, the fact remains that the biotech industry can be dicey. An adverse regulatory ruling can crush revenues. Just look at the recent case of XenoPort (XNPT), which failed to get FDA approval on its drug for restless legs syndrome. As a result, the shares lost 66% of their value and now the company is aggressively cutting jobs.

But Abbott understands the dynamics of the biotech market and feels confident in Facet's technology. After all, Biogen certainly wanted to own the platform. Besides, Abbott needs to bulk up its drug pipeline -- and this means ramping up the appetite for risk. In fact, the company has been pursuing a fairly aggressive M&A strategy, striking $10 billion in deals last year for companies like Advanced Medical Optics and Solvay.