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Wall Street failed to embrace the deal, sending shares of both companies down over 4 percent on the Nasdaq. When the deal was first announced before the opening bell, it was valued at $6.79 billion.

"The companies are merging out of necessity because sales of their top-selling medicines are stagnating and they have a shortage of early-stage experimental medicines in their pipelines," said Viren Mehta, a principal of Mehta Partners.

The Biogen-Idec combination would be the largest U.S. biotechnology deal since Amgen (NasdaqNM:AMGN - News) agreed in December 2001 to buy Immunex for $10 billion, and follows a recent string of smaller biotech mergers.

The companies are looking to diversify diseases they treat. Cambridge, Massachusetts-based Biogen sells drugs for multiple sclerosis and psoriasis, while San Diego-based Idec targets cancer.

Idec's main product is Rituxan for non-Hodgkin's lymphoma, whose U.S. first-quarter sales rose 32 percent to $310 million. That reflects a slowdown from growth of 39 percent in 2002 and 83 percent in 2001.

Idec co-markets Rituxan with Genentech Inc. (NYSE:DNA - News), which keeps over half of profit from the medicine.

Biogen's earnings, meanwhile, are deemed by Wall Street as too dependent on multiple sclerosis drug Avonex, whose sales growth has been hurt by U.S. introduction last year of Serono SA's (SEOZ.VX) rival Rebif.

In the first quarter, sales of Avonex grew only 3 percent to $274 million, compared with 21 percent growth in the 2002 quarter.

"The price Idec is paying looks a little rich considering that Biogen has become so dependent on Avonex and its sales are now sputtering," said David Saks, chief investment officer of the Saks MedScience Fund at Ladenburg Thalmann.

Biogen launched its second drug in January, Amevive for psoriasis, but it could soon face tough competition from rival medicines made by Genentech, Amgen and Johnson & Johnson (NYSE:JNJ - News).

Biogen is developing a promising newer drug for multiple sclerosis, Antegren, but its approval could be at least two years away.

Henry Astarjian, an investment analyst for MFM International, questioned why Idec -- with expected annual average earnings growth of 24 percent in 2003 and 2004 -- would want to buy a company growing at only half that pace.

He said Biogen's likely motive for selling out seems more obvious -- fear that Avonex sales could continue to wane and hurt future company earnings.

Even as the deal was announced, Biogen on Monday warned its second-quarter earnings would fall short of Wall Street estimates.

Idec said the deal, expected to close by the end of the third quarter or early fourth quarter, would improve its earnings within two to three years.

Biogen shareholders would receive 1.15 Idec shares for each Biogen share. Idec holders would own about 50.5 percent of the stock of the combined company.

Based on Idec's share price Monday, Biogen shareholders would get a tiny premium for each share owned.

The new entity, Biogen Idec Inc., will have revenue of about $1.55 billion this year and more than $1.5 billion in cash. The merger would provide cost savings of almost $500 million through 2007.

Shares of Biogen were down $1.95 to $41.85, or 4.5 percent, while Idec fell $1.81 to $37.16, or 4.6 percent, in heavy afternoon trade on the Nasdaq. Their declines helped drag down the biotech sector by 4 percent amid a moderate decline in the broader stock market.