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Biogen Update Oct. 21st, 2020

This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of Biogen shares.

My personal knowledge about pharmacy is very limited. It is difficult for me to evaluate medicine in terms of efficacy, market position, potential pricing and potential revenues. Hence I`m perhaps not the best analyst for pharmaceutical companies.

Biogen, Symbol: BIIB, is one of the largest biotech companies with revenues of about 14bn$ (14.3 2019) and a market capitalization of nearly 46bn$ (share price 240$). The main businesses are the MS business with revenues of 9.2 bn$ incl. royalties (2019) and the Spinaraza Spinal muscular atrophy business with revenues of 2.1 bn$. It adds a smaller less profitable biosimilar business.

Chances & Risks

The actual PE of 10! ((286)$ share price July 27th, 2020) and the guidance for 2020, 14.1 bn$ revenues, eps 30$, seems very inexpensive.

A main challenge for Biogen is that a West Virginia district court has ruled a key patent of Biogen on its top selling drug Tecfidera is invalid. Despite Biogen will appeal the ruling the revenues fall down nearly 20% in the US in Q3/20. It is expected to fall further. Biogen`s Spinraza is facing increasing competition as well.

A piece of the high earnings of q2/20 is that Biogen reported $103 million in unrealized gains on its equity investments in Sangamo and Ionis Pharmaceuticals, clinical-stage collaborators in the company's Alzheimer's disease and ALS pipeline programs, respectively. Investing in collaborators is important, especially since the company wants to eventually commercialize the associated drugs in development, but it doesn't result in any additional cash on hand. (data from 15)

Existing pharmaceutics loosing sooner or later their patent protection or are replaced by better ones. That means the revenues from the existing portfolio are declining sooner or later. The main question is if there are enough new products in the pipeline to replace the declining revenues from existing products.

Acc. to BIIB presentation the company has 6 products in phase III, 9 products in phase II and 13 in phase I(Q3/20 ). As a rule of thumb...For every 10 that head into clinical trials with high hopes, one will get to market. It is the question how many of these products are getting into the market and how well these products perform. But anyhow even if the lost revenues should not become replaced completly....the risk is limited as the share price is low.

A big hope for BIIB is the Alzheimer desease medication. Till today there is no succcesful therapy developed against it. The first Aducanumab phase III test failed. Another evaluation of the phase III testing with higher doses took place and it looks promising. A petition to the FDA was forwarded. The final decision of the FDA is expected on march 7th, 2021. It is a multi billion $ desease. Alzheimer is one of the big human deseases. In Germany there are 1.4 mio. poeple affected, in the USA 8.5 mio. and worldwide 47 mio. If 1/4 of the AD plagued would use Aducanumab and it would cost 10000$/yr in the US and 5000$ in Europe it has a potenital of > 20bn$/yr. Less enthusiastic a potential of 6 bn$ is mentioned in many articles.

It seems as BIIB buys products and company`s with new developments in a later stage of development to increase its pipeline (see news June 7, 2019).

A reason to buy BIIB is the high return to the shareholders. As of December 31, 2019, there was $1,279 million remaining under the share repurchase program authorized in March 2019. In December 2019 Biogen’s Board of Directors authorized an additional program to repurchase up to $5,000 million of the Company’s common stock.

Some more reasons to buy BIIB:

Are its products relevant after 5 years? Yes. (+)

Short Product Development Cycle? No (-)

Long product cycle? Yes (+)

High Moats vs. competition? Yes (+)

Cyclical? No. People need medicine in good and bad economy. (+)

PE less than industry? Yes 9 less than 19.01(+)

Book Value growing? Yes by 12.2%(+)

PEG ratio? 0.5 (+)

Revenue per Share : Consistent growth (+)

Outstanding shares reducing? Yes, through buyback (+)

Some Data:

2018 Q3/2019 Q4/2019 2019 Q1/20 Q2/20 Q3/20 Gui. 20

Revenue bn$ 13.5 3.6 3.7 14.3 3.5 3.68 3.38 13.3

Free Cash Flow bn$ 1.1

Net Income bn$ 4.431 1.546 1.439 5.889 1399 1.542 702

EPS $/share GAAP 21.58 8.39 8.34 31.42 8.08 9.59 4.46 26

Number of Shares: 220,508,784 Outstanding 163 mio. Remainder treasury Shares. That is at a share price of 240$ a market capitalization of 48.9 bn$ (April 23, 2020).

The core MS business is slowly declining.

(in millions) Q3/20 Q2/20 Q1/20 2019 Q4/19 Q3/19 2Q 2019 1Q 2019

Tecfidera 953 1182 1101 4438 1161 1122 1150 999

Avonex 381 389 367 1666 411 420 438 397

Plegridy 93 93 100 436 106 110 117 104

Tysabri 516 432 522 1892 473 484 475 460

Fampyra 27 23 97 26 24 24 23

Total MS 2257 2300 2.3 9217 2388 2348 2204 1,983

Spinraza 495 495 565 2097 543 547 488 518

Biosimilars 208 172 219 738 195 183 184 175

Pipeline Q3/20

Phase III 6

Phase II 9

Phase I 13

2019...Cost of sales 1955 mio.$ 14%!, R&D 2281 mio. $ 16%! 2019, 476 mio. $,

Informations:

Acc. to an agreement with Ionis, BIIB makes royalty payments to Ionis on annual worldwide net sales of SPINRAZA using a tiered royalty rate between 11% and 15%, which are recognized in cost of sales within the consolidated statements of income. Royalty cost of sales related to sales of SPINRAZA for the years ended December 31, 2018, 2017 and 2016, it totaled $238.0 million, $112.4 million and $0.5 million, respectively.

News

March 08,2020 BIIB signed a partnership agreement with Sangamo for the use of zinc-finger technology to progress various neurological disease candidates. BIIB paid $350m in cash plus buying shares (13).

June 07,2019 BIIB announced that it bought Nightstar Therapeutics (NST), a clinical-stage gene therapy company, focused on adeno-associated virus (AAV) treatments for inherited retinal disorders. As a result Biogen got ded two mid- to late-stage clinical assets, as well as preclinical program, in ophthalmology. BIIB paid $800 million(5).

Shareholders from market screener (4)

Name %

PRIMECAP Management Co. 7.38%

The Vanguard Group, Inc. 7.20%

BlackRock Fund Advisors 5.40%

ClearBridge Investments LLC 4.39%

SSgA Funds Management, Inc. 4.39%

Wellington Management Co. LLP 2.75%

Fidelity Management & Research Co. 2.04%

AllianceBernstein LP 1.55%

AQR Capital Management LLC 1.50%

Northern Trust Investments, Inc. 1.38%