Holger Narrog

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Biogen Update Jan 15th, 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$ (estimate 2019) and a market capitalization of nearly 46bn$ (share price 240$). The main businesses are the MS business with revenues of 9.1 bn$ incl. royalties (2018) and the Spinaraza Spinal muscular atrophy business with revenues of 1.7 bn$. It adds a smaller less profitable biosimilar business.

Chances & Risks

The actual PE of 8! (240$ share price) and the guidance for 2019 seems very inexpensive.

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 5 products in phase III, 12 products in phase II and 9 in phase I(12). 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....

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. Now there is another evaluation of the phase III testing with higher doses and it looks very promising. 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. There is 1 bn$ left from the 2018 share buyback program and another 5 bn$ share buy back program is decided for 2019. 6bn $ share buy back means buying about 27 mio. share or >10% of the outstanding shares.

Some 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 10 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:

Q2/2019 Q3/2019

Revenue bn$ 3.62 3.6

Net Income bn$ 1.494 1.546

EPS $/share GAAP 7.85 8.39

Revenues (2018): $13,453 mio., Guidance 2019: $ 14 to $14.2 billion.

Diluted eps (2018): $21.58, Guidance 2019: $29.6 to $30.4 share price 240 $ -> PE 8!

The guidance for 2019 seems conservative!

Number of Shares: 220,508,784 Outstanding 184.4 mio. Remainder treasury Shares. That is at a share price of 240$ a market capitalization of 45.6 bn$.

The core MS business is slowly declining.

(in millions) Q3/19 2Q 2019 1Q 2019

Tecfidera 1122 1150 999

Avonex 420 438 397

Plegridy 110 117 104

Tysabri 484 475 460

Fampyra 24 24 23

Total MS 2348 2204 1,983

Spinraza 547 488 518

Biosimilars 184 184 175

Q3 /2019...Cost of sales 430 mio.$ 12%!, R&D 540 mio. $ 15%!,

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

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%