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Biogen Update April 5th, 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 13 bn$ and a market capitalization of nearly 37 bn$ (share price 240$). The company’s product line consists of a handful of very expensive and highly effective drugs used to treat serious diseases including multiple sclerosis (MS), leukemia, and hemophilia. It adds a smaller less profitable biosimilar business. The biggest business is the MS business.

Chances & Risks

The general challenges for drug makers are...
- Many countries like the Europeans regulate the prices of drugs and thus limit the profits.
- Other countries as India often break the patents if the drugs seems too expensive.
- The duration of patents is limited

- It is to fear that the USA will regulate drug prices following the European example

The actual PE of 10! but shrinking. The question is if the company can replace the collapsing Tecfidera by new products.

The 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 are collapsing in the US. It is expected to fall further. Biogen`s Spinraza is facing increasing competition.

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.

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 10 less than 19.01(+)

Book Value growing? (+)

PEG ratio? -

Revenue per Share : (+)

Outstanding shares reducing? Yes, through buyback (+)

Some Data:

Number of Shares: 220,508,784 Outstanding 154 mio. Remainder treasury Shares. That is at a share price of 240$ a market capitalization of 37 bn$ (Feb 03, 2021).

The core MS business with the no 1 product is collapsing.

Pipeline

The most important new product is Aducanumab. It would be the first drug against Alzheimer and thus has a high potential on the other hand the eficacy is not clear.

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%