fwiw, BGEN makes online investor's stock o' the day.
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Biogen
Is There Any Merit to Takeover Talk?
May 14, 1999 - Shares of Biogen (Nasdaq:BGEN) jumped nearly 12 points on Thursday, in part due to speculation that it could be a takeover target for Johnson & Johnson. J&J had been in talks to acquire another biotech company, Centocor, but the two companies failed to reach a deal. That apparently led some to ponder the possibility that J&J would turn its sites toward Biogen.
Betting on takeovers is risky business, though, and there are some gaps in the logic to think that Johnson & Johnson would buy Biogen as a backup plan to the Centocor deal. J&J was supposedly interested in Centocor for its heart drug business. In particular, Centocor's anti-clotting agent, ReoPro, is a well-established drug which J&J could have bundled with its coronary stents to regain lost market share in the lucrative stent market. Biogen, on the other hand, has no heart drugs on the market and only one in clinical trials for congestive heart failure, so it still has many years of testing ahead of it.
Biogen's stock has also behaved much better than Centocor's over the past year, so it's not a depressed stock situation that can encourage takeovers. Indeed, Biogen more than tripled since we profiled it in January, 1998. In contrast, Centocor is essentially unchanged from where it was a year ago.
This is not to say Biogen can't be bought out--whether by Johnson & Johnson or someone else--but it certainly wouldn't be for the reasons Centocor was in J&J's crosshairs.
Prior to Thursday's jump, Biogen's stock price was in a mini-slump. After soaring from the low-$30s in early '98 to as high as $120.50 in April, valuation became a concern. Two analysts downgraded Biogen last month after it reported earnings that were only in line with the consensus. Investors tend to demand upside surprises out of high-flying stocks. Analysts also cited increasing competition in the market for MS drugs, where Biogen gets the bulk of its revenues. The stock retreated to the low $90s before rebounding on Thursday's takeover speculation.
Takeover speculation aside, Biogen is considered one of the cornerstones of the biotech universe. It has a history of profitability, putting it among a few dozen biotechs to reach that point. With a market cap of $8 billion, big institutional investors can at least consider it. Fewer than two dozen biotechs have a market cap of $1 billion or more.
Biogen's lead product is Avonex, a fast-growing treatment for multiple sclerosis (MS) which brought in sales of $131 million in the first quarter. In 1998 the company grew earnings by 54% to $1.80 per share, and in 1999 Biogen is off to a good start with a 61% first quarter increase in EPS. The number of MS patients using Avonex is up to 60,000 from 35,000 at the start of 1998. Biogen expects to reach 100,000 patients on Avonex worldwide over the next several years.
Avonex received FDA approval in mid-1996 as a treatment for MS. This product marked a shift in strategy for Biogen to marketing the drugs they develop, instead of simply licensing them to a big pharmaceutical company and collecting royalties. Biogen still collects substantial licensing revenues from products it developed in the past such as alpha interferon drugs used to treat hepatitis.
But Avonex sales will be the key driver for several years to come, since Biogen's next major product launch is still two or three years away. The company is studying several other uses for Avonex, and it has three new drugs in Phase II clinical trials right now. Amevive is a T-cell inhibiting protein intended to treat psoriasis and other inflammatory conditions. Adentri is being studied as a treatment for edema associated with congestive heart failure. Last but not least, Biogen is conducting trials with Antova to treat lupus and other autoimmune disorders.
With this last drug, Antova, Biogen may have received some indirect good news on Thursday. La Jolla Pharmaceuticals and its marketing partner, Abbot Labs, decided to end phase II/III clinical trials of their lupus drug after it failed to deliver the desired results. That leaves the door open for Biogen, but with its compound still in Phase II it is a long way from the prize. Ultimately, the company needs this pipeline to come through so that there is more than one horse pulling the cart.
- James Hale
investhelp.com |
