From H&Q
**** Hambrecht & Quist **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: BiogenPrice: 66.88Recommendation: Market PerformNotes: a,e,f
Date: 7/9/99
1 of 2 Biogen Reports Solid Q2 Results; Reiterating Market Perform Rating
Biogen reported Q2 EPS of $0.34 (less the one-time charge) on total revenues
of $188.9 million, both of which were better than our EPS estimate of $0.31 on
revenue estimate of $184.5 million. A combination of strong Avonex sales and
lower R&D expenses contributed to the improved bottom line results. With its
current $66 stock price reflectig a 10X multiple of 2000 revenues, this
valuation discounts a most optimistic view of the future. We maintain our
Market Perform Rating. 1998 A Previous Est 1999 E Previous Est
Q1 EPS $0.18 $0.18 $0.29A $0.29
Q2 EPS $0.21 $0.21 $0.34A 0.31
Q3 EPS $0.25 $0.25 $0.36 0.33
Q4 EPS $0.27 $0.27 $0.36 0.34
FY EPS $0.91 $0.91 $1.35 $1.27
FY REVS (M) $557.6 $557.6 $778.0 752.7
CY EPS $0.91 $0.91 $1.35 $1.27
CY P/E 74.1 74.1 49.4 52.5
FY Ends Dec Current Price $66.69
52-Week Range $20.9-67.5 Market Cap(M) $10510.3
Shares Out(M) 157.6 Book Value $5.50
Net Cash/Share $3.87 3-Year EPS Gth 37.3%
CY99 P/E-to-Gth 132%Summary
Biogen reported solid Q2 results after the market close yesterday. The
company posted EPS of $0.28, which included a one-time charge of $15.3 million
($0.06 per share) for writing-down several marketable securities to current
market value. Less the one-time charge, Biogen reported EPS of $0.34 on total
revenues of $188.9 million, both of which were better than our EPS estimate of
$0.31 on revenue estimate of $184.5 million. A combination of strong Avonex
sales and lower R&D expenses contributed to the improved bottom line results.
We are adjusting our year-end revenue and EPS estimates to $778.0 million and
$1.29 ($1.35 net of one-time charge) from $752.7 million and $1.27,
respectively. The stock is now trading at 45X our 2000 EPS estimate of $1.50,
which we believe fully discounts our growth expectations for both Avonex sales
and earnings. On the conference call last night, the management noted that
Avonex sales growth may slow in Q3 based on seasonality and also anticipates
significantly higher R&D expenses in 2000.
Avonex Sales Continue To Tread Higher, But Management Cites Seasonality
for Next Quarter
Biogen's product Avonex remains the key component of revenues and earnings.
Avonex sales for the quarter were particularly strong, coming in at $145.9
million, up 11% from Q1 and 67.5% from Q2 last year. This was above our
$142.5 million estimate. The company reported $104 million in sales in the
U.S. region and $41 million in Europe.
During the quarter, Biogen added 5,000 new patients in the US, and about 2,000
patients in Europe, bringing the total number of patients on Avonex therapy at
the end of Q2 to over 51,000 and 18,000 respectively, in those regions.
Avonex remains to be the market leader in the U.S., maintaining a healthy 60%
market share in U.S. over its competition including Betaseron and Copaxone.
In addition, Avonex holds 40% of the European market, tied roughly with
Betaferon while Rebif's market share holds in the mid-teens. This continued
growth in Avonex has been largely due to adoption of the 'treat early' mantra
among physicians as clinical data show that the early use of beta interferon
slows brain atrophy and disease progression. However, the management noted
that Q2 has been generally the strongest quarter for Avonex, and anticipates
seasonal slowdown in Avonex sales growth for Q3.
Total Expenses In Check, But Anticipated to Increase Dramatically Next Year
Biogen posted total expenses of $114.9 million, lower than our estimates of
$118.1 million. All three line items - COGS, R&D, and SG&A -were all belwo
what we had anticipated. Although Biogen's expense growth has historically
kept in line with revenue growth, the management on the conference call last
night announced that it intends to aggressively invest in its product
pipeline. Both Amevive and Antova are expected to begin large multi-center
trials early next year. Consequently, R&D expenses are expected to accelerate
next year to about $300 million, up about 37% from this year-end's estimated
total expenses of $223.1 million.
Finally, Biogen reported $21.3 million in taxes for Q2, reflecting a 33% tax
rate that is expected to carry out for the remainder of the year.
Biogen's Product Portfolio RoundupAmevive (LFA3-TIP)
In early June, Biogen announced the preliminary phase IIb trial data of
Amevive in treating patients with moderate-to-severe psoriasis. Although not
much detail was disclosed regarding these data, from the data points provided
it appears that the produced showed promising efficacy in these patients.
Amevive is a recombinant fusion protein made up of two parts: (1) the Fc
portion (also called the constant region) of a human IgG1 antibody linked to
(2) a human LFA-3 domain that binds to the CD2 receptor on T cells. Amevive is
designed to block the LFA-3/CD2 signaling pathway, which is believed to be an
integral part of T-cell activation. Ideally, Amevive would function as a more
specific immunosuppressant in treating diseases with an autoimmune component,
inactivating disease-causing T cells while leaving the rest of the immune
system unaffected.
On the conference call, management confirmed its intent to initiate late-stage
clinical trials for Amevive later this year. It appears that Biogen has
several issues that it must resolve with the FDA prior to launching these
trials, which include 1) identifying the optimal dose and schedule 2) deciding
among different administration routes (intramuscular, intravenous, or
subcutaneous) 3) improving the manufacturing process.
Antova (Anti-CD40L Antibody)
Our favorite product in Biogen's pipeline is Antova, a humanized monoclonal
antibody with potential activity in various autoimmune diseases and transplant
rejection. This antibody targets the CD40 ligand (also called gp39 or CD154)
expressed on activated T cells. The CD40L binds another cell surface receptor
called CD40 on B cells and other white blood cells, initiating a cell-mediated
immune response and subsequent inflammatory response. By blocking this
critical T cell-B cell communication, the anti-CD40L antibody may potentially
serve as a powerful and safe immunosuppresive drug.
Biogen currently has two open-label Phase II studies, one for renal transplant
patients and the other for patients with a rare platelet disorder called
idiopathic thrombocytopenic purpura (ITP). The first tranche of patients for
both indications have been fully enrolled and have begun dosing. The company
plans to begin the second stage of the Phase II studies later this year after
evaluation of the first group. The company has also initiated a clinical
study for factor VIII hemophilia, and is planning to begin Antova clinical
trials for lupus, islet cell transplantation, and multiple sclerosis. In
total, Biogen will be evaluating Antova in six different indications by year-
end. The company is expecting to present clinical data Amevive for ITP at the
upcoming American Society of Hematology (ASH) meeting in December.
In mid-June, Biogen and related parties published promising data on Antova for
renal allotransplantation in primate models (Nature Medicine, Vol.5, No.6,
June 1999, p.686-693). These results suggest the following several key
points, which bode well for the future prospects of the drug: |
