the good doctor at lehman bro's comments on tobin's departure. excerpts follow.
the url to the full report is also below. note the EPS estimate is $0.54 for Q4 (for $1.80 for FY98).
for the record, it's a week old (for non-clients) and the normal disclosure applies (i.e., lehman makes a market in biogen and the analyst isn't putting his money where his mouth is).
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Biogen: CEO Resigns; Disappointing but Stock Overreacts
Author: C. Anthony Butler, Ph.D. 212-526-4410
Rating: 1
Company: BGEN
Rank (Old): 1-Buy
Rank (New): 1-Buy
Price : $79 13/16
52wk Range: $88-33
Price Target (Old): $65
Price Target (New): $100
Today's Date : 12/24/98
Price (As of 12/23): $79 13/16
Revenue (1998): $542.1 Mil.
Return On Equity (98): 17.4%
Proj. 5yr EPS Grth: 20.0 %
P/E 1998; 1999 : 44.3 X; 32.8 X
Current Book Value: $9.06/sh
Convertible: None
Debt-to-Capital: 8.4 %
Disclosure(s): C
* Yesterday Biogen announced that, effective immediately, James Tobin, the company's president & CEO, has resigned for personal reasons. James Vincent, who had served as CEO from 1985 to 1997, has been elected by the Board to succeed these posts.
* James Tobin, well liked by the investment community, was considered to be more strategic and less restrictive in his approach. Management stressed that this resignation was not over issues pertaining to the strategic direction of the company.
* The new CEO, James Vincent, stated that he would likely serve these roles for one to two years, until a more permanent successor is announced. The long-term replacement is likely to be an individual groomed within the internal management circle.
* Catalysts for the stock include the potential for better-than-expected Avonex sales, as well as, Rebetron royalties. We are taking this time to revise our 12-month price target to $100 per share.
Coming as a severe shock, James Tobin has resigned from Biogen. Perception exists that he was motivated to resign based on the inability to capture the confidence of the Board of Directors on strategic initiatives and because he was unable to achieve the title of chairman (held by James Vincent). Unfortunately this perception is mere speculation as we do not know and may never know the real reasons for his departure. Mr. Tobin appeared in past conversations with us at Lehman Brothers to suggest that the Board was becoming increasingly more confident in his ability and that they were more amenable (in his opinion) to strategic initiatives he might bring to them (e.g., to expand the pipeline). It is possible that his perception of the Board becoming less restrictive was false. Nevertheless, Mr. Vincent did express shock at Tobin's resignation. Mr. Tobin should be credited with the launch of Avonex and most importantly its success. It should not be forgotten, however, that James Vincent was solely responsible in placing the company on solid financial ground. Mr. Vincent may be perceived as more conservative, but his talents still should not be overlooked.
Biogen remains operationally sound. Avonex sales should improve to $491 million in fiscal 1999 from our fiscal 1998 estimate of $382 million. As important is the royalty stream, of which approximately half is comprised of royalties on Intron-A from Schering Plough (SPG - 55 3/16, 2 Outperform). We estimate fiscal 1998 total royalty income of $160 million. However, with the recent approval of Rebetron by Schering (a combination of Ribrivin and Intron-A) for hepatitis C upside exists in the growth of royalty revenue. In our Schering model, we project sales of Rebetron to expand as a result of claims to treat the nave and refractory hepatitis C patients. Thus, the growth of this product is expected at a 15% CAGR for five years. Biogen has remained quite conservative with guidance for Intron-A royalties. We believe upside thus exists though Biogen may increase expenses to offset a better than expected top-line. This could be a catalyst for the stock over the next two years. Based on our perception of Rebetron growth in fiscal 1999 and the potential for better than expected royalty revenue, we are at this time revising our 12-month price target for Biogen to $100. Our investment rating remains 1 Buy.
BUSINESS DESCRIPTION: Biogen is a leading biotech company which currently derives revenues from royalties on licensed products as well as on sales of its first proprietary product, AVONEX (for multiple sclerosis).
Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.
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