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Biotech / Medical : Biogen -- Ignore unavailable to you. Want to Upgrade?

To: William Partmann who wrote (1081)	7/13/1999 5:36:00 PM
From: Beltropolis Boy	Read Replies (2) \| Respond to of 1686

July 9, 1999 Is Biogen Too Good to Be True? By Stacey L. Bradford SmartMoney THERE'S NO SIMPLE formula for making money in the biotech industry. For every winning stock, there are dozens more that fall off the radar and into obscurity. So it should come as no surprise that when a company starts to pay off, investors want to stick with it -- no matter what its valuation. Such is the case with Cambridge, Mass.-based Biogen (BGEN). The firm's stock has soared over 50% since January thanks to the success of its multiple sclerosis drug Avonex. And as long as sales of the medication keep growing, most on Wall Street expect even higher returns over the next six to 12 months. Late Thursday, the company went a long way toward solidifying investor confidence by announcing second-quarter earnings of 34 cents a share excluding charges, beating analysts' consensus estimate by two cents. Avonex's second-quarter sales increased by 68% to $145.9 million, compared with $87.1 million a year ago. And Biogen says roughly 700,000 MS patients use the drug worldwide -- a number the company expects to rise significantly if Biogen can prove that Avonex is effective for use earlier in the course of the disease. Results of the tests are due out by late 2000. Avonex has roughly 60% of the MS market and sales could reach $845 million by 2002, estimates Eric Schmidt of SG Cowen. What's more, Biogen has three drugs in its pipeline that are currently in clinical trials. No wonder the momentum investors have piled into the stock. There's just one hitch. Not everyone on Wall Street is buying into this biotech fairy tale -- at least not today: Biogen shares lost 1 13/16 or 2.7% to close at 64 7/8. It seems that even a company with as strong a reputation as Biogen has its limits. And a small group of investors argue that there is no way to justify Biogen at a higher share price. At this point, they believe the stock is fully valued. Here's why. Right now, Biogen is really a one-drug company with its shares being supported almost entirely by sales of Avonex. But what happens when this market starts to mature? Wall Street Journal ranked analyst Caroline Copithorne of Prudential Securities says this is precisely what will happen in the next few years. As it is, this medication has already been out on the market since May 1996. As for the company's drugs in clinical trials, all three are at least three years away from market, says Richard van den Broek of Hambrecht & Quist. (Biogen argues that one of the drugs may reach the market about six month earlier.) But even this timetable assumes that all goes well with the trials and that the drugs are approved by without delay by the Food and Drug Administration. Of the three drugs, Amervive, which is used to treat severe psoriasis, seems like the most promising. It recently completed Phase II clinical trials and the results so far look encouraging. Just one hitch. Biogen is planning on reformulating Amervive from an intravenous delivery (which was used during the clinical trials) to an intramuscular injection, and it must conduct additional studies to ensure that the new version is the bioequivalency of the original one. Prudential's Copithorne says the reformulation is an additional risk factor as the drug moves to a more advanced stage in clinical trials. The company estimates Amervive could be out on the market sometime between late 2001 and 2002. Biogen's other two drugs, Andentri for congestive heart failure and Antova, the immunosuppressive disease treatment for lupus and organ transplants, are still in Phase II clinical trials. It's difficult to know these medications' likely success until these trials are completed. Analysts estimate these drugs still three years away from commercialization. Copithorne also points out that these new drugs are not expected to have the same sales potential as Avonex. Consequently, just to maintain its current 37% growth rate, at least two, if not all of them, will have to successfully make it to market -- leaving little room for error. And should these drugs not win approval, a real possibility for any drug still in Phase II clinical trials, Copithorne says she is worried about how Biogen will react. "The company would be backed into a corner," she says. While it has other drugs in the pipeline, they are in much earlier stages of development. Selling at 50 times earnings, Biogen's stock already reflects Avonex's potential sales, says Hambrecht & Quist's van den Broek. Investors who want to buy the stock should do so below $50 a share. "The recent failure of Genetech's NGF in Phase III trials after favorable Phase II data serves as a reminder that even for the top-tier biotech companies with strong track records, drug development is a difficult business," he says. The recommendation from the analyst is to be patient and wait for more clinical data. But don't tell those momentum investors. Whenever they get impatient, they sell first and ask questions later.

To: William Partmann who wrote (1081)	7/20/1999 8:21:00 AM
From: Beltropolis Boy	Read Replies (2) \| Respond to of 1686

excerpts from lehman bro's post-earnings report. a wee bit dated. fwiw, they've revised their earnings projections over the next two quarters from $0.34 and $0.36 to $0.36 and $0.39, respectively. anyone (harold?) care to compare their own revenue estimates with these? cheers, -chris. ----- Biogen: Reports $0.34; Increasing EPS, Maintain 1-Buy Author: CA Butler, PhD/S. Pandya 212-526-4410 Rating: 1 Company: BGEN Rank (Old): 1-Buy Rank (New): 1-Buy Price : $66 11/16 52wk Range: $68-21 Price Target (Old): $65 Price Target (New): $80 Today's Date : 07/09/99 Disclosure(s): C Conclusion Strong Avonex sales growth of 67.5% Y-o-Y. Increasing our FY99 & FY2000 Avonex sales estimate to $612MM & $795MM. his increases our FY99 & FY2000 EPS number to $1.38 & $1.70 from a previous $1.30 & $1.54. Maintain 1-Buy. Highlights: * Yesterday after the market close, Biogen reported 2Q99 operating EPS of $0.34 versus $0.20 for the same period a year ago. These results were two cents higher than our estimate of $0.32 which matched the Street consensus. * Avonex sales grew 67.5% Y-o-Y totaling $146MM and exceeded our estimate by 5.7%. Sales in the US were $104MM (+52% Y-o-Y & 8% Q-o-Q) while sales from Europe grew 17% from the previous quarter. * Based on the strong sales to date we are increasing our FY99 Avonex sales estimate to $612MM from $560MM. Our new estimate is based on US sales of $440MM and European sales of $172MM. We are also increasing our FY2000 sales estimate to $795MM, a growth of 30% from our new FY99 estimate. * In addition to increasing our revenue estimate we have increased our R&D and SG&A expense estimates for FY99 and FY2000. The net effect of these changes increases our FY99 EPS estimate to $1.38 from $1.30. Our FY2000 EPS estimate moves to $1.70 from $1.54. * The underlying thesis for Biogen remains healthy and we maintain our 1-Buy rating. As we are increasing our EPS estimates we are raising our 12-month price target to $80. Summary: FINANCIAL SUMMARY Yesterday after the market close, Biogen reported 2Q99 earnings of $0.34 per diluted share "from operations" versus $0.20 for the same period a year ago. The operating EPS number was two cents higher than our estimate of $0.32 which matched the Street consensus. Earnings, as reported, were $0.28 per share and included a one-time, non-cash charge of $15.3 million related to the write-down of equity investments in three smaller biotechnology companies to fair market value. Further write-downs are not expected in the immediate future and the remaining asset valuation of these investments total an estimated $13 million, representing the worst case exposure level. Earnings were driven by a 67.5% Y-o-Y increase in Avonex, the company's drug for the treatment of multiple sclerosis, to a record level of $145.8 million. This figure exceeded our 2Q99 estimate of $138 million by 5.7%. The company's royalty stream from out-licensed products was $43.1 million, higher than our estimate of $42.0 million for the quarter. For the quarter, total revenue grew by 47% on a Y-o-Y basis (+10% Q-o-Q) and was $8.9 million higher than our estimate. Cost of good sold was 14.3% of total revenue in-line with our estimates. R&D spending was $50.9 million (27% of total revenue) compared to our estimate of $52.2 million (30% of total revenue). SG&A expense was an aggregate value of $36.9 million (19.6% of total revenue) slightly higher than our estimate of $34.2 million (19% of total revenue). Operating profit margins were 39.2% compared to our 37.7% estimate. Net income from operations was $53.6 million representing an increase of 70.5% from the prior year. Biogen ended the period with cash and cash equivalents of approximately $610 million, or $3.87 per share as the company continues its share buy-back program. AVONEX GROWTH CONTINUES We believe the trend towards early and aggressive treatment for multiple sclerosis continues to create market expansion driving Avonex sales. In 2Q99 Avonex sales grew 67.5% on Y-o-Y basis and an impressive 11.1% from the previous quarter. Sales in the US for the quarter were $104 million, an increase of 52% year-over-year and 8% from the previous quarter. There are currently 51,000 patients in the US on Avonex, an addition of 3,000 patients from 1Q99. The growth in the US market segment continues, and further growth could also arise from increased utilization of Avonex by the secondary-progressive MS patient (SP-MS). It is currently estimated that between 10- 15% of Avonex sales revenue in the US is from the SP-MS patient. On an aggregate basis this value could increase as we head into FY2000 sales estimates. European sales comprised 28% of total Avonex sales reaching $41 million for the quarter. Sales grew in Europe 17% from the previous quarter as 2,000 patients were added. Based on the sales and patient accrual trends to date, we are increasing our FY99 Avonex estimate to $612 million from $560 million. This is based on US Avonex sales of $440 million (+45% Y-o-Y) and European sales of $172 million (+89% Y-o-Y). Additionally, were are increasing our FY2000 Avonex sales estimate to $795 million (+30% Y-o-Y) comprised of US sales of $576 million (+31% Y-o-Y) and European sales of $219 million (+28% Y-o-Y). We have increased our R&D and SG&A expense projections as well for both FY99 and FY2000. We now estimate R&D expense at $226 million (previous $216 million) and $307 million (previous $227 million) for FY99 and FY2000 respectively. Our new SG&A expense is now $152 million for this year from $142 million. It is important to note that while we have increased these values on an absolute basis they remain the same as our previous estimates when expressed as a percentage of revenues. The net effect of these top-line and expense changes increases our FY99 EPS estimate to $1.38 from $1.30. Our FY2000 estimate moves to $1.70 from $1.54. As we are increasing our EPS estimates we are raising our 12-month price target to $80. We maintain our 1-Buy rating. 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.