Table of Contents
Contents Page Number
Overview of Biotechnology Sector ………………………………………………………. 1
Future Growth and Risk in Biotechnology ………………………………………………. 3
Selection Process For my Report ……………………………..………………………….. 5
Company Description …………………………………………………………………… 6
Product Descriptions …………………………………………………………………..… 7
Amgen’s Revenue Streams Since 1996 and Beyond ………………………………….… 10
Product Pipeline …………………………………………………………………………. 11
Other Products in Amgen’s Pipeline and Evaluation of Potential Revenue ……………. 14
Amgen Ratio’s …………………………………………………………………………... 16
Amgen Ratio Discussion ………………………………………………………………… 16
Amgen’s Target Share Price – Scorebox Approach ……………………………………… 19
Company Description ……………………………………………………………………. 20
Product Description ……………………………………………………………………… 21
Avonex’s Competition …………………………………………………………………… 22
Product Pipeline ………………………………………………………………………….. 23
Other Products in Biogen’s Pipeline and Evaluation of Potential Revenue ……………… 24
Biogen Ratio’s ……………………………………………………………………………. 26
Biogen Ratio Discussion …………………………………………………………………. 26
Biogen’s Target Share Price – Scorebox Approach ………………………………………. 28
Appendix #1 – Real-Option Valuation Approach
Appendix #2 – Amgen Inc.’s Weighted Average Cost of Capital
Appendix #3 – Amgen’s Input Sheets For DCF Model
Appendix #4 – Amgen Inc.’s Most Probable DCF Valuation
Appendix #5 –Biogen’s Revenue Stream Since 1996 and Beyond
Appendix #6 – Biogen’s Weighted Average Cost of Capital
Appendix #7 – Biogen Inc.’s Input Sheets for DCF Model
Appendix #8 – Biogen Inc.’s Most Probable DCF Valuation
AMGEN & BIOGEN: FUTURE BIOTECH LEADERS ?
OVERVIEW OF THE BIOTECHNOLOGY SECTOR
The Nasdaq biotech index (NasdaqSC: NBI) contains companies primarily engaged in
using biomedical research for the discovery or development of novel treatments or cures for
human disease. The Nasdaq biotech index is composed of 66 seasoned biotech companies with
share prices greater than $10 and market capitalization’s above $200M. This index closed at
817.23 points as of August 9, 2001. Although this is down approximately 40% from it’s highest
level in September 2000 (1,383.06 points), the index has still doubled since mid-1999. This
tremendous growth in the biotech sector has dwarfed even the biggest gains posted by the
Nasdaq during its run 18 months ago.
Nasdaq Biotechnology Index Based on Value In Comparison to the Nasdaq Composite,
S&P 500, and the Dow Jones Industrial Average
The American biotechnology index (AMEX: BTK) includes smaller more speculative
stocks than the Nasdaq biotech index, it’s stock chart still follows the very same pattern.
Following its peak on March 6, 2000, the AMEX index fell nearly 40% by early April 2000. By
September 2000, the index rallied again to new highs of 811.61 points. After first bucking the
downward trend in the Nasdaq market in the fall of 2000, increased investor concern over
valuations and risk finally caught up to the biotech stocks. Since September 2000, the index
corrected almost 50% by early April 2001. Many issues have shed anywhere up to 90% of their
highest stock price. The BTK index closed at 492.04 points as of August 9, 2001.
The biotechnology index has been propelled by companies examining drugs and
therapeutic treatments for diseases such as cancer, cardiovascular disorders, diabetes, renal
disease, respiratory disorders, sexual dysfunction, skin disorders, autoimmune, inflammatory
conditions, and infectious diseases. These vital areas will continue to be the focus for many
biotech companies over the next decade. While investor money flowed into the sector during
1999 and 2000 in excess of $42 billion in funds, many companies have also seen their revenues
skyrocket. Industry revenues topped $25 billion in 2000 and that number will be dwarfed by the
revenue growth we will see over the next decade or so.
FUTURE GROWTH AND RISK IN BIOTECHNOLOGY
The biotechnology industry will continue to be one of the fastest growing sectors in the
healthcare industry. Numerous biotech companies are poised to launch many new drugs between
2001 and 2003, pending FDA approval. The biotech market should begin to see this new stage
of accelerating growth beginning in the second half of 2001. Standard & Poor’s expects industry
revenues to increase from $25 billion in 2000 to over $32 billion by 2002. That is a 13.1%
industry return year over year for the next two years. They also estimate the aggregate earnings
growth rate of currently profitable biotech firms to be 25% over the next three to four years.
Much of the growth over the next decade will be derived from the current pipelines of
biotech firms today. According to PhMRA, almost 400 biological compounds were undergoing
human testing in 2000. This number may exceed 500 clinical agents by 2002. Due to this
increasing number of drugs in testing, many will begin marketing over the next couple years and
some may become blockbuster drugs right out of the starting gate. Based on past evidence from
the FDA, this should result in approximately 50 to 60 new drugs and possibly 5 or 6 blockbuster
drugs (Real-options Valuation Approach).
The “Real-Options Valuation approach” for Biotechnology companies was published by
David Kellogg and John M. Charnes in 2000. This method allows an investor to more accurately
value the pipelines of biotech companies. I have used this method to show the probability of
drugs successfully exiting the pipelines of Amgen and Biogen. The above predictions of 50 to
60 new drugs and 5 or 6 blockbuster drugs were derived from this method. Please see Appendix
#1 for a more detailed explanation of this calculation.
There will be a multitude of catalysts fueling the need for more therapeutics in the
upcoming years as well. Key growth drivers include the rapid expansion of the middle-aged
(baby boomers) and elderly segment of the population, financially independent (due to recent
success in raising capital which has provided the industry with strong liquidity) biotech firms, a
rising trend in co-promotion partnerships, accelerating scientific developments, and new areas
such as genomics. Most likely the aging baby boomers and the elderly segments of the
population will account for most of the growth. The United States census bureau estimates that
the over 65 population is expected to more than double from 2001 to 2030. While the 65 and
older segment only makes up 13% of the total U.S. population today, they consume one third of
all pharmaceutical type products. Through 2010 however, the fastest growing demographic
segment in the U.S. will be the 45-64 age group.
Additional Unites States Medicare reform is also likely to occur, probably by 2002.
Medicare is the nations principal healthcare program for the aged and disabled and was first
enacted in 1965. Medicare spent $213 billion in 1999 to pay for medical goods and services.
However, this program does not cover prescription drugs used outside the professional
healthcare facilities. Many new drugs and developments have arrived since Medicare was first
founded in 1965. There is now a plan to add prescription drugs to Medicare by 2002. This will
invariably increase sales of biotech and pharmaceutical compounds, as they will become
affordable for all Americans.
Biotechnology commonly refers to application of biological and biomedical science to
large-scale production for the purpose of modifying human health, food, supplies, or the
environment. While the overall goal remains the same in the biotech industry, the means to
accomplish these goals are changing. The search for biotech applications is now being
accomplished through the use of genomics for the first time. Whether this is through functional
genomics (functions of each gene as the cause or cure for a disease) or proteomics (focus on the
underlying gene’s protein product), this new methodology is only beginning to catch on in the
industry since the mapping of the genome occurred in 2000. While there is much work still to do
in the area of understanding genomics, the possibilities are endless.
SELECTION PROCESS FOR MY REPORT
When I first began as the Biotechnology Analyst for the Laurier Alumni Growth Fund, I
was unsure of where to begin researching. I began by reading the Standard & Poors Industry
report to gain an overall perspective of the industry. I then turned my attention towards
individual companies that were listed on the Nasdaq Biotechnology Index.
My selection of companies was made based on the maturity of their pipelines, the number
and quality of their products on the market, overall market size, market potential, and their
balance sheets. I was also interested in choosing fairly mature companies in order to reduce
some of the risk associated with the biotechnology index. I have composed my report on two of
the more seasoned companies listed on the Nasdaq. I chose Amgen and Biogen because they are
market leaders with strong products, strong sales, strong pipelines, and strong balance sheets.
They are both positioned to withstand some of the volatility associated with the biotechnology
industry in general.
Industry: Biotechnology & Drugs
Amgen, Inc., incorporated in 1980, is a global biotechnology company that discovers,
develops, manufactures and markets human therapeutics based on advances in cellular and
molecular biology. Amgen currently manufactures and markets four human therapeutic
products, EPOGEN (Epoetin alfa), NEUPOGEN (Filgrastim), INFERGEN (Interferon alfacon-1)
and STEMGEN (Ancestim). Amgen uses wholesale distributors of pharmaceutical products as
the principal means of distributing the Company's products to clinics, hospitals and pharmacies.
Amgen is the bellwether stock of the biotech industry with total revenues of $3,629 million in
2000. They have developed 3 of the top 4 selling drugs on the market and currently market the
second and fourth best selling drugs. Amgen currently composes 17.08% of the Nasdaq biotech
index, nearly 5 times bigger than the second largest contributor to the index, Genzyme General,
which makes up 3.71% of the index. Amgen has been consistently trading in the $55-$70 range
over the last six months. However, they have been trading horizontally since their January 2000
EPOGEN (proper name--Epoetin alfa) is Amgen's recombinant human erythropoietin
product, a protein that stimulates red blood cell production. Red blood cells transport oxygen to
all cells of the body. Without adequate amounts of erythropoietin, the red blood cell count is
reduced, thereby diminishing the ability of the blood to deliver sufficient amounts of oxygen to
the body, resulting in anemia. People with chronic renal failure suffer from anemia because they
do not produce sufficient amounts of erythropoietin, which is normally produced in healthy
kidneys. Amgen developed and markets EPOGEN for the treatment of anemia associated with
chronic renal failure for patients who are on dialysis.
EPOGEN was patented and approved for sale by the FDA in 1989. Amgen is currently
developing the second-generation form of EPOGEN in order to further their market share upon
EPOGEN’S patent expiration in 2004. EPOGEN is the second best selling drug in 2000 with
sales of $1,963 million. The only greater selling drug on the market is EPOGEN’s biggest
competitor, Procrit, which was developed by Amgen but is marketed by Johnson & Johnson.
Sales of Procrit totaled $2,709 million in 2000. Amgen currently competes with Johnson &
Johnson for sales in the anemia marketplace and future sales depend upon both companies
NEUPOGEN (proper name--Filgrastim) is the Company's recombinant-methionyl human
granulocyte colony-stimulating factor, a protein that selectively stimulates production of certain
white blood cells known as neutrophils. Neutrophils are the body's first defense against
infection. Treatments for various diseases and diseases themselves can result in extremely low
numbers of neutrophils, which results in a condition called neutropenia. Myelosuppressive
chemotherapy, one treatment option for individuals with cancer, targets cell types that grow
rapidly, such as tumor cells, neutrophils and other types of blood cells. Providing NEUPOGEN
during chemotherapy can reduce the duration of neutropenia and thereby reduce the potential for
infection. NEUPOGEN sales totaled $1,223.7 million in 2000, a 2.5% decrease from 1999 sales.
This shortfall is due to stockpiling of inventories at the end of 1999 and overall maturity of the
10-year-old product (patent to expire in 2006). First quarter sales in 2001 deviated from this
trend as they increased 18% from their 2000 level. A modest increase of 5-6% in NEUPOGEN
sales is expected in 2001.
INFERGEN (proper name--Interferon alfacon-1) is a non-naturally occurring protein that
combines structural features of many interferon sub-types. Interferons are natural proteins
produced by the body that stimulate the immune system to fight viral infections. Hepatitis C
viral infection (HCV) is a potentially deadly disease that, if not treated, may lead to liver cancer.
The Company began selling INFERGEN in the United States in October 1997, for the treatment
of adults with chronic HCV. INFERGEN is approved for the treatment of newly diagnosed or
previously untreated HCV patients for 24 weeks, and for 48 weeks at a higher dose in patients
who relapsed or failed to respond to initial interferon treatment. Amgen also sells INFERGEN
for the treatment of chronic HCV in Canada. The INFERGEN market share is relatively small
compared to the two drugs previously discussed. There are many other treatments, including
combination therapies, for this infection in which INFERGEN competes. Sales decreased 45%
in 2000 from $26.2M in 1999 to $14.5M in 2000. Amgen cannot accurately predict the extent to
which they can maintain their current market share or whether further penetration is possible.
This is due to competition from competing drugs and Amgen’s non-commitment towards further
marketing for drug.
STEMGEN (proper name--Ancestim) is the Company's recombinant-methionyl human
stem cell factor. STEMGEN, when used in combination with NEUPOGEN, has been shown to
induce immature blood cells (progenitor cells, sometimes referred to as stem cells) to migrate
(mobilize) from the bone marrow into the blood circulatory system. When these peripheral
blood progenitor cells (PBPC) are collected from the blood, stored and re-infused (transplanted)
after high-dose chemotherapy, recovery of platelets, red blood cells and neutrophils is
accelerated. PBPC transplantation may be an alternative to autologous bone marrow
transplantation for some patients. In 1999, STEMGEN was approved for use in support of stem
cell transplantation by the regulatory authorities in Canada, Australia and New Zealand. In
2000, the Company withdrew its application to market STEMGEN in the United States.
Discussions with other regulatory agencies are continuing and the future of STEMGEN is
PRODUCT PIPELINE (see Pipeline Chart following this sub-heading for more detail)
Amgen focuses its research and development efforts on human therapeutics delivered in
the form of proteins, monoclonal antibodies and small molecules in the therapeutic areas of
nephrology, cancer, inflammation, neurology and metabolism.
ARANESP (proper name--darbepoetin alfa) is Amgen's erythropoiesis stimulating
protein, a protein that stimulates red blood cell production. ARANESP is Amgen’s more potent
form of Epogen and requires less dosages. In December 1999 and early 2000, the Company filed
regulatory submissions for the use of ARANESP in patients with chronic renal insufficiency and
chronic renal failure in the United States, European Union, Canada, Australia and New Zealand.
In addition, ARANESP is going to allow for Amgen to shift from the dialysis market
(EPOGEN’S only target market) into the oncology market. ARANESP will provide added
benefits of convenience into the oncology market, which accounts for nearly $2 billion in Procrit
sales for Johnson & Johnson. This oncology market is a steadily growing segment and will add
to increased sales volumes for both companies.
ARANESP has already been approved for use in Australia and the European Union. It is
under regulatory approval for use in the United States right now. Amgen is expecting that
ARANESP will be approved for American use in the second half of 2001. Amgen expects
ARANESP to penetrate Johnson & Johnson’s share of the anemia and oncology market currently
held by Procrit. Upon approval of ARANESP, there will be a severe marketing battle between
J&J and Amgen. Cannibalization of Amgen’s EPOGEN market share will probably also occur,
however, sales of both drugs combined are expected to reach nearly $5 billion by 2005.
Abarelix-depot (Plenaxis) is a gonadotropin releasing hormone (GnRH) antagonist being
developed by the Company that may inhibit the action of endogenous GnRH on the pituitary
gland, thereby reducing the production of testosterone in men and estrogen in women. The
reduction of testosterone or estrogen through the use of pharmaceuticals, a practice known as
hormonal therapy, may confer a therapeutic benefit to patients with a number of diseases and
medical conditions, including prostate cancer and endometriosis. Plenaxis has completed Phase
3 clinical trials in patients with hormonally responsive prostate cancer, and a regulatory file was
submitted to the FDA in December 2000. The FDA recently ruled that the application to sell the
drug was “inadequate” and more information is needed. Amgen and Praecis Pharmaceuticals
will continue to pursue Plenaxis and take the steps necessary to eventually resubmit their
application and hopefully gain approval. Plenaxis was supposed to participate in this $1-$2
billion market by the second half of 2001.
Amgen is developing a sustained duration version of NEUPOGEN called SD/01.
NEUPOGEN is indicated to reduce the incidence of infections by reducing the duration and
severity of neutropenia. Appropriate NEUPOGEN doses are administered daily to be most
effective. SD/01 is being developed to provide for less frequent dosing, possibly only once per
cycle of chemotherapy, and, thus, potentially improve compliance and patient satisfaction. In
November 2000, the Company announced that Phase 3 clinical trials of SD/01 to support breast
cancer patients receiving multiple cycles of chemotherapy were successful.
Interleukin-1 receptor antagonist (proper name--Anakinra) and tumor necrosis factor
binding protein were two product candidates added to the Company's inflammation research
program through the acquisition of Synergen, Inc. Amgen is also developing a novel class of
small molecule, orally active, neurotrophic agents called neuroimmunophilin compounds.
Neuroimmunophilin compounds are initially being developed by the Company to promote nerve
regeneration and repair in neurodegenerative disorders. Amgen is expecting Anakinra to exit the
pipeline within one years time.
Osteoprotegerin (OPG) is implicated in the regulation of bone mass. Bone mass is
maintained in the body by the regulation of the competing activities of bone-forming cells
(osteoblasts) and bone-resorbing cells (osteoclasts). Cancer metastases (cancers that have spread
from their original tumor site) to bone cause bone destruction, leading to fractures and bone pain.
In pre-clinical studies, OPG has been shown to inhibit the orthoclase mediated bone destruction
induced by invading cancer cells. The Company's OPG program is in a Phase 1 clinical trial in
patients with bone metastases. This product is still at least 5 years away from
Amgen has one of the strongest ‘near term’ pipelines in the industry. Pending successful
launches of their second generation forms of EPOGEN and NEUPOGEN, Amgen should be
poised to maintain the top revenue generating company in the biotech industry for years to come.
However, other companies will test their leadership as other blockbuster drugs will become
mainstream over the next five years. It will be other products in their pipeline such as Anakinra,
Plenaxis, and Keratinocyte Growth Factor (KGF) that will determine whether their shareholders
will be justly rewarded or disappointed.
AMGEN INC. RATIO’S
2000 1999 1998 1997 1996
Current Ratio 3.41 2.49 2.10 2.08 2.34
Quick Ratio 3.05 2.26 1.98 1.93 2.19
Inventory T/O 1.67 2.73 3.14 2.75 2.91
Long-term Asset T/O 1.47 1.66 1.50 1.53 1.77
Total Asset T/O 0.67 0.82 0.74 0.77 0.81
Total Debt to Total Assets 0.20 0.26 0.30 0.31 0.25
Times Interest Earned 97.11 98.23 118.87 75.48 215.45
Operating Profit Margin 42.6% 44.7% 43.7% 33.0% 40.4%
Net Profit Margin 31.4% 32.8% 31.8% 26.8% 30.4%
Return on Equity 26.4% 36.3% 33.7% 30.1% 35.7%
Return On Assets 21.1% 26.9% 23.5% 20.7% 24.6%
Book Value per Share $ 3.98 $ 2.80 $ 2.42 $ 1.95 $ 1.80
EPS $ 1.05 $ 1.02 $ 0.82 $ 0.59 $ 0.61
AMGEN RATIO DISCUSSION
Due to Amgen’s product line maturity, they have a solid balance sheet and an improving
income statement. Amgen’s liquidity ratios are among the strongest in the industry because of a
self-supporting cash flow from operating activities. They have continually improved both their
current and quick ratio since 1997. They are in position to fuel future growth through their
balance sheet due to their 3.05 quick ratio in 2000. This will play into Amgen’s advantage as
capital markets have dried up in this period of slower growth in 2001. While there were 26
Initial Public Offerings for drug companies during 2000, this number may only reach about 10 to
15 in 2001. Amgen’s future looks bright, as they do not have to fear lapses in the capital
Amgen’s assets management is very solid as they continually turn their long-term assets
over at least 1.5 times each year. This is important in the biotechnology as wasted money on
capital expenditures could be utilized in other key areas such as research and development of
new drugs. Amgen’s inventory turnover ratio has decreased over the years from 2.91x in 1996 to
1.67x in 2000. Amgen has been able to decrease their cost of sales over the years, which has led
to a lower inventory turnover ratio. In addition, Amgen has been carrying larger inventories in
order to avoid any type of shortage in supply. Amgen has also witnessed a lower total asset
turnover in recent years, which can be attributed to a steadily increasing assets base.
Amgen carries virtually no debt, which is the reason for extremely high times interest
earned (TIE) ratios such as 97 times in 2000. This shows that there is virtually no chance of
default on their debt obligations. Amgen has been able to improve their total debt to total assets
from their highest point in 1997. They have been able to reduce their total debt from 31% of
total assets in 1997 to only 20% in 2000. These debt figures show the strength of Amgen’s
balance sheet and it lends the company to the possibility of taking on more debt in the future if
Amgen’s maturity and their production facilities enable them to achieve high profit
margins in comparison to other companies that need to outsource production of their drugs.
Amgen is enjoying solid operating profits and net profits. Despite slightly decreasing margins
since 1999 due to increased spending, Amgen enjoyed a high net profit margin of 31.4% in 2000.
Amgen’s return on equity decreased from 36.3% in 1999 to 26.4% in 2000 due to a huge 42.7%
increase in shareholders equity, mostly due to share issuance and retained earnings increases.
This is also the reason for a decrease in the return on assets figure from a strong 26.9% in 1999
to 21.1% in 2000. Despite the decreases in these margins, Amgen is becoming stronger every
Amgen’s book value per share and earnings per share have been steadily increasing ever
since the early 1990’s. Book value per share has risen from $1.80 in 1996 to $3.98 in 2000, a
21.9% year over year increase. In addition, EPS has grown at a slower rate, 14.5% year over
year since 1996. Amgen’s book value per share and EPS will continue to increase in the future
as positive cash flows from operating activities and increasing sales revenues should continue for
the foreseeable future.
Industry: Biotechnology & Drugs
Biogen, Inc. is a biopharmaceutical company principally engaged in the business of
developing, manufacturing and marketing drugs for human healthcare. Biogen, which was
founded in 1978, currently derives revenues from sales of its Avonex (Interferon beta-1a)
product for the treatment of relapsing forms of multiple sclerosis, and from royalties on
worldwide sales by the Company's licensees of a number of products covered under patents
controlled by Biogen. Such products include certain forms of alpha interferon, hepatitis B
vaccines and hepatitis B diagnostic test kits, among others. Biogen makes up 2.68% of the
Nasdaq Biotech Index and is the fourth largest biotech company according to 2000 sales figures.
Biogen achieved total revenue of $926.5 million and net income of $333.6 million in 2000.
Biogen has been trading horizontally in the $50-$70 range since they fell from their February
2000 highs of around $120.
PRODUCT DESCRIPTION (see Appendix #5 for Revenue Breakdown since 1996)
Avonex (Interferon beta-1a) is the first therapy shown in a pivotal clinical trial to both
slow the accumulation of physical disability and decrease the frequency of neurological attacks
in patients with relapsing forms of multiple sclerosis. Avonex is administered once weekly as an
intramuscular shot. Avonex was launched in the U.S. in May 1996 and became the market
leader within seven short months. Today, Avonex is the leading treatment for multiple sclerosis
worldwide. More than 100,000 patients worldwide are now on Avonex therapy, which is
marketed internationally in more than 65 countries. Sales of Avonex totaled $761 million in
2000, which is an increase of 23% over 1999.
Biogen continues to have an Active Development program related to Avonex, and is
conducting several important clinical trials of the product. Biogen’s Active development
program is focused on expanding Avonex’s overall market share by changing its use, how it’s
administered, dosages, etc. In 2000, Biogen announced the results of its CHAMPS trial, begun
in 1996, to study the effect of Avonex in delaying the development of clinically definite multiple
sclerosis (MS) in patients who had experienced an isolated, well-defined neurologic event
consistent with MS. The study showed a highly statistically significant beneficial effect of
Avonex on delaying the development of clinically definite MS as compared to the placebo.
In 2000, Biogen also completed a small Phase II pilot study of the use of Avonex in the
treatment of patients with primary progressive MS. In the study, the patient group treated with
Avonex experienced a significant reduction in the size of brain lesions seen on MRI, a measure
of the extent of damage the disease has caused to the brain, as compared to the placebo group.
In January 2001, Biogen announced preliminary results of a study of the use of Avonex
in the treatment of patients with secondary progressive MS. In the study, the patient group
treated with Avonex showed a statistically significant reduction in the rate of disability
accumulation compared to the placebo group. Biogen continues to find new areas where Avonex
will aid patients with various forms of MS. These studies not only increase the overall market
size for Avonex, but they reinforce the usefulness and dependence of over 100,000 patients on
Biogen must monitor the competition closely for Avonex because it is the company’s
only marketed drug. Avonex is in direct competition with Interferon beta-1b, which is sold in
the U.S. by Berlex Laboratories (subsidiary of Schering AG) under the name Betaseron and in
Europe by Schering AG under the name Betaferon. Sales by Schering AG of Betaseron/
Betaferon total $454 million in 1999 versus $621 million for Avonex. Avonex also faces
pressure from Copaxone in the U.S., which is marketed by Teva Pharmaceutical Industries, Ltd
and Hoechst Marion Roussel, Inc. In most countries outside the Unites States, Avonex competes
with Rebif (an interferon beta-1a product sold by Serono). Serono has filed for the FDA to lift
their orphan drug status for Avonex before it will expire in mid-2003. This could increase the
competition even further in the US market by as early as mid-2002. Biogen also competes with
Novatrone (used for patients with relapsing-remitting and secondary progressive multiple
sclerosis), which is marketed by Immunex Corp.
(Refer to the following chart for Biogen’s pipeline and evaluation of potential revenue streams)
Biogen also continues to devote significant resources to its other ongoing development
efforts. In 2000, the Company completed dosing in its Phase III clinical studies of its Amevive
(alafacept) product in patients with moderate to severe chronic plaque psoriasis. Biogen released
the results of phase III studies for Amevive in late June 2001. The results were disappointing, as
they did not live up to all the hype Biogen was putting out about their drug. Amevive is also in
tough competition with Xanelim, which is being developed by Genentech and Xoma. Analysts
immediately cut the revenue outlook for Amevive starting in 2002 when the drug is supposed to
hit the market. However, on August 6, 2001 Biogen submitted their Phase III results for
approval in both Europe and the U.S. under new guidelines established and implemented last
month by the International Conference on Harmonization (ICH).
In January 2001, the Company announced positive results from two large Phase II studies
of the use of Antegren (natalizumab) in the treatment of MS and Crohn's Disease. Antegren is
being developed in collaboration between Biogen and Elan Corporation. Based on the Phase II
results, Biogen and Elan will proceed with Phase III clinical studies of Antegren in both MS and
Crohn's Disease in 2001.
BIOGEN INC. RATIOS
2000 1999 1998 1997 1996
Current Ratio 4.20 4.78 5.31 4.81 5.33
Quick Ratio 4.02 4.57 5.04 4.63 5.12
Inventory T/O 3.17 2.77 2.08 2.19 1.72
Long Term Asset T/O 1.84 2.16 2.42 1.89 1.39
Total Asset T/O 0.65 0.62 0.60 0.51 0.41
Total Debt to Total Assets 0.23 0.23 0.22 0.25 0.24
Times Interest Earned 76.11 68.78 32.26 21.23 6.23
Operating Profit Margin 35.44% 39.81% 34.19% 30.62% 9.69%
Net Profit Margin 36.01% 27.75% 24.87% 21.65% 15.61%
Return on Equity 30.15% 22.51% 19.30% 16.63% 8.37%
Return On Assets 23.30% 17.25% 15.00% 10.96% 6.39%
Book Value per Share $ 7.16 $ 6.21 $ 4.66 $ 3.51 $ 3.31
EPS (Diluted) $ 2.16 $ 1.40 $ 0.90 $ 0.58 $ 0.28
BIOGEN RATIO DISCUSSION
Biogen is currently in a very liquid position in comparison with traditional standards.
They have a current ratio of 4.2 and a very solid quick ratio of 4.02 in 2000. These ratios are
actually at the lowest point they have been in for the 5-year period from 1996 to 2001. This is
not of great concern for Biogen as they currently have enough cash and marketable securities to
support the companies expenditures for nearly 2 years without revenue.
Biogen’s asset management practices are very strong as we can see from the steadily
increasing inventory turnover ratio, which has grown from 1.72x in 1996 to 3.17x in 2000. The
long-term asset turnover ratio has decreased from its strongest showing in 1998 of 2.42x to 1.84x
in 2000. However, 1.84x is still a very strong turnover ratio on their long-term asset base, which
is steadily growing. Biogen has been able to achieve a greater total asset turnover every year
since 1996. This shows the strength of their sales increases in comparison to their total assets,
not just long-term assets.
Biogen has an extremely impressive debt management system that lends them to very
little risk of default on their debt obligations. They have managed their total debt to total assets
within the 22%-25% range for 5 consecutive years. Total debt has remained at 23% of their total
assets in both 1999 and 2000. Due to their lack of leverage/debt, Biogen has a very high times
interest earned ratio of 76x in 2000.
One major reason for Biogen’s success is their improvement in operating margins, net
profit margins, return on equity, and return on assets. Biogen’s most recent increase in net profit
margin from 27.75% in 1999 to 36% in 2000 was due to a one-time gain of $158M. However,
their net profit margin has increased year over year since 1996. In addition, their return on
equity and return on assets have increased every year in our 5-year period of observation.
Biogen has increased their return on equity from 8.37% in 1996 to 30.15% in 2000. They have
also increased their return on assets from 6.39% in 1996 to over 23% in 2000. Biogen’s
improved margins as well as increasing sales are the reasons for their current financial success.
Biogen has been able to increase their book value per share from $3.31/share in 1996 to
$7.16/share in 2000. This is a 21.3% year over year improvement in book value per share. In
accordance with this, Biogen’s diluted EPS has increased all the way to $2.16 in 2000 from
$1.40 in 1999 and $0.90 in 1998. These impressive increases in value for the shareholders are
dependent on the company’s ability to continue increasing sales.