Biogen’s Possible Shopping List: 3 Companies the Biotech Might Buy

Biogen (NASDAQ:BIIB) might be in deep trouble. The biotech’s core multiple sclerosis franchise has been hit hard by generic competition this year, and its plan to recoup these lost sales with newer medicines like Vumerity simply isn’t working. What’s more, Biogen and Ionis Pharmaceuticals‘ spinal muscular atrophy medicine, Spinraza, has clearly peaked from a sales standpoint. The drug’s global sales slipped by a hefty 10% in the third quarter, compared to the same period a year ago.

Biogen’s master plan was to wash away these problems by grabbing a surprise approval for its much-maligned Alzheimer’s disease drug candidate aducanumab. After a stinging defeat during last week’s advisory committee meeting, however, the chances of the Food and Drug Administration actually approving this high-value asset appear to be slim to none. 

A researcher counting money at a bench top.

Image source: Getty Images.

Self-inflicted wounds

Worse still, Biogen’s brass didn’t do much to prepare the company for a possible aducanumab rejection. Despite a clear need to bring in a fresh source of revenue or at least a high-value late-stage candidate, the biotech’s braintrust only struck two modest collaboration deals with Denali Therapeutics and Sangamo Therapeutics earlier this year, along with a smallish buyout deal with the gene therapy company Nightstar Therapeutics last year.

The Nightstar deal did bring in the late-stage asset BIIB111 (timrepigene emparvovec) as a possible treatment for a rare, degenerative, X-linked inherited retinal disorder known as choroideremia. But this experimental therapy — if approved — doesn’t have the type of commercial potential to be a true cornerstone product for a large-cap biotech like Biogen.

The biotech’s top line is thus in serious danger of dropping by double digits next year. Therefore, Biogen will likely have to go shopping soon to beef up its near- and long-term outlooks.   

3 possible takeover targets 

Biogen could comfortably spend around $10 billion on business development deals without having to leverage its balance sheet in a significant manner (assuming management nixes its latest $5 billion share repurchase plan). This amount should be more than sufficient to take advantage of this target-rich environment, and get Biogen back on track from a growth standpoint. Here are three intriguing buyout targets the biotech could easily afford and that would dovetail nicely with its core areas of expertise. 

1. Aurinia Pharmaceuticals (NASDAQ:AUPH) is marching toward a January decision date with the FDA for its lupus nephritis drug candidate voclosporin. If approved, voclosporin is expected to generate between $770 million and $1 billion as a treatment for lupus nephritis. Even so, Aurinia’s market cap is only $1.7 billion at present. The market seems to be betting against a fast launch for voclosporin, presumably as a result of Aurinia’s limited commercial infrastructure. 

What’s key to understand is that Biogen has a deep interest in lupus medications, and Aurinia might be able to be had for as little as $3.5 billion to $4 billion. A buyout would also take the risk of a commercial launch off the table for Aurinia shareholders. A merger would thus be a win-win

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2 Fumbles and 1 Gift in Biogen’s Latest Earnings Report

The neurology drug developer Biogen (NASDAQ:BIIB) reported its quarterly earnings on Oct. 21 , stating that its total revenue fell by 6% compared to 2019, reaching $3.37 billion for FY 2020. This contraction was led by a 10% collapse in sales of Spinraza, a therapy for spinal muscular atrophy. More importantly, Biogen took the opportunity to revise its full-year revenue estimates downward, suggesting that it has little faith that sales revenue will dramatically improve in the fourth quarter. 

These tidbits are only scratching the surface of Biogen’s disclosures. In fact, while the headlining data looked overwhelmingly negative, the market reacted favorably to the report, and the $39 billion market cap company’s stock ended the day 0.67% above where it started. Nonetheless, there are still a couple more fumbles to unpack from Biogen’s release — not to mention the announcement of a critical program for increasing shareholder value. Let’s dive in.

A businessman looks despondent as he recieves bad news on the phone.

Image source: Getty Images.

1. Multiple drug sales (and net income) collapse

In terms of red flag findings in the earnings report, there’s one central hiccup that shareholders need to know about: Biogen’s GAAP net income shrank 55% in comparison to the same quarter in 2019. This collapse has its genesis in the diminishing sales of drugs like Tecfidera for multiple sclerosis (MS), which sold 15% less in the third quarter than in the year prior due to its patent exclusivity expiring. As a result, the largest segment of Biogen’s MS revenue fell to $968 million. Investors should be concerned by this development, as MS drugs like Tecfidera are the company’s largest single revenue segment by a significant margin. 

Revenue from biosimilar products increased, with sales of Flixabi expanding by an impressive 49% year over year. Nonetheless, larger segments fared unfavorably in the third quarter. Revenue from interferon immunosuppressants for MS contracted by 11% from 2019. Royalties from the sale of Biogen’s out-licensed autoimmune drug Rituxan dropped 29% to reach $288 million. Biogen’s portfolio of drugs is facing increasing headwinds, and conditions in the wider economy aren’t entirely to blame. 

2. Opicinumab bites the dust

Biogen’s MS antibody therapy candidate, opicinumab, has failed to deliver positive results in clinical trials (again). Biogen originally tested opicinumab for optic neuritis as well as a different form of MS in 2016, yielding similarly unsatisfying data. The latest phase 2 trial to study opicinumab didn’t demonstrate statistically significant beneficial effects for either of its two endpoints pertaining to slowing disease progression, leading Biogen to stop development. There probably won’t be any attempts to investigate opicinumab in the future, as the latest trial found that it was difficult to calibrate its dose to a level that is safe for patients.

But it’s important to keep this project’s failure in perspective. Pharma investors are unlikely to be pleased that Biogen’s pipeline is one project smaller, but the termination of opicinumab is a small blip that’s easily overshadowed by progress elsewhere. This quarter, Biogen initiated patient dosing in several new clinical trials. It also advanced one of

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