Biogen’s 2Q Profit Crushes Views; CEO to Depart

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Biogen Inc. (Cambridge MA) stock jumped Thursday after the drugmaker reported strong sales of some of its newest treatments for multiple sclerosis and hemophilia. The company’s net income and sales were more robust than investors expected. Its revenue climbed 12% from a year ago.

A large portion of that growth came from its multiple sclerosis drugs Tecfidera and Plegridy and hemophilia treatment Eloctate, all of which were approved in 2013 or 2014. Tecfidera has become Biogen’s best-selling drug.

Biogen stock has lost almost a third of its value over the last year, and in late June it fell to its lowest price in almost three years. Shares closed the week up 1% at $289.93. The company said its net income grew to $1.05 billion, or $4.79 per share.

Excluding one-time items Biogen said it earned $5.21 per share. The company said its revenue climbed to $2.89 billion. Analysts expected net income of $4.69 per share and $2.8 billion in revenue, according to Zacks Investment Research. Revenue from Tecfidera rose 12% to $987 million and Plegridy revenue climbed 65% to $123 million. Revenue from Eloctate rose 68% to $125 million.

Biogen also said CEO George Scangos will leave the company in the next few months, after a successor is chosen. Biogen did not disclose a reason for his departure, but in a press release, Scangos said it was the right time for the company to have new leadership. He has been its CEO since July 2010.

Biogen also raised its estimates for 2016. In May the company said it plans to spin off its hemophilia drug business into a separate publicly traded company, but it now expects to complete that move early next year.

It is now forecasting net income of $19.70 to $20 per share on $11.2 billion to $11.4 billion in revenue. Previously it projected a profit of $18.30 to $18.60 a share on $11.1 billion to $11.3 billion in revenue. Biogen reported $205 million in hemophilia drug revenue in the second quarter. Biogen stock is down about 9% in 2016 while the Standard & Poor’s 500 index is up 6%.

Steve’s Take: Let’s see what we’ve got here. Biogen reports blowout second-quarter sales and earnings results that Wall Street underestimated. What else? CEO George Scangos will be leaving the company in the next few months. The company did not disclose a reason for his departure. Oh, and Biogen raised its estimates for 2016 while at the same time announcing it expects to complete plans to spin off its hemophilia drug business into a separate, publicly traded company earlier than originally contemplated. Anyone smell a sale in the offing? Apparently I’m not the only one.

Biogen saw its shares spike 31% since July on rumors that rival pharma giants Allergan and Merck are interested in buying the biotech bellwether in a deal that could be worth about $75 billion, according to Fortune. In addition, there have been preliminary and informal discussions between the parties, according to sources cited by the Wall Street Journal. If the deal were to occur, it would create a biotech colossus, and join the recent landslide of consolidation attempts in the healthcare industry.

Fortune points out that the timing of the rumored buyout interest is not coincidental. Long-time CEO George Scangos will be leaving the company in the next few months.  And Biogen has been making moves toward the development of new drugs for Alzheimer’s disease, reshaping its workforce to develop treatments in that area, and already is a major player in the MS drug market.

A possible fit with Allergan and Merck, among others, makes sense. Allergan whose proposed merger with Pfizer blew up after new Treasury rules squashed attempts to achieve so called tax-inversion mergers were promulgated. Allergan then turned it sights on expanding its Alzheimer’s portfolio.

Merck, meanwhile, has been restructuring its research effort to focus on areas like cancer immunotherapy, cardiovascular, and metabolic diseases. If Merck where to buy Biogen, it could also expand its presence in biosimilars, or “generic” copies of expensive biologic drugs.

Seldom are signs of M&A activity on a scale this large as clear as this one. Although other suitors are out there, right now it appears that Allergan and Merck are the most likely to prevail with the brute capital power to do so. As of this week, Biogen’s market capital stood at $74 billion, while Merck was it $162 billion and Allergan at $101 billion. Right now, I’d bet on a Merck-Biogen combination, although new circumstances could alter the metrics and the entire merger landscape.