Analyst: New company, shareholders will win with Biogen spinoff. But what's in it for Biogen?


Biogen’s recently announced hemophilia spinoff should turn out well for the new company and for shareholders, one analyst predicts. But once it’s complete, Biogen ($BIIB) itself could be in trouble.

The way Leerink Partners’ Geoffrey Porges sees it, the hemophilia company--to be named at a later date and based in the Boston area--will be sitting pretty when it sets off on its own. It’ll boast long-acting therapies Eloctate and Alprolix, which generated combined revenues of $640 million during the 12 months ended March 31, 2016. And Biogen’s execs say they’ll launch the company with no debt and a positive cash position so that it can go after M&A opportunities.

Shareholders will make out pretty well too, Porges predicts. They’ll “essentially receive a stock dividend in the form of the newly issued shares” of the spun-off company, and they “could benefit from that business’ expected growth”--especially considering that now, its pipeline assets should snag “more focused attention and higher prioritization from dedicated and focused management,” he wrote in a Monday note to clients.

All things considered, there’s just one party that won’t be reaping the benefits of the spinoff when all is said and done, Porges figures--and that’s Biogen itself. Alprolix and Eloctate combined for a much-expanded share of Biogen’s total revenues in 2015--5%, far more than the 1.4% they chipped in the year prior. And Porges believes that trend would have continued, with the pair raking in 7% of 2016 revenue and 9% of 2020 revenue.

“These products are the fastest growing components of Biogen’s product mix,” he pointed out.

Perhaps more important, though, is that the duo was “one of the few things buffering (modestly) the negative headwinds and longer term risks in the company’s dominant multiple sclerosis business,” Porges wrote--and there are plenty of those.

For one, there’s stiff competition coming up the pipeline, with all eyes on Roche ($RHHBY) candidate ocrelizumab. Porges has said he expects that med’s success to come at the expense of Biogen’s Tysabri, which comes along with a risk of the rare but deadline brain disease PML. And on top of that, as Bernstein analyst Ronny Gal has predicted, ocrelizumab’s arrival could up the formulary pressure on older MS meds, meaning Biogen could come under attack on multiple fronts.

And speaking of Tysabri, it’s currently facing an IP threat--and it’s not the only one in Biogen’s MS portfolio that is. In March, pharma patent challenger Kyle Bass--who has been trying for months to upturn the patents on the popular pill--an inter partes review on the drug from the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB). And while there’s no guarantee the challenges to Tysabri and Tecfidera will succeed, they put billions in potential sales at risk.

Overall, “the transaction will make Biogen more focused, less diversified, more profitable, but slower growing and more leveraged,” Porges noted. But “we find it hard to understand how it increases or improves their strategic flexibility,” and whether current shareholders “still find the remaining company attractive after the spinoff remains to be seen.”

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