Andrey Antov

1
Evaluating Biogen/IDEC An Acquisition in
Multiple Sclerosis Pharmaceuticals

• Andrey Antov
• Dario Englot Adam Kaye

2
Evaluating Biogen Idec

• ?Biogen Idec
• ? formed in 2003, merger of Biogen Inc., founded
  in 1978, and IDEC Pharmaceuticals, founded in
  1985
• ? 3,900 employees, 3 mil revenue 2006
• ? Leader in the MS treatment industry, holding
  largest MS drug, a strong pipeline, large RD
  emphasis
• ? Pfizer is without significant holding in MS
  market
• ? Biogen Auction Opportunity for Pfizer?

source 2006 Biogen Idec financial statements
3
Multiple Sclerosis (MS) Overview

• ? What
• ? MS is a chronic, progressive autoimmune illness
  that affects the brain and spinal cord
• ? Who
• ? 400,000 in US, 2.5 million worldwide, 21
  females
• ? Symptoms
• ? visual, sensory, and motor disturbances
• ? Major Subtypes
• ? Relapsing-remitting
• ? Secondary progressive
• ? Primary progressive

sources eMedicine, UpToDate
4
Mechanism of Biogen MS Drugs
IFN?/?
Betaseron (Bayer) Rebif (EMD Serano)
Copaxone (Teva)
sources Access Medicine by McGraw Hill, Biogen
MS Brochure
5
MS Market in US
entry of oral medications, adding 5 more
treated patients increase due to oral
medications entry and increase in prescriptions
made by doctors sources Factiva, ISI Emerging
Markets, Curr Opin Investig Drugs
6
MS Market in US
cumulative total market revenue in BLN adjusted
to 07 current value if prescription price is
2,200 per month per patient source Case
Exhibit 3 and DSW Data report, Investext plus,
Wall Street Transcript, Drug Researcher,
Biomarket Group
7
Valuing BG-12 - pipeline

• 3 orals in Phase III BG12 (Biogen), Fingolimod
  (Novartis), Cladribine (Sonoma)
• Project oral MS drugs will occupy 44 of the
  market by 2017 (valued at 1.4 bil)
• Assume 1st drug will occupy 50 of oral market
  other two will occupy 25 each
• Assume all three drugs have equal chance (33)
  of coming to market first

Value of BG-12 if it come to market first gt
1.4 bil x 0.50 702 mil Value of BG-12 if it
is not first on market gt 1.4 bil x 0.25
351 mil Risk-adjusted value of BG-12
gt 702 mil(0.33) 35 mil (0.67)
Sources Current Opinion in Chemical Biology,
Medical News Today, Nature Biotechnology, ISI
Emerging Markets
8
NPV of Biogen 12.7 billion

• Assumptions
• 10 Growth Rate
• Tax Rate 34
• Capex is 4 of Revenues
• Operating costs 75 of Revenues
• Cost of Capital is 13

Sources Biogen Idec Annual Report
9
Biogen Acquisition Benefits Riscks

• Entering new market with many opportunities
• Progressive disease-consistent revenues
• Immature market, new oral drugs becoming
  available
• ? However, other large players in the market
• ? One of companys most revenue-generating drugs
  is coming off patent soon Avonex

10
VISIOtech Recommendations

• ? Biogen Idec is a profitable company in the MS
  market with expected revenue growth and a strong
  pipeline of new treatments
• ? Competition is strong, but risk is acceptable
• ? Acquisition of Biogen will launch Pfizer to the
  front the MS market and into a position to lead
  future MS research and therapies
• ? Estimated NVP of Biogen is 12.7 bil. Given a
  competitive bidding field and the potential held
  by this acquisition, consider maximum bids of 20
  above NVP.
• ? If acquisition bid is unsuccessful, licensing
  of BG-12 to break into oral MS treatment market
  (if possible) would be a good business move.

11
Questions
12
Projected 10-year market share of MS drugs

• percentages in table represent Patient Share,
  and thus may not total 100 if patients take more
  than one drug
• sources Investext plus, Wall Street Transcript,
  Reuters Business News, Drug Researcher,
  Biomarket Group

13
MS Drugs on the Market
sources Access Medicine by McGraw Hill,
eMedicine
14
Valuing Tysabri
NPV of Tysabri 575 million

• Assumptions
• Revenue/Patient is 28,000/patient
• Costs of Drug are 75 of Revenues (25 Profit
  Margin)
• Cost of Capital is 13

15
Valuation Assumptions

• ? Revenues Past 2 years, about 10 growth
• ? Operating costs Last 3 years 98, 90, 83
• ? Synergies from Pfizer buying, cut costs,
  assumed down to 75 of revenues
• ? Capex Taken from PPE changes without
  depreciation changes in PPE were about 4 of
  revenues last 2 years
• ? Accounts Payable (avg 3.9), Inventory (6.9),
  and Accounts Receivable (11.7) taken from
  balance sheet
• ? Cost of Capital was 13 (given)
• ? Revenue/Patient per year for BG-12 assumed
  about 75 of that for Avonex
• ? Oral drug is cheaper, but daily. Industry
  averages for oral vs. injection varied from 45
  to 17
• ? For Tysabri, price was given in case