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Biogen Profit Falls as Sales of Drug Slow

Fri Oct 18, 4:17 PM ET
By Toni Clarke
NEW YORK (Reuters)

Biogen Inc. on Friday said its third-quarter earnings fell 40 percent as sharper competition cut into sales of Avonex, a multiple sclerosis drug that is the company's only marketed product.

Biogen, based in Cambridge, Massachusetts, is one of the world's few profitable biotechnology companies. But its growth has been driven solely by Avonex, which has annual sales of nearly $1 billion.

Now the sales growth of Avonex has sharply slowed, hurt by the U.S. launch in March of Rebif, a rival product from Europe's Serono SA. Investor concern about the impact of Rebif has helped drive down Biogen's stock 41 percent this year.

Still, the company's shares rose $3.44, or 10 percent, to $36.81 on Nasdaq, after Biogen said it had settled a dispute with drugmaker Schering-Plough Corp. Schering-Plough will resume royalty payments on hepatitis drugs for which Biogen holds the patents.

"The Schering-Plough announcement was a nice solid upside surprise, but the stock's bounce may be fairly short-lived," said Martin Auster, an analyst at SunTrust Robinson Humphrey. "We continue to have long-term concerns about Avonex's deteriorating market share."

Biogen posted third-quarter net profit of $42 million, or 28 cents a share, down from $70 million, or 46 cents a share, a year earlier. Revenue rose 9 percent to $288 million.

Excluding an $18 million charge to write down losses on investments, Biogen earned 37 cents a share, 2 cents more than analysts had expected, according to Thomson First Call.

Biogen's future hinges, at least in the near term, on the success of a treatment it has developed for psoriasis, a skin disorder. The drug, Amevive, is expected to win regulatory approval next year.

But analysts do not think sales of Amevive will entirely offset declining sales of Avonex because competition in the potentially $5 billion global market for psoriasis drugs is intense. Genentech Inc., Amgen Inc. and Johnson & Johnson all have rival drugs in the works.

Sales of Avonex rose 5 percent in the third quarter, to $261.6 million. Biogen said it was aggressively trying to defend Avonex's market share, but it faces a formidable rival in Serono's new U.S. marketing partner, Pfizer Inc., the world's biggest drug company.

"Pfizer is coming," James Mullen, Biogen's chief executive, said in a conference call with analysts. "We're tracking their movements quite closely, but we haven't seen anything yet that we weren't prepared for."

Despite slowing sales of Avonex, Biogen has an advantage that many biotechnology companies, currently out of favor with investors after a series of disappointing drug failures, lack: It has more than $828 million in cash. That means it can acquire new drugs or partner with smaller biotechs who are developing them, if its own drugs fail.

"Big drug and biotech companies have been waiting to see how good a deal they can cut with their smaller brethren," said Steve Brozak, an analyst at Westfield Bakerink and Brozak.

Mullen said Biogen's strategy is to buy in or license more products.

But some analysts say this could be a unsatisfactory solution to the problem of developing drugs beyond Amevive.

"It makes a big difference whether you buy products or develop them yourself," said David Williams, an analyst at Fulcrum Global Partners. "Investors want a company with real savvy, not just a used car sales force."

Biogen said it expects full-year 2002 earnings to reach the upper end of its previous forecast of $1.50 to $1.60 a share, helped by royalties from Schering-Plough. The company revised its forecast for royalty payments in 2002 to a little more than $100 million, from a previous estimate of $75 million to $85 million.

Schering-Plough also agreed to make a one-time payment of $45 million to $50 million, which Biogen will record in the fourth quarter.

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