Bloomberg News

Biogen’s Research Spending to Stay High Until 2013, CFO Says

October 31, 2011

(Updates with closing stock price in fifth paragraph.)

Oct. 28 (Bloomberg) -- Biogen Idec Inc.’s success with experimental drugs in the late stages of development is costing the company in other areas, driving up research spending and requiring new investments, said Paul Clancy, the company’s chief financial officer.

The biotechnology company, the world’s largest maker of medicines for multiple sclerosis, has seven to nine products in the final, and most costly, stage of testing, Clancy said today in an interview. The additional spending to get those compounds to the market will keep the company’s costs elevated for at least 18 months.

“The research and development part of the business is clearly in this industry the place where you destroy shareholder value, but it’s also the primary place where you create shareholder value,” Clancy said. “The trick is making these investments pay off extremely well.”

Biogen on Oct. 26 said that its lead experimental medicine, the MS pill BG-12, was safe and reduced the risk of relapse in a late-stage trial. Investors had been awaiting the data since Biogen reported similar results in April from an earlier study. The treatment may generate as much as $3 billion in annual revenue for the Weston, Massachusetts-based company, said Michael Yee, an analyst with RBC Capital Markets in San Francisco.

Biogen gained less than 1 percent to $118.72 at the close in New York. The shares have increased 77 percent this year.

Profit Beats Estimates

Earlier, Biogen reported third-quarter profit that beat analyst estimates on sales of multiple sclerosis drug Tysabri. Earnings excluding certain items were $1.61 a share, topping by 8 cents average estimate of 21 analysts surveyed by Bloomberg.

Net income rose 38 percent to $351.8 million, or $1.43 a share, from $254.1 million, or $1.05, a year earlier, the company said today in a statement. The company spent $301 million on research and development, more than expected, said Joshua Schimmer, an analyst at Leerink Swann in New York, in a note to investors today.

Products in the final stages of development consume about half the company’s R&D budget, Clancy said. The company won’t complete the work and see a drop in spending for another 18 months to two years, he said.

Biogen plans to hire more salespeople and increase spending to support the introduction of BG-12 in early 2013, Clancy said. The company is already starting to prepare to enter a new business, expecting results from the final studies on the Factor VIII and Factor IX products for hemophilia by the end of next year.

“We may have to build before the revenue stream comes in,” Clancy said, since Biogen would need to be able to produce the therapies before it gets final word on whether they receive regulatory clearance. “We’re doing that at risk. It’s part and parcel of the business.”

--Editor: Andrew Pollack, Bruce Rule

To contact the reporter on this story: Michelle Fay Cortez in Minneapolis at mcortez@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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