Shares of Biogen (BGEN Quote - Cramer on BGEN - Stock Picks) dropped more than 6% Wednesday after the company sharply reduced estimates for 2001 royalty revenue.
All Over the Place
Biogen's up-and-down year |
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The disappointing news sent analysts scurrying to lower their own earnings and revenue targets. Meanwhile, some observers were wondering whether the biotechnology company will be able to meet the 2001 earnings target it reaffirmed. Biogen shares were down $4, or 6.2%, to $61.06 in midday trading.
The action surrounding the Cambridge, Mass., company started Tuesday night, when Biogen
said it would meet first-quarter earnings estimates. The company also reiterated estimates for full-year 2001 earnings in the low $1.90-a-share range.
But Biogen executives surprised the Street with a sharply lower outlook for royalty revenue: $85 million to $95 million for 2001, or about half of last year's $165 million in royalty revenue. (Total revenue for the year ended Dec. 31 was $926.5 million.) The company said royalty revenue is falling because of patent expirations and an ongoing legal tussle over royalty payments owed by drug maker
Schering-Plough (SGP Quote - Cramer on SGP - Stock Picks). Royalty revenue is less important to Biogen now than in past years due to the strength of its Avonex multiple sclerosis drug, but royalties remain closely tracked because of their fat profit margins.
Analysts were expecting lower royalty revenue in 2001, but not that much lower.
In a morning research note,
Credit Suisse First Boston analyst Meirav Chovav cut her estimates sharply for royalty revenue, and as a result, lowered Biogen's 2001 earnings estimate to $1.75 from $1.80. She maintained her 2002 estimate of $1.90.
"Unless Biogen uses one-time benefits, or makes severe cuts in R&D expenses, we are skeptical that the company will be able to meet 2001 earnings guidance in the low $1.90s," she wrote. (Chovav maintained her hold rating on Biogen, and her firm hasn't done underwriting for it.)
Consensus estimates call for the company to earn $1.93, according to
Thomson Financial/First Call.
Other analysts weren't as bearish. Peter Ginsberg of
U.S. Bancorp Piper Jaffray reduced his 2001 earning estimate for Biogen to $1.92 from $1.98, but said reduced royalty revenue will be partially offset by better-than-expected sales of Avonex, Biogen's top-selling multiple sclerosis drug.
Ginsberg also believes that Biogen, trading at 34 times 2001 earnings estimates and with three promising new drugs in late-stage testing, is relatively inexpensive compared to the mean large-cap biotech company, which trades at 54 times 2001 earnings estimates. (Ginsberg rates Biogen a buy, and his firm does no underwriting for Biogen.)
Merrill Lynch,
Bear Stearns and
First Union Securities all cut earnings estimates for Biogen while maintaining current ratings.
Adam Feuerstein
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