Will Biogen's Hemophilia Spinoff Hurt the Company Long Term?

Biogen (BIIB) - Get Report announced Tuesday that it will spin off its hemophilia drugs as an independent, publicly traded business, a move that is likely beneficial to shareholders, but maybe not for the business long term.

The Cambridge, Mass.-based drug discovery and marketing company had previously been considering a sale of its hemophilia assets, which includes two drugs. These drugs are Alprolix, which is used to slow bleeding in patients with hemophilia A, and Eloctate, which treats the same issue in hemophilia B.

However, a sale was not in the cards for Biogen, which instead has decided to IPO the hemophilia drug business.

"It's not really a shift in strategy, it's the fact that the business has matured," said Biogen CEO, George Scangos, in a call the company hosted about the drug Tuesday morning. "It's now profitable. It has a pipeline that needs to be developed aggressively."

Jim Cramer sees this move a bit differently.

"An IPO is far inferior to an outright sale, for two reasons," wrote Jim Cramer, manager of the Action Alerts Plus Portfolio, which owns Biogen. "[One,] it indicates the biotech market is unwilling to pay a premium multiple for the franchise and [two,] an IPO creates uncertainty and all but ensures that the market will pay less than an acquirer would pay for the franchise."

Biogen, which has a market cap of $59.95 billion, was trading at $275.69 per share in midday trading Tuesday, up less than 1% from Monday's close.

Analyst Geoffrey Porges of healthcare-focused investment bank

Leerink Partners

echoed his sentiments in a note, saying that in a sale, the hemophilia business could have yielded $6 billion for Biogen.

"Getting cash for the business, with an adequate premium, would have given Biogen more operational flexibility to re-invest internally or externally," Porges wrote in the note.

Porges added that the spinoff will benefit shareholders, who will receive the shares of the newly formed company.

"The spinoff is substantially better for investors and for Biogen from a tax standpoint, compared to a straight sale of the business," Porges said in the note.

However, this move leaves Biogen to operate as a pure play multiple sclerosis treatment company, and according to Porges, this asset will face risks in the medium term.

The new company will be named at a later date. It will not only market Alprolix and Eloctate, but will also develop new drugs to treat hemophilia. In the twelve month period ending March 31, Biogen's hemophilia drugs generated $640 million, according to a press release.

According to Biogen chief financial officer, Paul Clancy, who also spoke during the morning call, the spinoff will be tax efficient for shareholders, in addition to being cash flow positive.

He added that Biogen has no intention of transferring debt to the balance sheet of its new hemophilia company.

"We want it to have a positive cash position," Clancy said.

According to Scangos, the CEO, the spinoff will have no effect on the company's previously announced plan to aggressively pursue M&A and in-licensing opportunities. However, he did note that Biogen does not have any plans to spin off other parts of its company.

John Cox, Biogen's current executive vice president of pharmaceutical operations and technology, will serve as CEO of the new company.

The new company will be headquartered near Boston. Biogen will continue to manufacture both hemophilia drugs for the next three to five years, until the new company is able to take over manufacturing the drugs itself.

Biogen expects to complete the spinoff in late 2016 or early 2017.