Biogen May See A Breakthrough In Profits

Biotech stocks were hot in 1990. Hambrecht & Quist's group of nine biotechnology companies posted a heady 63% gain, vs. a 4% drop by the Dow Jones industrial average. Biogen, which has developed several drugs through genetic engineering, should continue to be a big winner, says money manager Bill Harnisch. Despite the stock's 1990 rise from 14 to 26, he believes that the Street has yet to recognize Biogen's potential.

Harnisch notes that after years of operating losses, Biogen is profitable and on the verge of posting impressive earnings from its alpha inteferon product, Intron A. And that isn't all. Some savvy pros have snapped up shares because of whispers that Biogen has attracted several merger or takeover suitors. The pros that have taken stakes of just under 5% include RCM Capital Management, Oppenheimer Capital, and money manager George Soros. Harnisch, president of Forstmann-Leff Associates, which manages $3.5 billion, has acquired 10%.

One rumored suitor: Schering-Plough, which is already licensed to market Intron A. In 1990, Schering paid Biogen about $20 million in royalties from those sales, which "should grow rapidly as new indications for the drug are approved," says Biogen Chairman and CEO James Vincent.

WIDE POTENTIAL. In June, 1986, the Food & Drug Administration approved Intron A as a treatment for hairy-cell leukemia, a rare type of cancer. That led to approval in 1988 for applications in patients with an AIDS-related cancer, Kaposi's sarcoma, and for the drug's first antiviral use, in treating venereal warts. Last July, an FDA advisory panel recommended Intron A's approval as a treatment for hepatitis C.

"These indications have opened the door to a whole series of antiviral applications that form the basis of our enthusiasm for alpha interferon," says Peter Drake, an analyst at Vector Securities International. He thinks alpha interferon's worldwide sales could exceed $1.7 billion by 1995, and he expects Schering to capture 52%, or $900 million, of that market with Intron A. (Schering's largest competitor is Hoffmann-La Roche, whose Roferon accounts for 32% of the interferon market.) That could mean royalties for Biogen of $38 million in 1991, $98 million in 1993, and $130 million in 1995, says Drake. Schering's 1990 sales of Intron A nearly doubled 1989's.

One takeover investor speculates that rather than continue to pay royalties to Biogen, Schering may decide to acquire the company. Schering bought a 12% stake in Biogen when it went public in 1981 but sold it in 1986. Drake figures that based on Intron A's potential alone, Biogen's stock is worth $37 a share. At that price, Biogen's 25 million shares outstanding would cost $925 million--just about Intron A's projected 1995 sales. Schering declined comment, and Biogen says its goal is to remain independent.