Biogen, Roche Revise Deal - Analyst Blog

Biogen Idec Inc. (BIIB) and Roche Holdings Ltd. (RHHBY) recently announced that they amended their deal related to antibodies targeting CD20. The agreement covers products like Rituxan (rituximab) approved for the treatment of non-Hodgkin's lymphoma (NHL), chronic lymphoid leukemia (CLL), and rheumatoid arthritis (RA), ocrelizumab in mid-stage trails for multiple sclerosis (MS) and GA101 in late stage trials for NHL and CLL. 

Per the amended agreement, Roche will now be responsible for the development and commercialization of ocrelizumab. Biogen will receive tiered, double-digit royalties on the US sales of the drug. The companies have also decided that the commercialization of ocrelizumab will not affect their current profit-sharing arrangement for Rituxan. 

Moreover, Biogen's share of profit/loss associated with the US development and commercialization of GA101 has been increased to 35% from 30%. Roche will receive a catch-up payment of about $10 million from Biogen for the expenses borne by Roche to date on the development of GA101, as earlier Biogen was paying 30% of the development costs. 

Further, on the achievement of certain sales milestones for GA101, Biogen's co-promotion profit-share on Rituxan will come down to 35% from 40%. 

Neutral on Biogen

We currently have a Neutral recommendation on Biogen, which is supported by a Zacks #3 Rank (short-term Hold rating). This agreement marks the end of a long standing dispute ongoing between the two companies.

Although Biogen's core business should remain stable in the coming quarters, we believe investor focus will remain on the occurrence of additional cases of progressive multifocal leukoencephalopathy (PML) associated with the use of MS drug Tysabri and the increased competition the company will be facing from Novartis AG's (NVS) Gilenya.