Financial Analysis of Biogen Idec Inc.By Carolyn R. Garcia

December 11, 2014

Business entity summary:

A Biotechnical organization is one that uses living systems and organisms to develop useful products, or "any technological application that uses biological systems, living organisms or derivatives thereof, to make or modify products or processes for specific use" (UN Convention on Biological Diversity, Art. 2).¹ It can overlap with bioengineering and biomedical engineering.

Basic Business Information:

Biogen Idec Inc. is the oldest independent biotechnical company in the world, formed in 1978 in Geneva, Switzerland. Focusing primarily on three core therapeutic areas – neurodegenerative diseases and hematologic and autoimmune disorders, it has developed treatments for Alzheimer’s disease, amyotrophic lateral sclerosis (ALS), Parkinson’s disease, and multiple sclerosis (MS). Biogen Idec Inc. developed the leading oral treatment, the leading high-efficacy treatment and the leading interferon-based platform therapy as well as the first twice monthly interferon-based therapy for MS. Biogen Idec Inc. has also developed the first significant advances for the treatment of hemophilia A and hemophilia B within the last 15 years.³

Biogen Idec Inc., in 2014 was ranked four among the top 25 biotechnological industries with a market capital of $79.89 billion. In third place was Amgen with a market capital of $92.55 billion and in fifth place was Celgene with a market capital of $69.02 billion. This paper will compare these three entities.^4

Capitalization of the Business and Ownership of Stock:

At Biogen Idec Inc., stock ownership by the directors and executive officers is required. The CEO must own an amount of share equal in value to six times base salary. The executive V.P’s and Group Senior V.P.’s who are executive officers must own share equal to three times their base salary. Senior V.P.’s who are executive officers, as well as, the Chief Accounting Officer are required to own shares that are one times their base salary. The non-employee Chairman must have shares equaling five times the total annual cash retainer for the Chair position and the Chair’s Board retainer, and Non-employee Director positions (excluding the Chairman) must have an amount of shares equal in value to five times the then-annual cash retainer for the Board members.

The company has a total of 11 directors on the board and 12 managers with the Chief Executive Officer being on both committees.

The Initial Public Offering of Biogen was in 1983 with 2.5 million shares. In 2003, it merged with Idec to form Biogen Idec Inc. becoming BIIB on the NASDAQ stock exchange.

As of November 15, 2014, Biogen Idec Inc. or BIIB’s stock price was $305.43, with a 52 week range of $239.81 - $358.89. 236,144,375 common stocks are currently outstanding with no Preferred stocks. Of shareholders, 93% are held by Institutional & Mutual Fund Owners. In the last three years, Biogen Idec Inc. has been repurchasing around 128 shares per year.

The amount of Long term Debt held as of the end of 2013 was $592,433,000, with current Long Term Debt at $3,494,000 for a total of $595,927,000.

Exhibit A: Percentage of Stock Ownership

91.54%

3.44%5.02%

Percentage of Stock OwnershipInstitutionals & Mutual FundsBoard/Management MembersOther

Exhibit B: Major Direct Holders (Forms 3 & 4)

Holder Shares Reported

Cox, John 25,478 Feb. 23, 2014Scangos, George A. , CEO 17,985 Nov. 3, 2014Alexander, Susan 22,127 Feb. 23, 2014Young, William , retiree 18,509 Jan. 8, 2014Papadopoulos, Stellios 15,540 Jun 12, 2014

Who is buying and selling:

George A. Scangos, the CEO of the company in the last six months has made a total of 9 transactions starting in June of 2014 by selling 484 shares. From that time one he has either made a disposition of share or sold shares. He has used his exercise option for 21,316 shares in July then sold all of those shares since that time. Going back a two-year time frame, we see that he has used his exercise option to obtain shares then systematically sell his shares. Noting also that his exercise options were for $0 per share.

The largest reported insider owner of shares is John Cox the Executive V.P. of Pharmaceutical Operations and Technology with 25,478 shares. He has used his exercise option to obtain shares at $0 per share and has used disposition to get rid of some shares, however; he has made no transactions since February, 23, 2014.

Susan Alexander, the Executive V.P and Chief Legal Officer with the second highest number of shares has used disposition and option exercises on the same day and has had no transactions since February 23, 2014 the same as John Cox.

William Young who retired from the board in February is a top holder with 18,509 shares and has had not recorded transaction history in the last two years.

There is no record of any buys in the insider transaction history in the last two years, however; option exercises at $0 per share and acquisitions at $0 per share have occurred. There have been 32,176 sales in the last six months and 11.9% of the stocks sold. The percentage change in institutional shares held has been negative 1.09%. While board members and management hold stock in Biogen Idec Inc. we must realize that they are required to own shares in the company. The data shows they are not buying any additional shares and are using their option exercises to sell shares.

The next graph shows us the top five institutional owners of Biogen Idec Inc. These five institutions make up for 30.80% of outside shareholders. The largest percentile holder of Biogen Idec Inc. stock is FMR, LLC, or Fidelity Investments, holding 8.95%. It is one of the world's largest mutual fund firms managing about 565 funds. It holds 4.7 trillion in assets.

Primecap management is the second largest holder at 7.29% and they manage equity investment portfolios. The remaining three institutional holders hold shares in a range between 4.18% to 5.22%.

Exhibit C: Top five Institutional Owners of Stock by Percentage of Shares

8.95%

7.29%5.22%

5.16%

4.18%

Top 5 Institutional Owners of Stock by percentage of Shares owned

Equals 30.80% of total stock ownership

FMR, LLCPrimecap Management CompanyVanguard Group, Inc. (The)Price (T.Rowe) Associates IncState Street Corporation

Debt to equity and debt ratios are recorded in the following chart for the last three years for Biogen Idec Inc., Celegen and Amgen. Biogen Idec Inc. has the lowest debt to equity and debt ratios of all three of these companies. Their debt to equity ratio has been insignificant compared to the debt of Amgen which is at 145.40%. Amgen has kept a fairly consistent debt ratio around 48% for the last three years. Biogen Idec Inc. has been lowering both its debt ratio and debt to equity ratios in the last three years.

Amgen also had the largest total assets of the three at $66,125,000,000 with Biogen Idec Inc. assets being at $11,863,335,000 and Celegen at $13,378,200,000. Amgen is the only one of the three that pays dividends which it started paying out as of August 2011.

Debt ratios again are the lowest for Biogen Idec Inc.at 19.81% for 2013 with Celegen being at 45.9% and Amgen being at 48.59%. Biogen Idec Inc. could increase its use of debt as its counterparts do, however; as stated they have been lowering their debt ratios and record no interest expense in their 2013 income statement.

See the figures in the following chart for comparison purposes of the last three years debt to equity and debt ratios.

Exhibit D: Debt Ratios 2011-2013 for BIIB, CELG, AMGN

27.Debt Ratios 2013 2012 2011

Debt to Equity ratio for Biogen Idec Inc. BIIB

27.27% 33.68% 30.72%

Debt to Equity ratio for Celegen CELG

84.82%ª 54.08% 32.69%

Debt to Equity ratio for Amgen AMGN

145.40%ªª 139.19% 112.61%

Debt Ratio for Biogen Idec Inc. BIIB

19.81% 23.15% 21.81%

Debt Ratio for Celegen CELG

45.9% 38.02% 28.13%

Debt Ratio for Amgen AMGN

48.59% 48.86% 43.85%

27% 33.68% 30.72%

Debt to Equity ratio for Celegen CELG 110%ª 78.35% 51.07%Debt to Equity ratio for Amgen 170%ªª 170% 142%

Long term debt for AMGN has been increasing in the last three years

ªTD is $4,741,300,000/TE of $5,589,900,000ªªTD is $32,128,000,000/TE of $22,096,000,000

Financial Ratios:

Biogen Idec Inc. has the highest stock price at $304.92 compared to Amgen at $164.72 and Celegen at $112.61. Celegen shows the greatest price to earnings ratio at 58.99 while Biogen Idec Inc. only shows a ratio of 28.88. Investors are willing to pay a higher price for stock with a beta of 0.96. Amgen having a stock price in the middle of the three has the lowest beta at 0.45 and is the only one that pays dividends. Biogen Idec Inc. has the highest earnings per share at $10.56. Celegen has the highest corporate cost of capital at 14%, then Amgen at 4.75% and Biogen Idec Inc. at 4.62%.

From two years ago both Biogen Idec Inc. and Amgen doubled their stock prices and Celegen tripled its price. From Biogen Idec Inc.’s price at $146.37 on December 1, 2012, to Amgen’s at $86.20 and Celegen’s at $39.24. All stocks had been relatively straight line in their prices from December 2006 until the end of 2012 except for Biogen Idec Inc. which had some slight price differentiation then the others, however it was not significant.

Exhibit E: Financial Ratios as of Nov. 26, 2014 for BIIB, CELG, AMGN

Nov. 26, 2014 Biogen Idec Celegen Amgen

Current Stock price

$304.92 $112.61 $164.72

P/E 28.88 58.99 25.93

beta 0.96 2.02 0.45

EPS 10.56 1.91 6.35

Dividends Annual N/A N/A 2.44*

CAPM** 5.23 11.01 2.45

CCC 4.62% 14.00% 4.75%

*Amgen started paying dividends Aug. 16, 2011 at $0.28 quarterly. In 2012 $0.36 quarterly, 2013 $0.47 quarterly and in 2014 $0.61 quarterly

** RF of 2.50%

All of the companies had total profit margins in the 20 percentiles with Biogen Idec Inc. taking the lead at 27.79%. Its return on assets was the highest at 17.33%

and return on equity almost tied with Celegen being 27.12% and 27.44% respectively. Celegen has the highest current ratio at 6.32 with assets of $13,378,200 being five times less that of Amgen’s assets of $66,125,000,000. While Celegen works with less assets it also manages less current liabilities. Its debt ratio and debt to equity ratio has been rising.

Exhibit F: Profitability and Current Ratio’s for BIIB, CELG, AMGN

Biogen Idec Celegen Amgen

Profitability

Total Margin 27.79% 21.80% 24.74%

ROA 17.33% 9.68% 6.29%

ROE 27.12% 27.44% 20.76%

Liquidity

CR 2013 from Yahoo finance

2.25* 6.32* 4.22*

*From Yahoo finance key statistics

Financial Statement Analysis:

Balance Sheet Analysis: See Appendix A for a Common size balance sheet:

Looking at assets, Biogen Idec Inc. has only 5.1% of total assets in cash and cash equivalents. This is similar to Amgen’s at 5.8%, however; Celegen is holding 24.8% of their assets in this category. Biogen Idec Inc. also has a small portion of assets in short term investments at 5.2% compared to Celegen at 18.3% and Amgen at 23.6%. Biogen Idec Inc.’s current asset percentage is only at 26.8% compared to Celegen’s at 56.4% and Amgen’s at 41.4%. Biogen Idec Inc.’s largest percentage of assets is in their intangible category at 37.7%, they also have long term investments at 10.3% where the other companies have no long term investments. They are also heavily invested in their plant and equipment at 14.8% compared to 4.4% and 8.1% for the other two.

Biogen Idec Inc. has a high accounts payable at 14.8% compared to the other two companies carrying around 8%. This is a concern seeing that is it almost double of

the competition. This is Biogen Idec Inc.’s only current liabilities though and the 14.8% total current liabilities does match with the competitions of 14.5% and 12% respectfully. While the accounts payable is high their long term debt is only at 5% compared to Celegen at 31.4% and Amgen at 44.8%, making for total liabilities of Inc.at only 27.3%, with Celegen’s at 58.2% and Amgen’s at 66.6%.

Biogen Idec Inc.’s total stockholder equity is at 72.7%, Celegen’s is at 41.8% and Amgen’s at 33.4%. Biogen Idec Inc. has the assets and equity and has not been using as much debt as the competition. Net tangible assets for Biogen Idec Inc. are at 24.6% with Celegen being at 5.3% and Amgen at a negative 9.3%. With Amgen’s being the only one of these three companies issuing dividends (which totaled $1,415,000,000 last year), it is having to use debt to pay for the dividends and therefore, has a negative retained earnings record on their balance sheet. This is one significant difference between the three companies. Amgen’s high total liabilities at 66.6% and long term debt at 44.8% of assets puts Amgen in the red as far as net tangible assets.

Exhibit G: Balance Sheet ratios

BIIB CELG AMGN

2013 Current ratio from B.S.

1.81** 3.88** 3,44**

2012 Current ratio from B.S.

1.96** 3.27** 3.81**

2013 Ratios

Days cash on hand***

0.00 0.00 0.01

Debt Ratio 19.81% 45.9% 48.59%

FATO 3.96 10.94 3.49

TATO 2.77 3.70 2.97

Days in A/R 56.71 61.08 52.71

Average age of plant

6.5 years 15.3 years 8.1 years

**Calculated from Balance sheet***Cash and cash equivalents for all three companies does not cover the daily cash expenses with noncash expenses stripped out

The current ratio’s recorded for all three companies on Yahoo Finance are higher than those calculated based on the balance sheet information made available from the same source. Biogen Idec Inc.’s current ratio from the key statistics section of Yahoo Finance recorded a ratio of 2.25, however; using the 2012 and 2013 balance sheet numbers we get 1.96 and 1.81 respectively. For Celegen it is the highest at 6.32 for Yahoo Finance and the 2012 and 2013 balance sheet ratios come back at 3.27 and 1.96. Amgen is recorded on Yahoo Finance at 4.22 and the 2012 and 2013 balance sheet ratios come back at 3.81 and 3.44. Biogen Idec Inc. has the lowest liquidity by using the current ratio statistic.

Calculations of the Days Cash on Hand Ratio for all companies came out at as 0, based on the balance sheet information given, comparing cash and cash equivalents to total cash expenses. Selling and General Administrative expenses were the highest expense for both Biogen Idec Inc. and Amgen, taking 25.9% and 28.8% of total revenues (see appendix B).

Biogen Idec Inc. and Amgen are close in their Fixed Assets Turnover ratios with 3.96 and 3.49, while Celegen is using its fixed assets more efficiently at 10.94. This high FATO appears to be attributed to much older age of plants at 15.3 years compared to Biogen Idec Inc.’s 6.5 years and Amgen’s 8.1 years. Considering the age of the plant Biogen Idec Inc. is managing its fixed assets more efficiently then Amgen.

Utilization of all assets appears to be similar for all three companies with Total Asset Turnover ratios of 2.77, 3.70, and 2.97 for Biogen Idec Inc., Celegen, and Amgen.

Days in Accounts Receivables is the highest for Celegen at 61days, however; the others are close with Biogen Idec Inc. at 57 and Amgen at 53. While these are not

great numbers they are consistent in telling us that they collect monies in similar time frames.

Income Statement Analysis: see appendix B for a common size income statement:

All three companies showed an increase in total and gross profits from 2012 to 2013, as well as total operating expenses.

All three companies have had high gross profit margins from Biogen Idec Inc.’s 87.6% to Celegen’s 94.8% and Amgen’s 82.1%. Operating incomes are similar with Biogen Idec Inc.’s at 36.3% Celegen’s at 27.9% and Amgen’s at 31.4%.

Total operating expenses for all companies is over 50% with Biogen Idec Inc. being at 51.7%, Celegen at 66.9% and Amgen being at 50.7%. Biogen Idec Inc. has the highest operating income at 36.3%, with Celegen at 27.9% and Amgen at 31.4%. It also has the highest EBIT at 36.1% and no interest expense recorded, making for higher tax expense at 8.7% compared to Celegen at 3.3% and Amgen at 1%.

All have similar net income percentages of Biogen Idec Inc. at 26.9%, Celegen at 22.3% and Amgen at 27.2%. Along with their total profit margin ratio we see that all three companies are profitable.

Total revenues increased for Biogen Idec Inc. due in part to worldwide sells of the treatment Tysabri which increased its revenues by 34.4% due to acquisition rights becoming affective.

Total costs and expenditures increased by 19.8% due in part to a 69.6% increase in the amortization of acquired intangible assets, a 57.2% increase in cost of sales, a 34.0% increase in selling, general and administrative expense and an 8.2% increase in research and development expense. These in turn were partially offset by a 73.1% decrease in collaboration profit sharing compared with the same period in 2012.

Appendix C shows us a 57.24% increase in cost of goods over 2012. This is due in part to the amortization of acquired intangibles, both from the acquisition of the Tysabri rights and higher amortization recorded on our Avonex intangible asset. The product launch of Tecridera in the U.S. and the development of commercial capabilities for potential product launches of Eloctate and Alprolix increase the selling, general and administrative expenses.

SEE appendix C for dollar change and % change analysis

Appendix C shows us that Biogen Idec Inc.’s gross profit has increased from 2012 to 2013 by 22% or $1,103,506,000 which is greater than their operating expenses which increased by 13.34%. Overall, net income for the company did increase by 34.95% or $482,308,000. Another significant number to look at on this chart is that the Total Other Income/Expenses Net category went down by 121.79%.

Celegen had a gross profit increase from 2012 to 2013 of 18.6%, as well as, Amgen at 8.99%. Celegen’s total operating expenses increased by 25.52% and Amgen’s increased by 11.47%, not enough for either of these two companies to have their total operating expenses to be covered by gross profit as Biogen Idec Inc. did with gross profit exceeding total operating expenses by 8.86%.

Biogen Idec Inc.’s operating income percentage change increased by a significant 35.54%, whereas, Celegen only increased by 3.58% and Amgen by 5.20%.

Biogen Idec Inc. significantly decreased their income expenses by 121.79%, and Amgen by 13.4%, whereas Celegen increased theirs by 2953%. Interest Expense is also significant for Celegen with a change of 45%. Biogen Idec Inc. had no recorded interest expense and Amgen has decreased theirs from 2012 by 3%.

Biogen Idec Inc. is the only one that reported a significant net income increase at 35%, Amgen records almost 17%, however; this is due in part to their drastic 72% decrease in income tax expenses. Celegen actually had a loss in net income from the prior year by around 0.5%.

Statement of Cash Flows: see appendix D for a cash flow statement

All three companies have had increases to their accounts receivables with Biogen Idec Inc. leading with a figure of $126,753,000. Liabilities for Biogen Idec Inc. also went down the most for a figure at $602,561,000, Celegen’s went down by $286,300,000, and Amgen’s liabilities increased by $ 289,000,000. All had increases in inventories with Biogen Idec Inc. having the largest increase of $243,960,000, Celegen at $89,700,000, and Amgen at $7,000,000. The changes in the other operating activities category caused the cost of cash flows in this category to decrease significantly with numbers such as $160,188,000 for Biogen Idec Inc., $90,900,000 for Celegen, and $59,000,000 for Amgen. All suffered a loss in cash flows from investing activities with Amgen facing the greatest loss at $8,469,000,000.

Biogen Idec Inc. has the only negative net borrowing figure telling us that this is the only company that has enough cash on hand to cover its borrowing. Amgen has a large net borrowing amount of $4,683,000,000. Biogen Idec Inc.’s negative cash flows from financing shows that the company is repurchasing stock and retiring some of their debt, the same can be said for Celegen. Amgen’s high total cash flows from financing comes from their high net borrowing of $4,683,000,000.

All three companies have had a positive change in cash and cash equivalents for the year 2013.

Biogen Idec Inc. has invested $254,548,000 in 2012 and $246,281,000 in 2013 on capital expenditures, while their depreciation has been $365,648,000 and $531,740,000, respectively.

Tysabri was acquired by Biogen Idec Inc. from Elan on April 2, 2013 creating for the increase in intangible assets from $1,631,547,000 to $4,474,653,000. They began amortizing this asset over a 17 year time frame based on actual and expected revenues.

An upfront payment of $3.25 billion was made to Elan to purchase Tysabri. Total current assets for 2012 were $3.24 billion. This payment was capitalized in the second quarter of 2013 as an intangible asset, stating that Tysabri had reached technological feasibility. This intangible asset was adjusted by $84.4 million because of deferred revenue from the two sales-based milestones previously paid by Elan as well as transaction costs. The net intangible asset capitalized was $3,178.3 million.

Amgen had a 20% increase in intangible assets from 2012 to 2013. Proportionately, Biogen Idec Inc.’s increase was 37.7% and Celegen’s was 15.3%.

Capital expenditures for all three companies remained fairly stable for these two-year time frames.

Biogen Idec Inc. and Amgen have had fairly stable debt ratio, from 20% to 48%, respectfully. See exhibit D. Amgen’s debt to equity ratio has been significantly higher than the others at 145%.

Only Biogen Idec Inc. has decreased its long term debt, Amgen increased their by 23%, and Celegen increased theirs by 51% (see appendix A).

Amgen in connection with the acquisition of Onyx in October of 2013, established a repurchasing agreement and a Term Loan Credit Facility. The Repurchase

Agreement is accounted as long term debt, at an aggregate sale price of $3.1 billion.

Celegen issued senior notes offering costs of approximately $12.5 million have been recorded as debt issuance costs on their consolidated balance sheets.

Biogen Idec Inc. was the only one of the three companies analyzed that decreased debt and decreased their debt to equity ratio from 33.68% to 27.27%.

Conclusion:

Biogen Idec Inc. has been at a state in the last couple of years where its board members and CEO have only been selling their stock, even with the stock price increases that have been seen in the past two years. It appears debt could be leveraged more. The total profit margin has been consistently at 20% or more for the last three years. Retained earnings were high last year at 53%. This company is making money with less debt and current liabilities than the two compared competitors. They have been paying off debt and repurchasing their stock.

The high accounts payable is a concern, but it appears that they have the resources to take care of those bills. High operating income and EBIT show strength in the company, they could use some debt to decrease their tax expenses.

It is a strong player in this volatile market. The current drugs out have been fruitful for the company but one must watch what is coming through the pipeline. Currently, they are relying on sells of existing therapies and waiting for patents and approvals of others. At this point in time it would be a good stock to own, however; lack of insider buying makes one speculate even more about the future of Biogen Idec Inc. stock and it carries a beta of 0.96.

Amgen has a negative net tangible assets number that has happened because of very high total liabilities and long term debt proportional to their assets createing a difficult position for Amgen that must be corrected. Celegen appears to be in the middle of the two in most categories, however; its total profit margin is the lowest at 21.8%.

Biogen Idec Inc. has had total stockholder equity increase by 23.8% from 2012 to 2013 as well as increases in total assets. It appears to be strong financially, however; it is relying on existing therapies while trying to get some additional into the revenue stream. Total current assets are low being at 26.8% of total assets with

the bulk of assets tied up in the intangible due to Tysabri. Total stockholder equity is at 72.7% much higher than its competitors of Celegen at 41.8% and Amgen at 33.4%.

All three have good profit margin, however; Biogen Idec Inc. is the leader at 27.79% then Amgen at 24.74% and Celegen trailing at 21.80%.

Footnotes

1. http://www.cbd.int/convention/articles/default.shtml?a=cbd-02 article 2 retrieved Nov. 11, 2014

2. http://finance.yahoo.com/q? s=BIIB&fr=&type=2button&uhb=uh3_finance_vert. Retrieved Nov.15, 2014

3. http://intldw8.biogenidec-webbuilder.com/our_history.aspx?ID=19025 4. http://www.genengnews.com/insight-and-intelligence/top-25-biotech-

companies-of-2014, Retrieved Nov. 15, 2014

Sources

http://www.amgen.com/

https://www.celgene.com/

http://aswathdamodaran.blogspot.com/2013/05/equity-risk-premiums-erp-and-stocks.htmlBio