Biogen’s Biosimilars – Cash Cow business, with declining growth trajectory

26 Sep 2023 , 11:10 AM

Media articles suggest that Samsung Bioepis, Intas and Dr. Reddy’s are evaluating a potential acquisition of Biogen’s Biosimilars business for a USD1bn valuation. Given Samsung has already been involved in the development, manufacturing and supply of these biosimilars to Biogen, the portfolio aligns strategically with Samsung, but would raise concerns of conflicts of interest owing to Samsung’s CRAMS-nature of the Biosimilars business model with other players (e.g. Pfizer). Analysts of IIFL Capital Services believe Biogen’s Biosimilars portfolio would help Dr. Reddy’s to fill a key capability gap in its service offerings. However, Biogen’s Biosimilars revenue and profits have been flat over CY19-23 owing to lack of meaningful launches/price erosion in the base portfolio and analysts of IIFL Capital Services believe the portfolio can be best viewed as a ‘Cash Cow’ with low/declining growth trajectory. So apart from allowing Dr. Reddy’s to bulk up, the portfolio wouldn’t accelerate its growth trajectory until the launches of Tocilizumab & Aflibercept kick-in over 2025-27. Excluding deal-related amortization expenses, the Biogen Biosimilars deal could add 24% and 29% to Dr. Reddy’s FY24 revenue and profits on a pro-forma basis. 

Biogen’s Biosimilars portfolio consists of 4 commercialised products…: 

Biogen markets 3 anti-TNF biosimilar products in Europe, i.e. Etanercept (bEnbrel), Adalimumab (bHumira), and Infliximab (bRemicade), under a 10yr commercial agreement with Samsung Bioepis. While Samsung is responsible for the R&D and manufacturing of these products, Biogen is responsible for commercialisation. Biogen shares 50% of the profits from these three products with Samsung. Although the commercial agreement with Samsung will expire from 2026-2028 (Etanercept, Infliximab and Adalimumab were launched in EU in Jan-2016, May-2016 and Oct-2018 resp.), Biogen has an option to extend this agreement by an additional five years (subject to payment of an option exercise fee of USD60mn). 

…with 96% of Biogen’s sales coming from EU markets: 

Biogen’s Biosimilars business is expected to generate revenue of USD775mn in CY23 (based on H1CY23 run-rate), with sales of the above three products in the EU market accounting for 96% of Biogen’s overall Biosimilars business. Additionally, Biogen has also secured the exclusive rights from Samsung to commercialise Ranibizumab (bLucentis) and SB15 (Aflibercept/bEylea) in major markets worldwide, including the US, Canada, Europe, Japan and Australia. Samsung will supply both these products to Biogen at a pre-specified gross margin of 45%, while Biogen needs to pay up to USD180mn in additional development, regulatory and sales-based milestones to Samsung. Biogen launched Ranibizumab in the US in Jun-2022 and in other markets in 2023 and Ranibizumab accounted for 4% of Biogen’s overall biosimilars revenue in H1CY23. 

Tocilizumab (bActemra) and Aflibercept (bEylea) are the two key pipeline products for Biogen’s Biosimilars portfolio: 

Biogen, along with its partner Bio-Thera, has already filed Tocilizumab (bActemra) with the EMA (European Medicines Agency) and USFDA in Sep-2022 and Dec-2022 respectively. Tocilizumab is a USD3bn market worldwide, with US market size being USD1.3bn. Other biosimilar players developing Tocilizumab include Fresenius Kabi (product already filed in US and EU) and Celltrion (P-3 trials). Separately, Biogen/Samsung’s P-3 trials are ongoing for Aflibercept (bEylea). Eylea is a USD10bn market worldwide, with US market size being USD6.3bn. Although Aflibercept could be a bigger opportunity for Biogen vs Tocilizumab, the competitive landscape in Aflibercept would also be tough given that 6-7 players are developing Aflibercept. Biocon/Viatris has already received approval for Aflibercept in the EU and their product is pending for approval with the USFDA. Amgen, Celltrion, Sandoz, Alvotech, etc., have ongoing P-3 trials for Aflibercept.