Biogen Analysis
Essay Preview: Biogen Analysis
Report this essay
Executive Summary
Biogen is a global biotechnology company headquartered in Cambridge, Massachusetts. Biogen is engaged in the research and development of biopharmaceuticals for human health care. Its main product is Avonex, a drug for the treatment of Multiple Sclerosis. Eighty-two percent of its revenues in 2000 came from the sale of this sole product. Biogen is also involved in the research of drugs for psoriasis, Crohns disease, congestive heart failure, and cancer. Biogen believes that its success is based on its employees, and its corporate culture reflects this belief. Its culture is embedded in its corporate values. These values consist of hiring the highest quality employees, flexibility in work, leadership, and teamwork.
Biogen is in a strong position within the biotechnology industry. It is one of just seventeen profitable biotech companies and has the fourth largest market capitalization. Biogen has attained this prestige by utilizing partnerships from the beginning of the company which has definitely paid off. By partnering with some of the larger pharmaceutical companies, Biogen has created many competitive advantages. The main competitive advantages have been access to capital and drug marketing. Lack of capital (running out of cash) is what bankrupts most young biotechnology firms.
Although Biogen has many advantages, it also has some definite weaknesses. Over 82% of its 2000 revenues came from Avonex, their cash cow. By relying on Avonex, Biogen has been able to stay profitable, but in the future this will not work. Biogens main threat comes from Serono, a Switzerland based company. Serono has a drug in their pipeline that has the potential of wiping out half of Biogens U.S. revenues. To continue into the future, Biogen must focus on the development of drugs in its pipeline. Biogen must stick with the larger blue-chip drug manufacturers in partnerships and also begin to look down the value chain and acquire smaller firms with high potential.
Basic Company Information
Biogen, Inc. is a global biopharmaceutical company engaged in the business of developing, manufacturing and marketing drugs for human healthcare through genetic engineering. Biogen was founded in 1978 by a group of internationally acclaimed scientists, and is the worlds oldest independent biotechnology company. Two of Biogens founders, Phillip Sharp of the Massachusetts Institute of Technology and Walter Gilbert of Harvard University both received the Nobel Prize for their individual discoveries.
Biogens headquarters are in Cambridge, Massachusetts, with the international headquarters being in Paris, France. Biogen produces Avonex for the treatment of relapsing forms of Multiple Sclerosis. The companys research and development activities are focused on products to treat inflammatory and autoimmune diseases, neurological diseases, cancer, fibrosis and congestive heart failure. Biogen currently employs more than 1,500 people worldwide. In 2000, the total revenues for Biogen were $926.5 million. The revenues from the sale of Avonex were $761.1 million or approximately 82% of total revenues.
Competitive Analysis
Dominant Economic Features
The biotechnology industry is characterized by extremely high capital requirements as well as high research and development costs. The top biotechnology firm spends an average of $101,000 per employee versus an average $29,000 per employee for a pharmaceutical company. Biotechnology firms spend approximately 20% of revenue on research and development while pharmaceutical companies spend approximately 11%. The biotechnology workforce must be extremely well educated in the sciences and most workers have advanced degrees. These credentials constitute high salaries, which greatly contribute to research cost.
Over $30 billion will be spent worldwide in 2001 on biological research in the pharmaceutical industry (perhaps $8 billion on genomics and $2 billion on proteomics (protein related) issues. Global pharmaceutical sales are now in excess of $290 billion. It is estimated that over 25% of drugs in development are now biological based. Some 10% of the pharmaceutical market value is now generated by sales of biologicals – such as vaccines, insulin, EPO (erythropoetin), blood clotting factors, interferons and other cytokines. It is estimated by some (notably Ernst and Young) that over 50% of drugs on the market will be biological within 20 years.
Another economic characteristic within the industry is the high cost of equipment. Much of the scientific equipment has to be on the cutting edge, making it quite expensive. Many small biotechnology firms are now setting up exclusive production and marketing relationships with the bigger pharmaceutical companies in order to have access to the latest equipment along with research and development capital support. Pharmaceutical companies, which traditionally have focused on chemical approaches to treating disease, have become increasingly supportive of biotech R&D in their own labs, in partnerships with biotech firms, and through acquisitions of biotech firms. Alliances in the biotech industry doubled to nearly 250 between 1998 and 2000.
Biotechnology is definitely a growing field. The number of U.S. biotech companies has increased to over 1,500, while the number of employees has nearly doubled from 79,000 in 1993 to nearly 115,000 in 1999. The number of patents granted to biotechnology companies has tripled from nearly 3,000 per year in the early 1990s to more than 9,000 in 1998. The number of patents for biotechnology related products has skyrocketed 25% or more per year. Sales and revenues for the biotech industry nationwide more than doubled between 1993 and 1999. In 1999, biotech industry sales reached $13.4 billion and revenues reached $20 billion.
Only seventeen biotech companies were profitable in 1999. In three years, 50 biotech firms are forecasted to be profitable. In the first decade of this century, the biotech industry is likely to show even more explosive growth as progress in computer modeling, automated lab techniques, and knowledge related to human genes and proteins continues. Following is a list of the top seven biotechnology companies ranked by market capitalization:
Top 7 Biotech Companies Ranked By Market Cap
Company
Revenue $ in millions
Market Cap as of Mar. 01
EPS Estimates (2001)
EPS Growth (Dec. 00-Dec. 01)
R&D Percentage
Amgen
$3,433
65.0B
Genentech
$1,414
23.5B
Immunex
11.5B
(-3.6)