National Editor

Disclosing third-quarter earnings that included $186 million in U.S. sales of Avonex (interferon beta 1-a), Biogen Inc. also said it has settled the longstanding dispute with alpha interferon patent licensee Schering-Plough Corp., gaining a payment of $45 million to $50 million due by the end of the year.

Schering-Plough, of Madison, N.J., has agreed to start paying royalties this month on sales of its Intron A (interferon alpha 2-b) and PegIntron (a modified form of Intron A).

William Tanner, analyst with Leerink Swann & Co. in Boston, said the royalty news is good, but he has rated the stock an underperformer.

"I don't think anybody's out there buying stock like clipping coupons," he said, noting the bottom line may suffer because of more marketing expenditures.

Not everyone agrees. Eric Schmidt, analyst with SG Cowen in New York, rated the stock a strong buy, citing in a research report the "maturing" late-stage pipeline and "robust" early stage pipeline.

Shares of Cambridge, Mass.-based Biogen (NASDAQ: BGEN) closed Friday at $36.81, up $3.44. Schering-Plough ended the day (NYSE:SGP) at $18.94, down 46 cents.

In August, Biogen filed claims with the American Arbitration Association, claiming Schering-Plough quit paying royalties in January 2001. Schering-Plough has agreed to catch up on the backlog, with a one-time payment and resumption of royalties.

Biogen said in the earnings report Avonex for multiple sclerosis sold $262 million worldwide, which is 5 percent more than in the third quarter of 2001. Sales in the U.S. rose 2 percent compared with the same period last year.

Net income was $42 million, or 28 cents per share, compared to $70 million, or 46 cents per share in the third quarter of 2001. Operating net income was $55 million, or 37 cents per share.

But Avonex now faces competition from Geneva, Switzerland-based Serono SA's Rebif (interferon beta 1-a) for MS, which New York-based Pfizer Inc. has begun to co-promote. Pfizer and Serono entered the $200 million co-promotion deal over the summer. (See BioWorld Today, July 12, 2002.)

"That was eye opening," Tanner said. "You've got to wait and see what Pfizer does."

He predicted in a research report that Avonex will be "roughly holding its own through 2004," although physician surveys suggest Rebif could capture 15 percent to 20 percent of new patients, and about the same percentage range of patients could be switched from Avonex to another therapeutic.

If Pfizer pushes hard on Rebif, Biogen could hike spending on Avonex, Tanner said. He said there may have been an Avonex marketing hiatus in the third quarter after a second-quarter drive, which "reflected that one-time, let's hit them before they get to the market'" strategy by Biogen.

"Now that Pfizer is really in the mix as of October, they've got to be contemplating stepping it back up again," he said. "I don't know how bad it could get."

But Biogen has another card, soon to emerge from its sleeve. In September, the FDA told the company that the review of the application for its psoriasis drug Amevive (alefacept) is expected to be completed within six months, so the picture looks bright for launch early next year. (See BioWorld Today, Sept. 16, 2002.)

"The best case is that [Biogen] maintains its revenue base, but they have to spend more to get to that level, which means they'll make less on the Avonex franchise," Tanner told BioWorld Today, adding that the company is "probably not going to be able to sell enough Amevive next year to break even."

He noted Biogen said in a conference call that it might ramp up spending on Amevive if the launch goes well. "I think they better spend a lot whether it's going well or not," he said.

Some investors, he added, "are interested in the stock because it looks cheap. I just have to believe the likelihood [Biogen] will be spending more rather than less is very high."

Tanner acknowledged recent rumblings of buyout moves by Johnson & Johnson, of New Brunswick, N.J.

"I think that was just someone starting rumors," he said. "But anybody looking to buy the company is going to be looking at the same things investors are looking at."

Schmidt agreed that the "Avonex franchise has seen its best days of growth," but noted it "remains a cash cow" - and he said Amevive is reason enough to own the stock.

"Amevive's first-to-market status, ability to produce durable remissions and the financial incentives it offers to physicians should allow it to reach blockbuster ($500 million-plus) status by 2006," he wrote, calling its launch "one of the most exciting near-term launches in the biotechnology industry."

Schmidt noted Biogen also has a chance to capture more of the MS market with Antegren (natalizumab), in development with Elan Corp. plc, of Dublin, Ireland, which is in two Phase III studies in MS and one in Crohn's disease.