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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
NOTICE OF EXEMPT SOLICITATION
1. Name of the registrant:
Biogen Idec Inc.
2. Name of person relying on exemption:
HealthCor Management, L.P.
3. Address of person relying on exemption:
HealthCor Management, L.P.
Carnegie Hall Tower
152 West 57th Street, 43rd Floor
New York, New York 10019
4. Written Materials. Attach written material required to be submitted pursuant
to Rule 14a-6(g)(1).
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November 18, 2009
Biogen Idec Inc.
14 Cambridge Center
Cambridge, MA 02142
Phone: (617) 679-2000
Fax: (617) 679-2617
ATTN:
James Mullen, President and Chief Executive Officer, Director
Bruce R. Ross, Chairman of the Board
Marijn E. Dekkers, Director
Alex Denner, Ph.D., Director
Nancy L. Leaming, Director
Richard Mulligan, Ph.D., Director
Robert W. Pangia, Director
Stelios Papadopoulos, Ph.D., Director
Brian S. Posner, Director
Lynn Schenk, Director
William D. Young, Director
Members of the Board of Directors:
By way of background, HealthCor Management, L.P. is the investment adviser to
private investment funds that currently own 3,650,000 shares, representing 1.3%
of Biogen Idec Inc.'s ("Biogen Idec" or the "Company") outstanding shares. As
you are aware, we have been investors in the Company for over a year.
We reference letters we sent to the Members of the Board of Directors on
November 12, 2008 and July 20, 2009, which recommended that the Board act to
return cash to shareholders.
In this letter, we highlight three areas where we are particularly disappointed
with the Company:
1) The disconnect between James Mullen's compensation and Biogen Idec's
stock performance;
2) The lack of a consistent commitment to return cash to shareholders; and
3) The Company's excessive and fruitless Research and Development spend.
We ask the Board to take swift action to remedy our concerns, which we believe
will result in an immediate and meaningful creation of shareholder value.
1
JAMES MULLEN'S COMPENSATION IS INCONSISTENT WITH BIOGEN IDEC'S POOR STOCK
PERFORMANCE
Despite the fact that the Company's fundamentals continue to improve, we are
frustrated that Biogen Idec's stock price has declined since the time of our
initial letter to the Board on November 11, 2008 (the stock price was $46.80 as
of November 11, 2008 compared with $46.05 today).
In fact, Biogen Idec's stock price has experienced no material growth for nearly
six years, and is currently trading near levels seen prior to the Tysabri BLA
filing in 2004 ($44.26 on February 17, 2004). During this time, the Company's
CEO, James Mullen, has sold more than $85 million of stock, which we estimate to
be nearly half of all his eligible holdings, and based on the Company's proxy
statement has collected almost $63 million in total compensation.
James Mullen has made considerable personal profits while running Biogen Idec
and has egregiously continued to sell down his personal holdings in the Company,
while investors have been left holding the bag. To summarize: James Mullen has
sold over $85 million of stock and collected almost $63 million in compensation
and yet stock holders have seen almost no return on their investment. We demand
that the Board take steps to ensure that Mr. Mullen's compensation is more
closely aligned with the interests of the shareholders he is working for.
BIOGEN IDEC MUST TAKE CONTINUED ACTION TO RETURN CASH TO SHAREHOLDERS
For the past twelve months, we have repeatedly urged members of Biogen Idec's
Board of Directors and management to take decisive action to return cash to
shareholders, such that senior management members are not the only ones
benefitting from Biogen Idec's strong operating performance. We proposed that
the Company "announce a specific and continued commitment" to return cash to
shareholders through a "long-term stock buyback program" of $500 MILLION TO $1
BILLION ANNUALLY. Recently, the Company announced an intended $1 billion share
repurchase program, but would not commit to a specific timeframe or additional
repurchases thereafter. We believe this "intention" is inadequate, representing
further stalling on behalf of the Board and a continuation of the pattern of
inaction we have seen over the past year.
There have been many examples of research supporting our recommendation that a
long-term share buyback program is the best use of Biogen Idec's cash. In fact,
a historical analysis of stock price performance based on how companies decide
to allocate excess capital, yields compelling results: firms that buy back
significant amounts of their own stock, outperform the market over 80% of the
time and dramatically outperform those that use cash for mergers and
acquisitions, increasing dividends, or reinvestment.
Once again, we strongly urge the Board to live up to its fiduciary
responsibility to shareholders and announce a definitive plan to repurchase $500
million to $1 billion of stock each year. Such a commitment would demonstrate a
significant vote of confidence in Biogen Idec's base business and would draw
attention away from near term Tysabri trends by showing that the Company is
poised to achieve strong bottom-line growth for the foreseeable future.
We continue to believe that Biogen Idec's impressive cash flow potential is
overlooked by Wall Street and that the Company is significantly undervalued
based on our DCF-derived price target. We assume the Board shares
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this view. We believe a long-term, sustained share repurchase program would be a
far more accretive use of cash than would any near term acquisition. We urge the
Board to immediately focus on our recommendation and commence a meaningful,
sustained share repurchase program.
BIOGEN IDEC'S R&D BUDGET HAS BEEN EXCESSIVE AND UNPRODUCTIVE
We also believe that the Company has failed to maximize its earnings and cash
generation potential, by focusing an outsized portion of its resources to
Research and Development, an area where the Company has had little recent
success.
Biogen Idec dramatically outspends all of its large cap biotech peers on
Research and Development, with R&D margins that are almost 10% higher than the
group average.
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R&D MARGINS (HISTORICAL AND CONSENSUS)*
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2007A 2008A 2009E 2010E 2011E
---------- --------- ---------- --------- ----------
CELG 24% 24% 26% 24% 24%
GILD 12% 12% 12% 13% 13%
GENZ** 18% 17% 18% 16% 16%
AMGN 21% 19% 18% 18% 18%
DNA*** 20% 20% 20% 20% 19%
---------- --------- ---------- --------- ----------
AVERAGE 19% 18% 19% 18% 18%
- ------------------- ---------- --------- ---------- --------- ----------
BIIB**** 29% 26% 27% 27% 26%
- ------------------- ---------- --------- ---------- --------- ----------
* Non-GAAP consensus estimates.
** GENZ 2008 R&D spend excludes $491mm in up-front license fees.
*** DNA consensus estimates from prior to acquisition by Roche.
**** BIIB R&D estimate for 2009 excludes $110mm ACOR payment.
Biogen Idec's disproportionate spend on R&D has not been overlooked by Wall
Street. Recent sell side analyst reports have highlighted the Company's outsized
spend on R&D relative to its peers, and have questioned the quality of the spend
itself, given recent pipeline disappointments. One analyst report suggests that
Biogen Idec would be worth $5 to $6 more per share, if the Company cut R&D to a
more reasonable 23% of sales.
We have run our own analysis showing that the Company could save up to $400
million per year if R&D margins were reduced to a group average of less than 20%
of revenues. This would contribute approximately $1 per share in EPS, which at
Biogen Idec's current 2010 PE multiple would be worth $10 per share to the stock
price.
Despite Biogen Idec's excessive spending on Research and Development, the
Company has performed remarkably poorly from a clinical standpoint. The Company
has spent nearly $4.5 billion on R&D from the start of 2005 through the third
quarter of 2009 (approximately one-third of the Company's current market
capitalization), but has not brought a single new drug to market in that time.
Furthermore, as illustrated in the table below, Biogen Idec's internal
development has been particularly disappointing as only two of the Company's
late stage programs (Phase 2 or beyond) have either been developed internally or
are unpartnered (PEG Avonex and Avonex in Ulcerative Colitis). We do not
understand why the Company has continued to designate such an outsized portion
of their revenues to Research and Development,
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when results have been so poor. We believe that it is imperative that Biogen
Idec take steps to meaningfully decrease its current R&D budget and target a
spend rate similar to the average of its peers.
BIOGEN IDEC'S PIPELINE PRODUCTIVITY HAS BEEN DISAPPOINTING
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CURRENT PIPELINE FAILED/DISCONTINUED LABEL EXPANSIONS MARKETED DRUGS FROM
PROGRAMS SINCE 2005 SINCE 2005 PIPELINE SINCE 2005
- ------------------------------------ --------------------------------- -------------------------- ------------------------
PRECLINICAL PRECLINICAL/PHASE 1 *Tysabri Crohn's (Elan) None
----------- -------------------
Anti-Fn14 IFN beta GD
* RAF inhibitor (Sunesis) TAG72 mAb
Anti-LINGO * Anti-BR3 mAb (DNA)
S1P1 Agonist * BAFF-R (DNA)
BART Alpha v-beta 6 integrin mAb
* Factor VIII (Biovitrum)
Anti-FcRn PHASE 2/3
---------
* CDP323 (UCB)
PHASE 1 * Fontolizumab (Facet)
------- Baminercept
Anti-IGF-1R *Rituxan LN (DNA)
* Neublastin (Ns Gene A/S) *Rituxan PPMS (DNA)
*Anti-CD40 Ligand (UCB) *Rituxan SLE (DNA)
Anti-TWEAK * Ocrelizumab Naive RA (DNA)
Anti-CRIPTO mAb * Ocrelizumab Lupus (DNA)
*Tysabri oncology (Elan) Lumiliximab
Galiximab
PHASE 2 *Tysabri RA (Elan)
-------
* Volociximab (Facet) REGISTRATION
* GA101 (DNA) ------------
* HSP90 inhibitor (Conforma) *Rituxan DMARD IR (DNA)
*BIIB 014 (Vernalis)
* Aviptadil (mondoBiotech AG)
Avonex UC
* Lixivaptan CHF (Cardiokine)
* ADENTRI CHF(CVTX)
*ADENTRI ADHF (CVTX)
* Ocrelizumab MS (DNA)
* BG-12 RA (Fumapharm)
PHASE 3
-------
* Lixivaptan (Cardiokine)
* BG-12 MS (Fumapharm)
* Daclizumab MS (Facet)
* Ocrelizumab RA (DNA)
*Rituxan ANCA (DNA)
PEG Avonex
* Factor IX (Biovitrum)
REGISTRATION
------------
* Fampridine (Acorda)
*Rituxan CLL (DNA)
* Represents programs that were either in-licensed or are partnered, with the
third party name in parentheses.
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Once again, we urge the Board to focus on our recommendations and take decisive
action to (i) revisit the compensation of its CEO, (ii) commence a recurring
share buyback program, and (iii) reduce Research and Development spend. We fear
that continued acquiescence to the status quo will be viewed as an indictment of
the Board's lack of focus on shareholder value creation.
As always, we welcome the opportunity to discuss the above with you, but believe
the time to act is now. Thank you for your prompt attention to this important
matter.
Regards,
HealthCor Management, L.P.
By: HealthCor Associates, LLC, its general partner
By: By:
------------------------------ --------------------------------
Joseph P. Healey Arthur B. Cohen
Portfolio Manager Portfolio Manager
CC:
PRIMECAP Management
ClearBridge Advisors LLC
Barclay's Global Investors UK
Fidelity Management & Research
Icahn Capital LP
Goldman Sachs Group
State Street Corporation
Vanguard Group Inc.
Capital Research Group Investors
Invesco Ltd.
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