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EQU
ITY
RESE
ARCH
RBC Capital Markets, LLCMichael J. Yee (Analyst)(415)
[email protected] Chung (Associate)(415)
[email protected]
Adnan Butt (Analyst)(415) [email protected]
Sector: Biotechnology
OutperformNASDAQ: BIIB; USD 388.28Price Target USD 525.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
DownsideScenario
314.0019%
CurrentPrice
388.28
PriceTarget
525.0035%
UpsideScenario
565.0046%
*Implied Total Returns
Key StatisticsShares O/S (MM): 235.6Dividend: 0.00
Market Cap (MM): 91,479Yield: 0.0%Avg. Daily Volume:
1,274,706
RBC EstimatesFY Dec 2014A 2015E 2016E 2017EEPS, Ops Diluted
13.83 16.65 19.30 22.07P/E 28.1x 23.3x 20.1x 17.6xRevenue 9,703.0
10,997.0 12,060.0 12,904.0
EPS, Ops Diluted Q1 Q2 Q3 Q42014 2.47A 3.49A 3.80A 4.09A2015
3.82A 4.06E 4.36E 4.43ERevenue2014 2,130.0A 2,421.0A 2,511.0A
2,641.0A2015 2,555.0A 2,742.0E 2,827.0E 2,873.0EAll values in USD
unless otherwise noted.
June 16, 2015
Biogen Idec Inc.Tysabri SPMS data wrapping up in June; data
couldbe soonOur view: Recent update suggests that Tysabri SPMS data
could comeearly in 2H:15. Given current valuation and very low
Street expectations,we believe risk/reward is skewed to the upside.
We continue to view BIIBas a top large cap idea over the long term
given significant pipeline upside,huge Alzheimer's call options
over next few years, and growing balancesheet and cash balance
(capital deployment/M&A options).
Key points:Clinicaltrials.gov changed the Phase III Tysabri SPMS
estimated studycompletion date to June 2015, so data could be
released this summervs. expectations for later this year and old
status suggesting Fall '15.This is consistent with the enrollment
completed in July 2013, so two-year treatment protocol implies that
all patients are done by next month.Bottom line is expectations are
very low on Tysabri and we see a 3035%probability of success (vs.
buyside consensus 2025% or lower), whichwould lead to up to $12B
revenue upside and $4 or more of EPS accretion(royalty is also paid
out to PRGO). Thus, $4 accretion x 20 P/E multipleimplies up to $80
or 20% upside to the stock value over time, whichisn't unreasonable
given a new growth driver for this pipeline stock. Wesee some
modest 15%+ chance of a "mixed" result, e.g., a big subset
of"responders" gets great benefit and BIIB might still try to file
with FDAgiven the unmet medical need. We see 50% probability
there's not enoughsignal to file but minimal downside given it's
not in Street estimatesbecause it's viewed as a high-risk study.
Bottom line is we like BIIB alsofor upcoming Alzheimer's data in
July as well as more pipeline catalystscoming including LINGO in
early 2016.
We do see this as a call option but reasons it could work
include: 1)unique composite endpoint designed with experience from
prior SPMSstudies and objective timed 25F walk test; 2) registry
data and Phase IIdata show improvement in ambulation and walking
speeds; 3) dramaticreduction in key CSF inflammation markers (e.g.,
cytokine CXCL13 seeliterature and data inside); 4) 10%+ off-label
use and some KOLs thinkit does work for some pts and there are
"responders" who could drivebenefit for the whole group. See inside
for much more details.
Separately, Phase II Tysabri stroke coming soon
interestingopportunity: 1) mechanism and science make sense whereby
blockingT-cells into brain could protect against stroke damage; 2)
Gilenya workssimilarly and reduced brain damage in preclinical
models (but has acuteCV side effects in MS, so can't be developed
here); 3) Tysabri might havelonger window to work than current
drugs and Phase II is testing withinnine hours of onset. Stroke has
been a graveyard for development, withmany failures, so this is
only a call option. If treating only 100k of the 12Mstrokes per
year WW, this could be a $500M+ to $1B opportunity ($2030/share
upside).
Priced as of prior trading day's market close, EST (unless
otherwise noted).For Required Conflicts Disclosures, see Page
10.
-
Target/Upside/Downside ScenariosExhibit 1: Biogen Idec Inc.
20m15m10m
5m
J F M A M J J A S O N2013
D J F M A M J J A S O N2014
D J F M A M2015
J
UPSIDE 565.00TARGET 525.00CURRENT 388.28DOWNSIDE 314.00
Jun 2016
540440390340
290
240
190
140
125 Weeks 23JAN13 - 16JUN15
BIIB Rel. S&P 500 COMPOSITE MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for
Upside/Downside/Target
Target price/base caseOur $525 price target is based on a 27x
P/E our 2016E EPS.This is also possible based on DCF analysis that
values the basebusiness ($314/share) including Tecfidera and
hemophiliaprograms. For various pipeline programs, we add
probabilityadjusted value of ~$211/sh total for Tysabri SPMS,
ANTI-LINGO, BIIB037 (5060% POS), $SMNRx, IPF, and ANTI-TWEAK.
Upside scenarioOur upside scenario of $565 is based on similar
assumptions asour base case for the core business (Avonex, Rituxan,
Tysabri),Tecfidera and the new hemophilia franchise
(Eloctate,Alprolix). We assign greater probability adjusted value
for thepipeline (515% higher for each of the six opportunities)
aswe gain visibility on their prospects in next 12 months.
Keydrivers in 2015 would be data readouts from Anti-LINGO
andTysabri SPMS, which if both are positive may drive shareshigher
toward our upside scenario and increase probability ofsuccess.
Downside scenarioOur downside scenario of $314 is based on DCF
analysison only the existing core business (Avonex, Rituxan,
Tysabri)plus the contribution from Tecfidera and recently
launchedhemophilia franchise (Eloctate, Alprolix). We do not
includeany pipeline opportunities as data is limited and many
arehigh-risk. This is also possible based on a 16x P/E on our
2016EEPS, at the lower end of the peer group comparables.
Investment summaryWith $10B+ of pipeline data reading out in the
next 12months or more, we would own BIIB for favorable
risk/reward.Tysabri SPMS $2B opportunity isn't in consensus, and if
itworks, it could be $4+ accretive to earnings, in our view.
Thesecond opportunity is BIIB037 (robust Phase Ib Alzheimersdata
recently presented at ADPD). This is relatively early-stage,with
Phase III to begin in 2015 and more data from the ongoing6mg/kg
group coming in H2:15. Furthermore, anti-LINGO MSdata are due in
mid-2016. Long-term, we are keenly trackingthe continued uptake of
Tecfidera, which may slow down asit enters its third year of
launch, and generic Copaxone couldenter the MS market in 2015.
However, we do believe thepositive pipeline events will likely
outweigh any slowdown inits core MS business.
Potential catalysts for the stockSeries of positive pipeline
data: Several of BIIBs key late-stageblockbuster pipeline drugs are
expected to read out in thenext 1218 months, beginning with: 1)
Tysabri SPMS in theH2:15; 2) BIIB037 Phase III initiation and more
data from 6mg/kg dosing in H2:15; and 3) Anti-LINGO in MS in
mid-'16. Risk/reward currently favors the upside, in our view, and
if any ofthese data are positive, the stock could move 10% or
more.
Risks to our investment thesisDisappointing Tecfidera sales:
Outperformance in the stock inthe last two years has largely been
driven by the impressivelaunch and uptake of its oral MS drug,
Tecfidera. In Q3:14,it missed consensus estimates for the first
time and alsoreported its first case of a PML-related death. If it
continues tomiss estimates or new safety signals emerge, this could
weighdown the stock.
IP litigation overhang: Tecfidera is protected until 2028 onits
dosing patents, but given that several different companies(FWP,
XNPT, ALKS) are working on different formulations ofthe active
ingredient DMF, BIIB could get pulled into lengthypatent
litigations with any of these companies, which maycreate an
overhang on the stock as Tecfidera is a significantcontributor to
BIIBs top and bottom lines.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 2
-
Tysabri for SPMS (Phase III ASCEND readout: early 2H:15)
Background: Tysabri is approved as monotherapy in Crohns
disease, as well as in RRMS, with heralded best efficacy (% ARR of
67%) in reduction of risk of relapse with clinical signs of slowing
of disability accumulation. Tysabri binds to the alpha 4 integrin
of adhesion molecules found on lymphocytes, which prevents its
interaction with endothelial cells. Tysabris overall effect is
driven by preventing migration of auto-reactive leukocytes into
target organs, which then exacerbates inflammation.
SPMS (along with PPMS, which is more rare) make up to 40% of MS
patients for whom there are limited treatment options. Patients
experience continual axonal damage (neurofilament light chain in
CSF) and demyelination (myelin basic protein) along with
widespread, systemic inflammation (osteopontin, CXCL13 and MMP9 in
CSF).
This Phase III study (n=856) examines Tysabris ability (vs.
placebo, both IV Q4W of 300mg or currently marketed dose in RRMS)
to slow relapse-independent disability progression in patients with
secondary progressive MS over 96 weeks (24 months). The primary
endpoint is a composite of EDSS, T25FW, and 9-Hole Peg Test.
Exhibit 2: Study overview of Tysabri in patients with SPMS
(ASCEND study)
Study Design Phase III, multicenter, international, randomized,
double-blind, placebo-
Primary Endpoint The proportion of subjects experiencing
confirmed progression of
disability as measured by a composite endpoint (Expanded
Disability
Status Scale (EDSS), Timed 25-Foot Walk (T25FW), or 9-Hole Peg
Test
(9HPT)
Key Inclusion Criteria SPMS 2 years with EDSS 3.0 to 6.5
(inclusive)
Key Exclusion Criteria RRMS & PPMS
Est. Primary Completion Date June 2015
Source: Company reports, RBC Capital Markets estimates,
clinicaltrials.gov
Four key reasons that Tysabri could work in SPMS:
1. In an open-label Phase IIa (n = 17) 60-week study, decrease
in CSF markers of inflammation, axonal damage, and demyelination
(osteopontin, neurofilament, myeline basic protein) was observed
alongside reduction in MRI atrophy endpoints at wk 12 from
baseline. An improvement in EDSS (lowering of score) was also
observed (p = 0.01) at wk 60 vs. baseline. These signs of efficacy
in reduction of inflammation and tissue damage suggest that Tysabri
might reduce intra-thecal inflammation and axonal damage in
progressive forms of MS, although we note the very small number of
patients in trial.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 3
-
Exhibit 3: 60 weeks of Tysabri treatment showed reduction of
chemokines CXCL13 and MMP9, key CSF markers of inflammation in SPMS
and PMS patients
Source: J Christensen et al, ESTRIMS 2012
2. In a retrospective analysis of two Phase I and II clinical
trials of Tysabri in SPMS patients, an improvement in walking was
observed as assessed by the timed 25-foot walk (T25FW) test. Even
though this ad-hoc analysis is limited by the small sample size and
short duration of therapy, if these observations play out in the
Phase III study, it would increase the chance of hitting the
primary endpoint as it is a composite endpoint that includes the
T25FW test.
3. KOLs indicate that Tysabri is used widely off-label for SPMS
already. Based on our discussion with various KOLs, up to 15% of
Tysabri use is for SPMS patients, as this is the best option they
have so far. In order to get around the reimbursement hurdle, docs
mentioned that these patients are diagnosed as RRMS so that
reimbursement can be approved. In terms of the Phase III ASCEND
study, physicians generally agreed that there is good chance for it
to hit on the T25W endpoint.
4. Mild EDSS entry criteria may also increase chance of Tysabri
showing a benefit. One of the key inclusion criteria for the ASCEND
study is the EDSS score of 3.0 to 6.5. Baseline data indicate that
approximately one-third of enrolled patients have EDSS score
between 3.0 and 5.5. These patients are generally milder SPMS
patients who do not require assistance for walking. KOLs believed
that these milder patients are more likely to have inflammatory
lesions, which is the mechanism that Tysabri targets. Thus, we
believe Tysabri is more likely to benefit these milder patients and
potentially show a meaningful difference in the T25FW or EDSS
endpoint.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 4
-
Tysabri for acute ischemic stroke (Phase II ACTION readout:
mid-2015)
In ischemic strokes, blockage in blood vessels to the brain may
lead to cerebral infarctions and cause local death of the tissue.
This in turn would lead to loss of neurologic function. T
lymphocytes play an important role in acute ischemic strokes
because these T cells are important to the evolution of brain
infarctions and the accompanying neurological deficit. It is
thought that T lymphocytes start to migrate and accumulate in the
ischemic brain during the first five days and thus trigger tissue
damage through secretion of proinflammatory cytokines.
Exhibit 4: T lymphocytes infiltrate and accumulate in the
ischemic brain during the first five days (mouse model)
Source: Shichita et al., Nature Medicine 2009
The ability of T lymphocytes to migrate across the blood-brain
barrier and infiltrate the brain is dependent on the interplay
between very late antigen-4 (VLA-4) and vascular cell adhesion
molecule-1 (VCAM-1) on endothelial cells. Therefore, agents that
modify VLA-4 function may have an effect in treating acute ischemic
stroke. Tysabri (natalizumab), a humanized monoclonal antibody used
in treating multiple sclerosis and Crohnss disease, can block
VLA-4, and thus it may also be effective at treating acute ischemic
stroke. However, there are contradictory animal studies on the
effectiveness of treating stroke through inhibiting T cell
migration across the blood-brain barrier.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 5
-
Supporting evidence from animal model
In a mouse study of Gilenya, which inhibits T cell migration
into inflammatory tissues, positive results were seen (Nature
Medicine, August 2009). Mice intravenously treated with Gilenya
showed significantly reduced infarct volume and reduced number of
infiltrating T lymphocytes after focal brain ischemia was induced.
This supports the hypothesis that immunomodulatory agents may treat
ischemic brain injury by preventing the infiltration of T
lymphocytes and thus may even extend the therapeutic time window
for neuroprotection.
Exhibit 5: In mouse models, Gilenya (FTY720) significantly
reduced infarct growth and the number of infiltrating T cells
Source: Shichita et al., Nature Medicine 2009
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 6
-
Controversial evidence from animal models However, there is also
controversial data from animal studies that do not support the use
of T cell-migration-inhibitory agents in treating acute ischemic
stroke. In a recent paper (Stroke, June 2014), animals treated with
a monoclonal anti-CD49d antibody that blocks 4-integrin (Tysabri
blocks 4 integrin and does not have Gilenyas acute CV side effects
in MS) had reduced T cell invasions (fewer CD3+ T lymphocytes) by
day 5. However, that did not correspond to a positive effect on
stroke outcome. Therefore, more studies are needed in order to
determine if certain immunomodulatory agents such as Tysabri may
treat acute ischemic stroke through preventing T lymphocyte
migration.
Exhibit 6: In another mouse model, fewer T lymphocytes did not
translate to improved stroke outcome
Source: Langhauser et al., Stroke 2014
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 7
-
ValuationOur $525 price target is based on a 26.6x P/E our 2016E
EPS. This is also possible based onDCF analysis that values the
base business ($314/share) including Tecfidera and
hemophiliaprograms. For various pipeline programs, we add
probability adjusted value of $211/sh totalfor Tysabri SPMS,
ANTI-LINGO, BIIB037 (5060% POS), $SMNrx, IPF, and ANTI-TWEAK.
Price target impedimentsRisks to our thesis are disappointing
Tecfidera growth and sales, worse than expected erosionof
Avonex/Plegridy franchise, and less than projected growth in
Tysabri. However, we thinkthat competition, market share loss, and
new oral MS drugs are well known already by theStreet and reflected
in estimates. Failure of BIIB's pipeline programs (ANTI-LINGO for
re-myelination, Tysabri for SPMS, as well as autoimmune and
fibrotic diseases) to have successfuldata readouts in the next 13
years would also contribute to downside, given that BIIB'spremium
valuation to peers reflects some expectation of success in
continued generations ofblockbuster therapies.
Company descriptionBiogen Idec is one of the world's leading
biotech companies, with a focus on neurology,oncology, and
autoimmune diseases. The company's key products include Rituxan for
non-Hodgkin's lymphoma, Avonex for multiple sclerosis, and Tysabri
for multiple sclerosis. Biogenhas significant manufacturing
capabilities and an extensive worldwide sales and
marketinginfrastructure.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 8
-
Biogen Idec, Inc.
Annual and Quarterly Income Statement Michael J. Yee (415)
633-8522
($ in millions, except per share) FYA FYA 1QA 2QA 3QA 4QA FYA
1QA 2QE 3QE 4QE FYE FYE FYE
Fiscal Year Ends December 2012 2013 Mar-14 Jun-14 Sep-14 Dec-14
2014 Mar-15 Jun-15 Sep-15 Dec-15 2015 2016 2017
Avonex + Plegridy 2,913 3,005 761 774 745 777 3,058 755 769 766
752 3,041 3,080 3,150
Tecfidera 876 506 700 787 916 2,909 825 907 978 1,035 3,745
4,301 4,749
Rituxan + Gazyva 1,138 1,127 297 303 291 305 1,195 331 342 343
359 1,374 1,424 1,514
Tysabri - US Transfer revenue 388 113 - - - - - - - - - - -
-
Tysabri - US revenue - 701 234 250 275 266 1,025 273 285 290 285
1,133 1,201 1,261
Tysabri - Ex-US sales 748 713 207 283 226 218 935 190 245 235
220 890 985 1,050
Fampyra - Ex-US sales 57 74 19 22 20 19 80 20 22 24 24 90 98
105
Eloctate - - - - 22 37 58 54 70 80 85 289 400 475
Alprolix 10 25 40 76 48 53 55 199 225 250
Oral fumarate (Psoriasis) 60 60 16 16 17 14 62 14 15 18 18 65 76
80
Contracts and other sales 44 78 52 22 36 18 128 32 20 20 20 92
80 80
Royalties 169 186 38 40 67 31 177 20 20 20 20 80 190 190
Total Revenues 5,516 6,932 2,130 2,421 2,511 2,641 9,703 2,555
2,742 2,827 2,873 10,997 12,060 12,904
Cost of goods sold 545 858 279 292 303 297 1,171 312 334 338 334
1,318 1,416 1,504
Research and development 1,323 1,440 527 446 416 499 1,888 461
521 537 603 2,122 2,352 2,516
Sales, general & administrative 1,273 1,707 509 540 569 573
2,191 560 603 608 603 2,375 2,533 2,581
Collaboration profit (loss) sharing 318 85 - - - - - - - - - - -
-
Total Operating Expenses 3,469 4,104 1,318 1,282 1,291 1,375
5,266 1,337 1,461 1,486 1,543 5,827 6,312 6,613
Operating Income 2,091 2,845 808 1,143 1,224 1,271 4,447 1,218
1,284 1,344 1,333 5,179 5,766 6,314
Other Income (net) (1) (8) (6) 5 (16) (9) (26) (17) (3) (3) (3)
(25) (10) 5
Pretax Income 2,090 2,837 803 1,148 1,208 1,262 4,421 1,201
1,281 1,341 1,330 5,154 5,756 6,319
Provision for taxes 524 694 215 309 304 297 1,125 304 333 335
319 1,292 1,381 1,428
Net Income 1,566 2,136 587 838 899 965 3,288 897 948 1,006 1,011
3,863 4,374 4,891
Net income adjusted for diluted EPS calculation 1,566 2,136 587
829 900 966 3,281 900 948 1,006 1,011 3,863 4,374 4,891
EPS - Basic (Non-GAAP) $6.58 $9.01 $2.48 $3.50 $3.81 $4.10
$13.91 $3.82 $4.08 $4.38 $4.45 $16.71 $19.38 $22.20
EPS - Diluted (Non-GAAP) $6.53 $8.96 $2.47 $3.49 $3.80 $4.09
$13.83 $3.82 $4.06 $4.36 $4.43 $16.65 $19.30 $22.07
Shares outstanding - basic 238.0 236.9 236.8 236.7 236.2 235.5
236.4 235.0 232.4 229.8 227.3 231.1 225.7 220.3
Shares outstanding - diluted 239.7 238.3 237.8 237.4 237.0 236.3
237.2 235.6 233.4 230.8 228.3 232.0 226.7 221.6
Detailed Sales Summary FYA FYA 1QA 2QA 3QA 4QA FYA 1QA 2QE 3QE
4QE FYE FYE FYE
($MM) 2012 2013 Mar-14 Jun-14 Sep-14 Dec-14 2014 Mar-15 Jun-15
Sep-15 Dec-15 2015 2016 2017
Avonex
US 1,794 1,902 476 498 482 501 1,957 479 484 469 446 1,878 1,600
1,500
RoW 1,119 1,104 285 276 260 235 1,056 214 208 203 199 824 880
800
Worldwide Sales 2,913 3,006 761 774 745 777 3,057 755 769 766
752 3,042 3,080 3,150
Tecfidera
US 866 460 585 638 743 2,426 648 712 760 800 4,392 3,270
3,532
RoW 10 46 115 149 173 483 177 195 218 235 921 1,031 1,217
Worldwide Sales - 876 506 700 787 916 2,909 825 907 978 1,035
5,313 4,301 4,749
Tysabri
US 885 958 234 250 275 266 1,025 273 285 290 285 1,133 1,201
1,261
RoW 745 715 207 284 226 218 935 190 245 235 240 910 985
1,050
Worldwide Sales 1,630 1,673 441 534 501 484 1,960 463 530 525
525 2,043 2,186 2,311
Y/Y Growth (%) 2012 2013 Mar-14 Jun-14 Sep-14 Dec-14 2014 Mar-15
Jun-15 Sep-15 Dec-15 2015 2016 2017
Revenue 9% 26% 50% 40% 37% 34% 40% 20% 13% 13% 9% 13% 10% 7%
EPS 11% 37% 25% 52% 61% 74% 54% 55% 16% 15% 8% 20% 16% 14%
Note: Sales summary for Tysabri is reported sales; Biogen books
US transfer revenues in income statement above which differs from
actual reported sales
Source: Company reports and RBC Capital Markets estimates.
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 9
-
Required disclosuresConflicts disclosuresThe analyst(s)
responsible for preparing this research report received
compensation that is based upon various factors, includingtotal
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affiliates, a portion of which are or have been generatedby
investment banking activities of the member companies of RBC
Capital Markets and its affiliates.
Please note that current conflicts disclosures may differ from
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refer to
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RBC Capital Markets, LLC makes a market in the securities of
Biogen Idec Inc..
RBC Capital Markets is currently providing Biogen Idec Inc. with
non-securities services.
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Distribution of ratingsRBC Capital Markets, Equity Research
As of 31-Mar-2015Investment BankingServ./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Top Pick & Outperform] 909 52.33 280 30.80HOLD [Sector
Perform] 713 41.05 125 17.53SELL [Underperform] 115 6.62 5 4.35
Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 10
-
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Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 11
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Biogen Idec Inc.Biotechnology
June 16, 2015 Michael J. Yee, (415) 633-8522;
[email protected] 12
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or possible acquisition of a particular financial product, a
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