First off, the biotech industry as a whole took a step back in May because of the lack of movement on President Trump's corporate tax-cut proposal, reflected by the 4.55% drop in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) last month.
Secondly, Biogen's all-important multiple sclerosis (MS) franchise is facing yet another major competitive threat in the wake of a second positive late-stage readout for Celgene's (NASDAQ:CELG) S1P immunomodulating drug, ozanimod, in relapsing multiple sclerosis.
Biogen arguably has one of the weakest late-stage clinical pipelines within its large-cap peer group. As such, the company could certainly use the proposed tax holiday to repatriate some or all of its $7.6 billion in unremitted foreign earnings, which it could then use to shore up its pipeline through an acquisition.
On the MS front, Celgene's ozanimod could take a big bite out of Biogen's market share, putting even more pressure on the company to engage in M&A to offset declining sales.
Without corporate tax reform or a tax holiday, Biogen would probably choose to rely on debt-financing to go on a spending spree. The biotech, after all, exited the most recent quarter with only $2.88 billion in readily available cash, and that's simply not enough to buy either a late-stage developmental biotech or a revenue-generating peer that would move the needle.
The bright side is that unlike many of its peers, Biogen hasn't taken on eye-popping levels of debt yet -- it sports a fairly respectable debt-to-equity ratio of only 56.8%. For comparative purposes, Celgene is operating with a debt-to-equity ratio of 186%, which surprisingly enough isn't an unusual amount of leverage for a large-cap biotech these days.
So, Biogen could reasonably fund one or more acquisitions via debt financing if the competitive threats to its MS franchise do materialize as expected and its pipeline isn't able to deliver a major drug capable of offsetting these losses. That said, Biogen doesn't appear to have the right mix of ingredients in place to allow it to break away from the political malaise that's haunting the broader industry, suggesting that its shares will likely continue to slide in the coming months along with the IBB.