EFTA00598607.pdf

Morgan Stanley Stock Rating Overweight Industry View In•Line July 23. 2014 Biogen Idec Inc. The Earnings Keep Coming Upside revs (+279M vs cons) drove the $0.68 EPS beat: Revs of $2.4B were driven by upside Tecfidera ($144M vs cons), Tysabri ($91M cons, incl. a lx $54M or $0.15 catch-up from a reimbursement dispute with Italy) and Avonex (+$30M vs cons). Spending was slightly ahead driven by SG&A (+$83M vs cons), offset by a lower tax rate (27% vs 29% in 1O14). Mgt. increased its 2014 guide to reflect to solid underlying trends with revs now expected up 38-41% Y/Y (26-28% prior) and EPS of $12.90-13.10 ($11.35-11.45 prior). Solid product growth continues to support this earnings story: Tecfidera continues to grow in the US, with better compliance and gross-to-net also impacting the qtr. ExUS, Germany is now on a -$350M run-rate with France and UK launches expected in 4Q. A robust exUS launch continues to be a key thesis for us and we remain above consensus, bumping our global Tecfidera ests by $400M to $2.88 for 2014E. While Avonex does face volume declines, price and market share gains have kept revs flat. We expect the launch of Plegridy (approved in EU today and US expected in 2H) to accelerate share gains which should continue to keep franchise revs flat Y/Y. And on Tysabri, underlying trends have turned with +3-4% Y/Y vol incr. We have raised our Tysabri revs by -$170M to reflect the full year impact of AIFA (-$96M for Italian reimbursement decision) as well as the strong underlying trends. 1't LINGO data pushed to Jan 2015 (from 4O14), but still plenty of pipeline catalysts over the next 12mo: We don't see the timing change as sig. given that mgt. stated the optic neuritis study is on track and now fully enrolled. While mgt's decision not to disclose the 12mo interim data from LINGO in multiple sclerosis (2H15) means we'll have to wait longer (18mo in 2016) for the more important of the two LINGO datasets, significant catalysts remain incl. Alzheimer's (2H14), Tysabri in SPMS (mid-2015), STX-100, Neublastin and Lupus. Guidance points to strong underlying growth for blz and stock — Biogen remains a top pick: Even without the AIFA benefit, guidance still incr. by -$1.30 or 11%. We've raised our 2014E/2015E EPS to $13.00/$16.28 from $11.45/$15.48 driven mainly by product revs offset slightly by incrs to spending. We see capital allocation as also becoming an important 2H debate for the stock given the growing cash. PAORGAN STANLEY RESEARCH NORTH AMERICA _LC Matthew Harrison r12 714 62:» David Friedman, Key Ratios and Statistics Reuters: BUB.0 Bloomberg: BIIB US Biotechnology / United Stales of America Shr price. close (Jul 22. 2014) $303.67 Mkt cap. curt (mm) $72.313 52-Week Range 5358.89-203.55 Fiscal Year ending 12/13 12/14e 12/15e 12/16e ModelWare EPS (s) 8.92 13.00 16.28 19.61 Prior ModelWare EPS ($) 11.45 15.48 19.32 PiE 31.3 23.4 18.7 15.5 Consensus EPS ($)§ 8.02 11.53 14.48 17.74 Div yld (%) 0.0 0.0 0.0 0.0 Unless othenwse noted. all meek, are based on Morgan Stanley MoelelWare framework (please see explanabon later in this note). § a Consensus dela es provided by Thomson Reuters Estenales. e a Morgan Steely/ Research oslimalas Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures. refer to the Disclosure Section. located at the end of this report. EFTA00598607 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Brogan Idec Inc. Risk-Reward Snapshot: Biogen Idec (BIIB, OW, PT $395) Pipeline. Tecfidera and Hemophilia Drive Risk-Reward $50200 (.651.4) 339300(.30W • 200 100 oisaissassisLiamirisaiiiissi JtS12 Jan-I3 Jul.13 Jen-I4 Jul.14 • Ace Tama (046) —netegnaiSne•Pernanrce • CvnernSixt Pint Jul45 Seine: Morgan Stinky Research estimates. Thomson ReuIers Price Target $395 We derive our PT from a discounted cash flow analysis that uses a WACC of 10% and a 2% terminal growth rate. The main drivers are Tecfidera. the hemophilia franchise. Plegridy/Avonex and the pipeline Bull DCF Case $502 Outsized penetration of Tecfidera into both the US and ROW markets; a faster Hemophilia launch and more conversion to long-acting agents and a lower discount on pipeline assets. We assume: 1) -$7.78 in global Teclidera sales. 2) Modest growth in Plegridy/Avonex sales through 2020E to -$3.58. 3) Global hemophilia sales of -$28 ($1.28 to Biogen). 4) -$115/sharear he pipeline. and 5) Unchanged spending from our base case scenario -36% 1M/2e3 line Tecfidera market share, declining Avonex/Plegridy total share but growing share of injectables, modestly faster Hemophilia launch than consensus and less than 50% discounted value of the pipeline. We assume: 1) -$6.58 in global Tecfidera sales by 2020E. 2) Flat Plegridy/Avonex sales through 2020E at $38. 3) Global hemophilia sales of -$1.58 ($18 to Biogen). and 4) Margin expansion of -650 bps as leverage is achieved with Tecfidera Base DCF Case $395 Bear DCF Case $228 -30%1":'2n° line Tecfidera market share, declining AvonexPlegridy S share, a slow Hemophilia launch and no pipeline. We assume: 1) -$5.58 in global Tech:lora sales by 2020E. 2) Declining Plegridy/Avonex sales to $28 from -$3B by 2020E. 3) Global hemophilia sales of -$1.38 ($800M to Biogen). 4) $0/share for the pipeline, and 5) No margin expansion Investment Thesis We are OW Biogen. Our work suggests upside to the launches of Tecfidera in Europe and Hemophilia. We see Biogen as having the most differentiated and highest value pipeline among its peers. • Upside to EU Tecfidera launch: We believe Biogen can hit consensus estimates for EU Tecfidera based on German sales alone. And based on our survey work we see rapid adoption in Europe, ahead of consensus. • Upside to Hemophilia: Our channel checks suggests prophylaxis patients will switch rapidly. putting our estimates ahead of consensus and mgmt commentary. We believe patients are seen by their physicians often enough for a quick switch. • Underappreciated durability of injectable MS franchise: We see daclizumab and Plegridy as underappreciated assets that can move the needle. Our survey work suggests Avonex/Plegridy can take >50% of the injectable segment and daclizumab, even with Phil like efficacy, will penetrate the y d line market. • Best pipeline in the industry: We are most excited about anti-LINGO, BIIB037 SMNRx and DMPK. The pipeline is not without risk, but there is solid mechanistic rationale, high unmet need and reasonable development paths. Risks to our price target 1) Slower than expected launches of Tecfidera and Hemophilia, 2) Pipeline disappointments, 3) Injectable share losses to generic Copaxone. 2 EFTA00598608 Morgan Stanley MORGAN STANLEY RESEARCH July 23, 2014 Slogan Idec Inc. Estate 1 Biogen Idec 2014 Variance 2014E MSe %YIY 2O14A Actual % Difference Consensus 2014E Difference Product Sales (PM): AvonexlPlegndy $753 -3% $774 0% 3% $744 $30 4% Tysabri' $423 9% $533 38% 26% $442 $91 21% Tectdera $580 202% $700 265% 21% $556 $144 26% Daclzurnab $0 NM 50 NM NM 0% Fampyra (EU only $21 25% 322 33% 6% rumor) $16 0% $16 I% 1% Societe $3 NM 50 NM -100% Alpeolx $0 NM $10 NM NM Other SO NM 50 NM NM Legacy Revenues SO NM 50 NM NM Total Product Sales $1.795 30% $2.056 48% 15% $1.766 $270 15% Rittman Profit Share 5295 2% $303 5% 3% $296 $7 2% Royalty Revenue $45 18% $40 6% -10% $59 419 -32% Corporate Panner Revers.* $15 41% 322 102% 43% Total Revenues $2,150 25% 52.421 40% 13% $2.142 $279 13% COGS $276 20% $292 27% 6% $285 $7 2% Gross Profit $1.874 26% $2.130 43% 14% $1857 $273 15% M $420 29% $446 36% 6% $442 $4 I% SCIAA $510 19% $575 34% 13% $492 $83 17% Colaboration ProM Sharing $0 NM 50 NM NM Other $3 NM ($35) NM -1110% Operating Income $940 27% $1.143 55% 22% $924 $219 24% Other income (expense). net ($12) NM $5 NM NM Pretax Income $928 29% $1.148 59% 24% 914 234.286 26% Taxes $264 49% $309 74% 17% 248 60.621 24% Tar rate 29% 16% 27% 10% -6% 27% -1% Net Income, Non-Controllirg Int. 51 -56% $11 361% 956% Net Income (Non-OAAP) $663 22% $829 53% 25% $666 $163 24% Non-OW EPS (excl. options) $2.80 23% 53.49 54% 25% $2.80 $0.69 25% OW EPS $2.46 27% $3.01 48% 22% Diuted Shares Outstanding 237 -I% 237 NM 0% 238 -I 0% Gross Margin 87% 1% 88% 2% f% 87% f% M(% ol Sales) 20% 3% 18% -3% -6% 21% -1 f % SG&A (% of Sales) 24% -5% 24% -5% 0% 23% 3% Operating Margin 44% 2% 47% 10% 8% 43% 9% Seine: Bingen Mee Aneysl Consensus Poll (414:141. lAorgan Stanley Research 3 EFTA00598609 Morgan Stanley MORGAN STANLEY RESEARCH July 23, 2014 Biogen 1dec Inc. Exhil:41 2 Biogen 1dec Income Statement 5020E 144:4)11414444% 3.153 3.470 1923 4.166 5142 1 743 2056 9.142 9.154 18319 11267 12,021 n.isi laan 134:01$0041104:411)49, 31$ 1196 1577 9)7 1.138 1.124 297 »3 1244 1.324 1347 1.433 1.(A1 1.50 Ratay 124 137 159 li 5 lled 11 40 I13 in 9) 90 81 73 Ce7ette gantet 5 32 57 44 ?.. 52 77 674 110 116 122 III IU leid Rampe 4.217 43,0 10-11 %WS 1131 2.130 2.414 I 1.4 104%6 14464 12.470 13.2 14.491 11211 ägliiiMIMM I Clarawa Reim» .., nd 00,35 382 450 467 445 656 271 292 310 Aß 1.219 1273 1.650 1.4(41 0478 1174 1.777 ems P"er 3.995 4216 4.669 1019 6.075 1/351 2130 2.159 2.267 8.414 9392 10166 11.377 12574 12121 13177 1201 12% 1 215 1.223 1.440 627 446 CM 521 1187 2050 4110 2.205 2213 2317 1374 5414 693 699 1.04-9 1.211 1.107 503 510 413 573 2.166 2260 2381 2.467 2503 2544 2711 encen ednn cqund dneek 1,4" .1 3 • • 4 15 15 15 15 15 IS 15 Caletcretron groll tredd 218 258 318 3% 05 6YI<nX%olnylb 25 4 39 0 Ab TO Ideen In:4m as 22 19 23 i2 4 16 8 3 31 28 37 64 01 42 e9 mereetemse 1351 06) 33 -37 -31 10 .10 .10 •10 d3 .30 -38 d 0 0 MS oPee1-47040 0044) 25 1151 2 14 .26 -0 00 0 0 4 0 0 0 0 0 0 ROM. knon• 11412 1104 IS% 2.035 2.433 802 1.144 1.117 1.152 4211 5.114 UM 4.714 7.»1 7327 11326 Tu» 453 447 V» 524 494 215 3% 331 314 1.133 1352 1.546 1.705 1216 1.937 20% Fm liste 27% 271 29% 25% 24',. 23% 27% 27% 27% V% 29% 26% 25% 25% 248 24% 110 emene em.94.441 1310 1257 1.418 1.571 2.1» 547 HO 815 2» am ;tu 4.613 6.114 SAS LM 6340 rie «orte rron rowrinm 41114141 15 42 32 4 13 0 ui 1 1 n 15 15 e 15 15 15 TSeFeWbBOOMIXUOSMI 2.195 1.315 1.43? 1.507 2.125 517 Ufo 514 444 2.077 3347 4.4» 4.981 5.450 5374 6315 342 322 044244704544444 1(09 287 123 73 95 49 27 2.8 30 134 148 113 17.9 1B5 21.6 318 o• Armier remse 7.6% 13% Ob% 03% 03% 0.98 03% 03% 03% 03% 03% en% (14% 0314 04% Ob% 4,4 inee 494 21 1.1 13 24 I3 0.7 0.6 03 38 32 4.2 44 49 13 53 Ne dem% 01041.13.4441 4711011 1.094 1293 1.426 1362 2314 C4.3 027 612 843 3):48 3.736 4.416 49711 6.436 5.938 4.497 14440.4410 EPS 4430.44444440 1,171 1507 »BI NM UM 1145 um 1343 5352 11296 31429 11993 $2253 12532 524.0 19326 01.4Itlet Imme 801 2.040 1224 4384 UP/ 4» 711 ns 772 2.712 44» 4,177 4,722 9.188 4010 8204 04.4. OPI Int •50111 1195 »St 1410 56.79 3258 12.02 1301 1907 $324 31145 $15.18 11850 12133 12416 32753 UI» Sod Stund . (114-11 287 252 242 213 236 237 237 236 235 2% 229 »5 220 214 206 195 018409,4444 C-4.44 2» 256 246 240 23e, 2» 237 236 335 237 220 226 221 215 2» 195 01.44.0541444 ntn44.18 »A 256 245 240 233 235 237 236 237 237 230 226 221 215 216 195 SD» C4741.. . dar. 54,•d11Dr 4:0444.4-td1 91%• 92% 91% 90% 24% 87% 85% 87% 87% BI% äw 98% 41% ew äw 81% 5414 de a 51 %Rd 20% 21% 21% 23% 24% 24% 22% 22% 22% 23% 21% 20% 19% 19% ui% isn -w.%0144%41 29% 26.% 24% 24% 21% 25% 18% C EL P 3:311. 353# 1! 150: 18% V% 07% 16% 15% OPealna Viren 37% 39% 31% 42% 38% 0% 1 31: 29 1 e it e la 4% • 32% 441% 51% 51% 53% 54% 55% CI3114941.er 47% 46% 47% 44% 491 46% 64% 52% 61% .51% 41% 59% 57% 69% 60% 61% 4441.14 27% 28% 29% 23% 317 29% 31% 33% 33% 32% 35% 37% 3.9% 40% 41% 42% Tc1alnednu• 7% 4% 1% 10% 26% 51% 40% 56% 23% 39% 11% 11% Im 6% 6% 6% 0303 5% IM in. 67% 109% 217,129.2 111, E 9 4% 10% 7% 6% 6% 8% Mi4 204 12% 5% 9% PM 9% 31% 86% 45% 21% 21 26% 1t. 29% 1% 4% 6% 4% %I 8% 2% 5% 2% 2% 2% 2% e».0444 (PS 19% Z.% 14% 12% 36% 25% 54% 48% 53% 46% 25% 20% 19% 12% 14% 15% Ornir04.9e1C011, 4% 2% 4% 108 4% 10% 6% 11% 6% 9% 6% »I 2% 2% 2% (0113.84 1% .6% II% 4% 7% 4% »I 4% 5% 4% »I »4 3% 2% Seine: Company Dala Morgan Staney Research EFTA00598610 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Slogan Mee Inc. Exhitrl 3 Biogen Idec Product Revenues Product Revenue 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E 1014A 2014A 3014E 4014E Avonex)Plegridy worldwide sales 2,323 2.518 2.687 2.913 3.005 761 774 771 788 3.094 2.899 2.748 2.795 2.829 2.898 2.966 US 1406 1.492 1.629 1.794 1.902 476 498 496 509 1.979 1.919 1.901 1.985 2.054 2.125 2.198 Ex-US 917 1.027 1.058 1.119 1.100 285 276 275 279 1.115 980 848 611 775 771 768 Tysabil worldwide sales 1.059 1.230 1.511 1.631 1.871 441 533 475 514 1.963 2.002 2.043 2.088 2.112 2.138 2.168 US 509 593 747 886 957 234 250 265 295 1.044 1.099 1.146 1.197 1225 1.253 1.283 Ex-US 551 637 764 745 714 207 283 210 219 919 904 897 891 887 884 883 Teatime 878 506 700 773 857 2.836 3.659 4.563 5.251 5.891 6.092 8.518 US 867 460 585 618 654 2.317 2.757 3.377 3.781 4.059 4.354 4.667 Ex-US 9 46 115 155 203 519 903 1.186 1.470 1.631 1.738 1.851 Daclizumab 160 256 383 533 697 US 104 166 247 340 433 Ex-US 56 90 137 193 264 Fampyra (EU only) 14 57 74 19 22 23 22 86 102 118 134 151 161 164 Fumadeem 50 51 55 60 63 16 16 16 16 63 68 70 73 77 81 85 Hemophilia o 10 37 57 104 425 817 670 779 885 996 US' ELCCTATE 0 0 30 45 75 334 450 463 539 607 666 US' ALPROUX 0 10 7 10 27 67 102 115 129 143 155 ROW 0 0 0 2 2 24 65 91 1 1 1 136 174 Cchet 4 0 Legacy Revenues Total Product Revenues 3.153 3.470 3.823 4.166 5.542 1.743 2.056 2.095 2.254 8147 9.154 10.319 11.267 12.021 12,786 13.592 Ritusen Profit Share 1.095 1.077 997 1.138 1.126 297 303 309 282 1.191 1.284 1.326 1.387 1.420 1.501 1.555 Royalty Revenue 124 137 158 215 186 38 40 50 58 186 123 111 99 90 81 73 Corporate Panret Revenue 5 32 57 44 78 52 22 15 Ii 103 105 110 116 122 128 134 otal Revenues 2.130 2.421 2.468 2.606 4 10.66$ 11.866 12.870 14.495 Soiree. Company Data. Morgan Stanley Research EFTA00598611 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Biogen Idec Inc. Exhibit Biogen Idec Balance Sheet 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E Cash and Equivalents 582 760 515 571 603 1.894 2.994 4.399 5.809 7.335 10,007 12.934 Marketable securities 682 448 1.176 1.135 620 661 696 741 787 851 932 1.021 Accounts Receivable 551 605 585 687 824 1.144 1.268 1.411 1,530 1,623 1,724 1.826 Inventory 294 289 327 447 659 937 978 1.075 1,147 1,212 1,286 1.365 Due from unconsolidated joint business 194 222 229 268 253 267 288 297 311 319 337 349 Deferred Tax Asset 89 112 0 0 0 0 0 0 0 0 0 0 Other 89 104 145 136 226 314 348 387 420 445 473 501 Total Current Assets 2.481 2.540 2.975 3.244 3,185 5,217 6.573 8.312 10.005 11,786 14,759 17.996 Marketable securities 1.194 743 1,417 2.037 626 747 855 990 1,127 1,318 1,562 1.829 Property 8, Equipment. Net 1.637 1.642 1,571 1.742 1.751 1,871 1.990 2.112 2,223 2,315 2,386 2.433 Intangible assets. net 1.871 1.773 1.608 1,632 4.475 4,012 3.675 3.353 3.025 2,695 2.340 1.959 Goochvil 1.139 1.146 1.146 1.201 1.233 1.233 1.233 1.233 1.233 1.233 1.233 1.233 Investments and other assets 230 248 332 274 594 594 594 594 594 594 594 594 Total Assets 8.552 8.092 9050 10.130 11.863 13.673 14.921 16.593 18208 19.941 22.874 26.045 Current portion of debt and line of credit 20 137 3 453 3 0 0 0 524 0 0 0 Taxes Payable 76 85 46 20 180 180 180 180 180 180 180 180 Accounts Payable 119 163 186 204 220 313 326 359 383 405 429 456 Accrued expenses and other 501 666 677 980 1,355 1,804 1.846 1.934 2.026 2.103 2.155 2.209 Total Current Liabilities 715 1.050 913 1.657 1.758 2.296 2.353 2.472 3.112 2,687 2.764 2.845 Notes payable and other (roaming 1.080 1.066 1,061 687 592 585 574 563 27 27 27 27 Long-Term Deferred Tax Liability 241 201 249 217 233 233 233 233 233 233 233 233 Other Long Term Liabilities 254 326 400 604 659 878 898 941 985 1.023 1.048 1.075 Total Liabilities 2.290 2.643 2,623 3.166 3242 1992 4.057 4.208 4.357 3,970 4,073 4.179 Common Stock 0 0 0 0 0 0 0 0 0 0 0 0 Additional paid-in capital 5.782 3.895 4,185 3.855 4.024 2.361 39 -2.632 -5.914 -8.997 -11,872 -15.030 Accumulated other comprehensive income 50 -22 -27 -55 -28 -28 -28 -28 -28 -28 -28 -28 Retained Earnings 1.069 1.872 3.107 4.487 6.349 9.061 12.549 16.726 21.460 26,648 32,337 38.545 Treasury stock -680 -350 -840 -1325 -1725 -1,725 -1725 -1,725 -1725 -1,725 -1,725 -1725 Total Biogen Idec. Inc. shareholders equity 6.222 5.397 6.425 6.962 8.620 9.669 10.836 12.342 13.793 15.898 18,713 21.763 Noncontrolling interests 40 53 1 2 1 13 28 43 58 73 88 103 Total Shareholders Equity 6.222 5.397 6.425 6.962 8.621 9.682 10.863 12.384 13.851 15.971 18.801 21.866 Total Liabilities & Shareholders' Equity 8.552 8.092 9.050 10.130 11.863 13.673 14.921 16.593 18.208 19.941 22.874 26.045 Source: Company Ca lAorgan &anky Rezoarch EFTA00598612 Morgan Stanley MORGAN STANLEY RESEARCH July 23. 2014 Biogen ldec Inc. Exhidi 5 Biogen Idec Cash Flow Statement 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E Net Income (Loss) 977 899 1.267 1.380 1,862 2.724 3,504 4.192 4,748 5.203 5.705 6,223 Depreciation & Amort. 428 354 359 366 532 685 595 623 673 723 799 878 Depreciation 138 145 144 164 189 222 259 300 345 393 444 498 Amortization 290 209 215 201 343 463 336 323 328 330 355 380 Share-based compensation 161 168 113 119 136 113 115 116 118 120 122 124 Deferred Income Taxes -137 -81 154 -117 -245 0 0 0 0 0 0 0 Teddera milestone payments 0 0 0 0 0 -350 -1200 -1.200 -1,800 -900 0 0 Other -2 282 20 29 -28 -1 -1 -1 -2 -1 0 0 Changes in Operating Assets and Liabilities Accounts Receivable -100 -99 -73 4 -127 -320 -124 -143 -119 -93 -100 -102 Inventory -43 -5 -59 -140 -244 -278 -42 -97 -72 -65 -74 -79 Other assets 35 -41 -50 -67 -160 -102 -55 -49 -47 -33 -46 -40 Accrued expenses and other current iabirrties -49 131 34 273 284 542 56 120 116 99 77 80 Other liabiities and taxes payable -195 18 -36 34 334 218 21 43 45 38 26 26 Net Cash From Operations 1.075 1.625 1.728 1.880 2.345 3.232 2.869 3.604 3.660 5.091 6.509 7.110 Net (Purchase) Proceeds Marketable Securities -229 680 -1.420 -585 1,912 -162 -143 -180 -183 -255 -32 -356 Inaease In PP&E -166 -173 -206 -255 -246 -342 -379 -422 -457 -485 -51 -545 Net disposals (acquisitions) 0 -162 -24 -104 -3,278 0 0 0 0 0 0 Investment In Research Collaboration 0 0 0 -7 0 0 0 0 0 0 0 Other 7 0 0 0 0 0 0 Net Cash From Investing -395 345 -1,650 -950 -1,605 -503 -522 -602 -640 -740 -84 -901 Purchase &treasury stock -751 -2.078 -498 -985 -400 -1.450 -1.248 -1.592 -1.602 -2.303 -2.99 -3.283 Proceeds from issuance of stock for stock comp 48 183 315 67 67 13 6 3 1 1 Excess tax benefit from share-based compensation 3 13 51 55 73 11 5 2 1 0 Proceeds From Issuance of Long-Term Debt 0 126 0 0 0 0 0 0 0 0 Repayments Of Long-Term Debt -11 -18 0 0 -452 -10 -10 -10 -10 -523 Net distributions to noncontrolli-ig interests 4 -23 -27 -3 0 0 0 0 0 0 Other -18 12 -160 -12 -4 0 0 0 0 0 Net Cash From Financing -724 -1.785 -320 -877 -717 -1.437 -1247 -1.597 -1.610 -2825 -2419 -328 Net Change In Cash & Equivalents -44 185 -242 52 24 1.292 1.100 1.405 1.410 1.526 2.67 2.92 Effect of exchange rate changes 4 -7 -3 4 8 0 0 0 0 0 Cash Balance Beginning Of Year 622 582 760 515 571 603 1.894 2.994 4,399 5.809 7.33 10.00 Cash & Equivalents Balance Year-End 582 760 515 571 603 1.894 2,994 4.399 5,809 7.335 10.00 12,934 Saute. Company Daia. ',Wigan Stanley Rezeasch EFTA00598613 Morgan Stanley MORGAN STANLEY RESEARCH Jury 23. d .I c 2elinc. 8 EFTA00598614 Morgan Stanley MORGAN STANLEY RESEARCH unpnAS STAGICY July 23,2014 Bågen Idet Inc. MI ModelWare Morgan Stanley ModelWare is a proprietary analytic framework that helps clients uncover value, adjusting for distortions and ambiguities created by local accounting regulations. For example. ModelWare EPS adjusts for onetime events, capitalizes operating leases (where their use is significant), and converts inventory from LIFO costing to a FIFO basis. ModelWare also emphasizes the separation of operating performance of a company from its financing for a more complete view of how a company generates earnings. Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC. and/or Morgan Stanley MIR S.A.. and/or Morgan Stanley Mexico. Casa de Boise. S.A. de C.V.. ' gan Stanley Canada Limited. 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New York. NY 10036 USA. Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Matthew Harrison. Unless otherwise stated. the individuals listed on the cover page of this report are research analysts. Global Research Conflict Management Policy With our conflict management policy, which is available at Important US Regulatory Disclosures on Subject Companies As of June 30, 2014. Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Akebia Therapeutics Inc. Alnylam Pharmaceuticals, AMAG Pharmaceuticals. Inc.. Auxilium Pharmaceuticals. Cubist Pharmaceuticals Inc., GW Pharmaceuticals PLC. Idenix Pharmaceuticals. Inc., ImmunoGen Inc.. Ironwood Pharmaceuticals Inc.. Ophthotech Corp. Within the last 12 months. Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Akebia Therapeutics Inc. AMAG Pharmaceuticals, Inc., Amgen Inc., Celgene Corp. Chimerix Inc, Cubist Pharmaceuticals Inc., Gilead Sciences Inc., GW Pharmaceuticals PLC. Ironwood Pharmaceuticals, Inc., Ophthotech Corp. Portola Pharmaceuticals Inc, Relypsa, Inc.. Synageva Biopharma Corp. Ultragenyx Pharmaceutical Inc. Versartis. Inc.. Within the last 12 months. Morgan Stanley has received compensation for investment banking services from Akebia Therapeutics Inc, AMAG Pharmaceuticals. Inc.. Amgen Inc.. Biogen Mac Inc.. Celgene Corp, Chimerix Inc Cubist Pharmaceuticals Inc.. Gilead Sciences Inc.. GW Pharmaceuticals PLC, Ironwood Pharmaceuticals. Inc., Ophthotech Corp, Portola Pharmaceuticals Inc, Relypsa. Inc.. Synageva Biopharma Corp. Theravance Inc, Ultragenyx Pharmaceutical Inc, Versartis, Inc.. In the next 3 months. Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Akebia Therapeutics Inc. Alexion -Pharmaceuticals. Alnylam. Pharmaceuticals, AMAG Pharmaceuticals, Inc.. Amgen Inc., Auxilium Pharmaceuticals. Slogan idec Inc.. Colgan. Corp. Chimerix Inc. Cubist Pharmaceuticals Inc.. Gilead Sciences Inc.. GW Pharmaceuticals PLC. ImmunoGen Inc.. Incyte Corporation, Infinity Pharmaceuticals Inc. InterMune. Ironwood Pharmaceuticals, Inc. Lexicon Pharmaceuticals. Inc., Neurocrine Biosciences Inc, NPS Pharmaceuticals, Ophthotech Corp. Pharmacyclics Inc.. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc., Relypsa. Inc.. Synageva Biopharma Corp, Theravance Inc, Ultragenyx Pharmaceutical Inc, Versartis. Inc., Vertex Pharmaceuticals, XenoPort Inc. Within the last 12 months. Morgan Stanley has received compensation for products and services other than investment banking services from Amgen Inc.. Auxilium Pharmaceuticals. Biogen idec Inc.. Celgene Corp, Cubist Pharmaceuticals Inc., Vertex Pharmaceuticals. Within the last 12 months. Morgan Stanley has provided or is providing Investment banking services to. or has an investment banking client relationship with, the following company: Akebia Therapeutics Inc, Alexion Pharmaceuticals. Alnylam Pharmaceuticals. AMAG Pharmaceuticals. Inc., Amgen Inc., Auxilium Pharmaceuticals, Mogen idec Inc.. Colgan. Corp, Chimerix Inc. Cubist Pharmaceuticals Inc.. Gilead Sciences Inc., GW Pharmaceuticals PLC, ImmunoGen Inc., Incyte Corporation, Infinity Pharmaceuticals Inc. InterMune, Ironwood Pharmaceuticals. Inc., Lexicon Pharmaceuticals. Inc.. Neurocrine Biosciences Inc, NPS Pharmaceuticals. Ophthotech Corp. Pharmacyclics Inc.. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc.. Relypsa, Inc., Synageva Biopharma Corp, Theravance Inc. Ultragenyx Pharmaceutical Inc, Versartis, Inc., Vertex Pharmaceuticals. XenoPort Inc. Within the last 12 months. Morgan Stanley has either provided or is providing non-investment banking. securities.related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following company: AMAG Pharmaceuticals. Inc., Amgen Inc.. Auxilium Pharmaceuticals. Biogen idec Inc.. Celgene Corp, Cubist Pharmaceuticals Inc.. Gilead Sciences Inc.. InterMune. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc.. Vertex Pharmaceuticals. Morgan Stanley & Co. LLC makes a market in the securities of Akebia Therapeutics Inc, Alexion Pharmaceuticals. Alnylam Pharmaceuticals. AMAG Pharmaceuticals . Inc.. Amgen Inc.. Auxilium Pharmaceuticals. Biogen Mac Inc.. Celgene Corp, Chimerix Inc. Cubist Pharmaceuticals Inc.. Gilead Sciences Inc., Idenix Pharmaceuticals. Inc.. ImmunoGen Inc., Incyte Corporation. Infinity Pharmaceuticals Inc, InterMune, Ironwood Pharmaceuticals, Inc.. Lexicon Pharmaceuticals. Inc.. Neurocrine Biosciences Inc. NPS Pharmaceuticals, Ophthotech Corp. Pharmacyclics Inc.. Portola Pharmaceuticals Inc. Regeneron Pharmaceuticals Inc., Relypsa. Inc., Synageva Biopharma Corp, Theravance Inc. Versartis. Inc.. Vertex Pharmaceuticals, XenoPort Inc. The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality of research, investor client feeffiack, stock picking, competitive factors, firm revenues and overall investment banking revenues. Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research. including market making. providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit, investment services and investment banking: Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report. Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions. 9 EFTA00598615 Morgan Stanley MORGAN STANLEY RESEARCH July 23, 2014 Biogen Idec Inc. STOCK RATINGS Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight. Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In adation. since Morgan Stanley Research contains more complete information concerning the analysts views, investors should carefully read Morgan Stanley Research. in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Global Stock Ratings Distribution (as of June 30. 2014) For disclosure purposes only (in accordance with NASD and NYSE requirements). we include the category headings of Buy. Hold. and Sell alongside our ratings of Overweight. Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy. Hold or Sell to the stocks we cover. Overweight, Equal-weight. Not-Rated and Underweight are not the equivalent of buy. hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating. with a buy recommendation: we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. Stock Rating Category Coverage Universe Investment Banking Clients (SC) Count % of Total Count % of % of Rating Total IBC Category Overweight/Buy 1080 35% 367 38% 34% Equal-weight/Hold 1339 44% 469 49% 35% Not-Rated/Hold 113 4% 23 2% 20% Underweight/Sell 546 18% 98 10% 18% Total 3,078 957 Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis. over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's Industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not•Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the analyst's industry(or industry teams) coverage universe, on a risk•adjusted basis, over the next 12-18 months. Underweight (U). The stock's total return is expected to be below the average total return of the analyst's Industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified. the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects theperformance of his or her industry coverage universe over the next 12.18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12.18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark. as indicated below. Benchmarks for each region are as follows: North America • 500: Latin America - relevant MSCI country index or MSCI Latin America Index: Europe • MSCI Europe: Japan - TOPIX: Asia - relevant MSC country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index. Stock Price. Price Target and Rating History (See Rating Definitions) 10 EFTA00598616 Morgan Stanley MORGAN STANLEY RESEARCH son 150 100 350 300 260 200 150 100 50 0 07/01 07/41 20 1 2o2 Stock R0E1no 1110E0r0: 7/1/11 I NR/17 2.4/12 0/1, 6/$/13 1 Nkel; 344/14 I 0/1 July 23, 2014 Biogen Idec Inc. Biogen Ides Inc. (BIIB.0) - As of 7/22/1.4 in USD Industry : Biotechnology .NA/I •0/I •611/I ♦0/I 396 w.e.e.e.e w 177---.„. 10 / 5, .a1/4 """A-j --.1` 144 154 la 154 a is -. -.er r no- ,.,•, •.........,,,..,„,thr.,,,r...-.....iii.‘tw Th r-d-nt J'Aisiolmiol Jirimial ml 7 .H01 710101 0 I JIrl io lainti JIAISIOINIDI Jiri ll i AIM' J 47/41 2013 Pr ee Target Illstorys 2/0/12 : 1441 7/24/12 1647 14/4/12 I 11S) 1/3/13 1647 1/24/13 l 160) 2/6/13 170/ 3/ /13 1 177) 3/26/13 I ISS; 6.4/13 I NA; 3126114 t 315 Source: Morgan Stanley Research Wee Fermat : 114/00/7Y Price Terse! No Price Tenet Assiened (NA) Stock Pr ice (Not Covered by Current Analyst) — Stock Price <Covered by Current Analyst ) Stock and Industry Ratings cabbresistlevi• below) apnea. • Steak Rating/hdustry View Stock Ratings: Overweight (0) Equal-weight (E) lInsierweight ttii Not-Rated (NR) No Rating Available (NA) Industry View: Attractive (A) In-line (I) Cautious (C) No Rating (NR) Effective January 13, 2014, the stocks covered by Horgan Stanley Asia Pacific will be rated relative to the analyst's industry (or industry team's) coverage. Effective January 13. 2014. the industry view Inneiveks for Morgan Stanley Asia Pacific are as follows: relevant PISCI country index or NSCI sub-regional index or ASCI AC Asia Pacific ex %lent Index. 07/01 2014 Important Disclosures for Morgan Stanley Smith Barney LLC Customers Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research arid Morgan Stanley Smith Barney LLC or on the Morgan Stanley Wealth Management disclosure koa ar For Morgan Stanley specific disclosures. you may refer to Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who reviews the Equity Research report on behalf ol Morgan Stanley. This could create a conflict of 'merest. Other Important Disclosures Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest n the debt securities of Amgen Inc.. 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NY 10036-8293 United States Tel: +1 (1) 212 761 4000 Europe 20 Bank Street. Canary Wharf London E14 4AD United Kingdom Tel: +44 (0) 20 7 425 8000 Japan 1-9-7 Otemachi. Chiyoda-ku Tokyo 100-8104 Japan Tel: +81 (0) 3 6836 5000 Asia/Pacific 1 Austin Road West Kowloon Hong Kong Tel: +852 2848 5200 Industry Coverage:Biotechnology Pharmacyclics Inc. (PCYC.0) E (01262014) $96.61 Regeneron Pharmaceuticals Inc. E (01262014) $306.02 (REGN.0) Stock Ratings Please latest for Company (Ticker) are subject to change. see research each company. Rating (as of)Prke* (07/22/2014) ' Histoncal prices are not spit aclyslecl. David Friedman, AMAG Pharmaceuticals. Inc. E(1121/2011) $18.49 (AMAG.0) Akebia Therapeutics Inc (AKBA.0) 0 (04/14/2014) $2327 Minion Pharmaceuticals (ALXN.0) 0 (09/07/2010) $167.97 Alnylam Pharmaceuticals E (01/14,2014) $5526 (ALNY.0) Awcilium Pharmaceuticals U(03062014) $19.35 (AUXL.0) Chimetix Inc (CMRX.0) 0 (05/06/2013) $21.58 Cubist Pharmaceuticals Inc. 0 (11/13/2013) $65.7 (CBST.0) GW Pharmaceuticals PLC 0 (04/22/2014) $8824 (GWPH.0) Minix Pharmaceuticals. Inc. E(03/182011) $24.31 (IDIX.0) Incre Corporation (INCY.0) U (01/23/2013) $47.92 IMerMune (ITMN.0) E (09/07/2010) $45.14 Ironwood Pharmaceuticals. Inc. E (04/24/2013) $14.47 (IRW0.0) Lexicon Pharmaceuticals. Inc. U(06111/2013) $1.54 (U(RX.0) NPS Pharmaceuticals (NPSP.0) $29.72 Nemo:rine Biosciences Inc E (01/08/20 4) $13.55 (NBIX.0) Ophthotech Corp (OPHT.0) 0 (10/21/20 3) $41.24 Panda Pharmaceuticals Inc 0 (08/17)20 3) $24.6 (PTLA.0) Relypsa. Inc. (RLYP.0) o (12/10/20 3) $23.61 Synageva Biopharma Corp 0 (04/20/20 2) $71.42 (GEVA.0) Theravance Inc (THRX.0) U (07/22/20 3) $27.68 Ultragenyx Pharmaceutical Inc 0 (02/25/20 4) $42.97 (RARE.0) Versartis. Inc. (VSAR.0) 0 (04/15/20 4) $23.79 Vertex Pharmaceuticals (VRTX.0) E (05/08/20 2) $97.74 XenoPorl Inc (XNPT.0) U (08/(1/20 3) $4.35 Matthew Harrison Amgen Inc. (AMGN.0) 0 (03/26/20 4) $121.11 Biogen Idec Inc. (BIIB.0) 0 (0126/20 4) $303.67 Celgene Corp (CELG.0) E (03/26/20 4) $86.66 Giead Sciences Inc. (GILD.0) E (03/26/20 4) $89.33 kimonoGen Inc. (IMGN.0) U (06/25/20 4) $11.33 Infinity Pharmaceuticals Inc 0 (06/25/20 4) $9.9 (INFLO) ID 2014 Morgan Stanley EFTA00598619