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S&P deems Biogen's Alzheimer's drug failure materially negative

S&P Global Ratings said it views the failure of Biogen Inc. and Eisai Co. Ltd.'s Alzheimer's disease drug aducanumab in two late-stage studies as a materially negative event.

Biogen's stock dropped more than 29% after it said analysis from an independent data monitoring committee showed that the studies were unlikely to meet their main goals.

S&P Global Ratings said the failure will increase shareholder pressure on the company to spend on acquisitions as well as share buybacks and pressure its debt capacity.

Following the announcement regarding aducanumab, the Cambridge, Mass.-based company authorized a $5 billion share buyback in addition to the about $1.7 billion remaining under previous buyback program.

Cambridge, Mass.-based Biogen was banking on the success of its Alzheimer's program to generate future earnings and reduce dependence on its multiple sclerosis franchise.

The rating agency added that it considered these trials to be high risk and did not include them in its base-case projections. However, it anticipated their success while assessing the company's product pipeline.

In addition, the agency believes Biogen may come under pressure to sacrifice its conservative financial policy of avoiding big acquisitions and relying on only modest tuck-in acquisitions.

S&P Global Ratings, which currently has an A- rating and a stable outlook on Biogen, said it could lower the company's rating if Biogen's adjusted debt leverage rises above 1.5x and remains there on a sustained basis.

Ratings added that Biogen currently has about $7 billion of capacity for share repurchases or about $15 billion of net debt capacity for acquisitions.

The agency's current rating on Biogen is based on the company's decent scale, leading position in the multiple sclerosis therapies, above-average profitability and strong cash flow generation.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.