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Summary

  • A former leading stock in a former leading sector.
  • This Biotech is now down 23% from its recent high.
  • The company still has a great product pipeline driving future upside potential.

Biogen Idec (NASDAQ:BIIB) may be headquartered in Cambridge, Massachusetts, but it still has many ties to my hometown of San Diego. San Diego-based Idec Pharmaceuticals was acquired by Biogen in 2003 and it also has a key strategic partnership with Carlsbad-based biotech company Isis Pharmaceuticals (NASDAQ:ISIS).

Founded in 1978, Biogen Idec has the distinction of being the world's oldest independent biotechnology company. Biogen Idec discovers, develops and delivers innovative therapies to patients worldwide for the treatment of neurodegenerative diseases, hemophilia, and autoimmune disorders.

Biogen Idec's premier drug franchise is for the treatment of multiple sclerosis (NYSE:MS), with its approved drugs Avonex, Tysabri and Tecfidera. These drugs combined have the leading share of the worldwide $16 billion multiple sclerosis market. It also discovered Rituxan, the most-prescribed treatment for non-Hodgkin's lymphoma and an approved treatment for rheumatoid arthritis.

Biogen Idec is a mature company with an impressive product pipeline as detailed below:

BioGEN IDEC s PRODUCT PIPELINE

Avonex (INTERFERON BETA-1A)
Multiple Sclerosis, Relapsing-Remitting

AVONEX (Interferon beta-1a) is a leading therapeutic for relapsing forms of MS to slow the progression of disability and reduce relapses. AVONEX is also approved for patients who have their first clinical MS attack and have a brain MRI scan consistent with MS.

More Information

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Tysabri (NATALIZUMAB)
Multiple Sclerosis, Relapsing-Remitting

TYSABRI is being developed and co-marketed under a collaboration agreement with Elan.

More Information

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Tysabri (NATALIZUMAB)
Crohn's Disease (U.S.)

TYSABRI is being developed and co-marketed under a collaboration agreement with Elan.

More Information

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RITUXAN (RITUXIMAB)
Non-Hodgkin's Lymphoma

RITUXAN is being developed and co-marketed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

More Information

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RITUXAN (RITUXIMAB)
ANCA-Associated Vasculitis

RITUXAN (Rituximab) is in development for the treatment of ANCA Associated Vasculitis, and is not currently approved for this indication. RITUXAN is being developed and co-marketed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

More Information

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RITUXAN (RITUXIMAB)
Anti-TNF Refractory Rheumatoid Arthritis

RITUXAN is being developed and co-marketed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

More Information

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RITUXAN (RITUXIMAB)
Chronic Lymphocytic Leukemia

RITUXAN is being developed and co-marketed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

More Information

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FUMADERM (FUMARIC ACID ESTERS)
Psoriasis (Germany)

FUMADERM is an oral product containing fumaric acid esters, and was approved in Germany in 1994 for treatment of severe psoriasis. Acquired with the Fumapharm purchase.

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FAMPYRA (PROLONGED-RELEASE FAMPRIDINE TABLETS)
Multiple Sclerosis (Walking Ability)

FAMPYRA is an investigational oral, prolonged-release formulation of 4-aminopyridine, that has been developed to improve walking ability in adult patients with multiple sclerosis . Studies have shown that fampridine can increase conduction velocity along damaged nerves, which may result in improved neurological function. This compound is approved in the US (where it is known as AMPYRA) and is being commercialized outside of the US by Biogen Idec under a licensing agreement with Acorda Therapeutics.

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Tecfidera (DIMETHYL FUMARATE)
Multiple Sclerosis, Relapsing Forms

Small molecule immune modulator, oral formation. Acquired with Fumapharm purchase.

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GAZYVA (HUMANIZED ANTI-CD20 MAB)
Chronic Lymphocytic Leukemia

Humanized monoclonal antibody specific for CD20. Humanized anti-CD20 mAb is being developed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

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Plegridy (PEGINTERFERON beta-1a)
Multiple Sclerosis, Relapsing Forms

Peginterferon beta-1a is a chemically modified version of interferon beta-1a, designed to increase half-life and systemic exposure of the protein.

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ALPROLIX (rFIXFc)
Hemophilia B

ALPROLIX is an investigational long-lasting, recombinant factor IX Fc fusion protein candidate being developed for the treatment of hemophilia B. Biogen Idec and Swedish Orphan Biovitrum (Sobi) are partners in the development and commercialization of ALPROLIX.

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ELOCTATE (rFVIIIFc)
Hemophilia A

ELOCTATE is an investigational long-lasting, recombinant factor VIII Fc fusion protein candidate being developed for the treatment of hemophilia A. Biogen Idec and Swedish Orphan Biovitrum (Sobi) are partners in the development and commercialization of ELOCTATE.

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DACLIZUMAB
Multiple Sclerosis, Relapsing Forms

Humanized antibody specific for IL2 receptor. Daclizumab is being developed under a collaboration agreement with Abbvie Biotherapeutics.

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GA101 (HUMANIZED ANTI-CD20 MAB)
Non-Hodgkin's Lymphoma

Humanized monoclonal antibody specific for CD20. Humanized anti-CD20 mAb is being developed under a collaboration agreement with Genentech, a wholly-owned member of the Roche Group.

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Tysabri (NATALIZUMAB)
Secondary-Progressive MS

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ANTI-TWEAK
Lupus Nephritis

Humanized monoclonal antibody specific for TWEAK.

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Anti-LINGO
Multiple Sclerosis

Anti-LINGO 1 is being investigated for use in multiple sclerosis.

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STX-100
Idiopathic Pulmonary Fibrosis

Novel humanized monoclonal antibody in development for the treatment of idiopathic pulmonary fibrosis (NYSEARCA:IPF).

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Neublastin
Neuropathic Pain

Neublastin is being investigated for use in neuropathic pain.

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SMNrx
Spinal Muscular Atrophy

Antisense investigational drug for the treatment of Spinal Muscular Atrophy (NYSE:SMA), in development with Isis Pharmaceuticals.

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BAN2401
Alzheimer's Disease

BAN2401 is a humanized monoclonal antibody being developed as a potential treatment for Alzheimer's disease under a collaboration with Eisai, Co. Ltd.

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CD40L
Systemic Lupus Erythematosus

CD40L is being investigated for use in systemic lupus erythematosus.

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BIIB037 (human anti-amyloid BETA mAb)
Alzheimer's Disease

BART is being investigated for use in Alzheimer's disease.

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E2609
Alzheimer's Disease

E2609 is a BACE inhibitor being developed as a potential treatment for Alzheimer's disease under a collaboration with Eisai, Co. Ltd.

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Growth Drivers

The rollout of new oral agents for the treatment of multiple sclerosis is expected to drive growth in the multiple sclerosis market. Market share for Biogen Idec's oral MS treatment Tecfidera continues to grow globally as a first-line treatment in the U.S. and sales are just ramping up in Europe after receiving EU approval on February 3, 2014. Tecfidera is expected to achieve at least $1 billion in annual sales this year. While Tecfidera continues to gain traction, Biogen Idec's other drugs Tysabri and Avonex continue to contribute strongly to the top line.

Biogen Idec has gone from a company dependent on two key drugs for profitability (Avonex and Retuxan) to six. The company also plans to launch two new products in 2014 for the treatment of hemophilia and is expected to receive FDA approval for its drug Plegridy, a subcutaneous interferon candidate for relapsing forms of multiple sclerosis.

It was announced on March 18th, that FDA approval for Plegdridy has been delayed by at least three months. Because the FDA did not ask for any additional data, most analysts do not believe the delay is significant. In addition to Plegridy, Biogen Idec has another promising drug Daclizumab in its MS pipeline. Biogen Idec and partner AbbVie (ABBV) are conducting a phase III study of the drug with results due later this year.

Competition

Biogen Idec's main competition in the multiple sclerosis market comes from Israeli drug company Teva Pharmaceuticals (NYSE:TEVA), whose drug Copaxone currently commands a 40% share of a U.S. multiple sclerosis market that generates more than $4 billion in sales. Copaxone is scheduled to come off patent in two years.

It also is facing two other new oral MS competitors: Gilenya from Novartis (NYSE:NVS) and Aubagio from Sanofi (NYSE:SNY). However, in a survey of U.S. neurologists conducted by WorldOne Interactive, 40% polled said they were "warehousing" their patients in anticipation of Tecfidera. Two-thirds of physicians out of 50 total told WorldOne Interactive that the availability of Tecfidera would make them less likely to prescribe Aubagio and about the same number said the same about Gilenya.

Since the 1990's the hemophilia market has been dominated by recombinant proteins from Baxter (NYSE:BAX), Bayer (BAY:GR), and Pfizer (NYSE:PFE). However, Biogen Idec and Novo Nordisk (OTCQB:NONOF) are now challenging that market dominance with longer-acting factor proteins.

Biogen Idec's two promising drugs in this area are Eloctate and Alprolix. According to Morningstar, the size of the hemophilia market opportunity is expected to be $11.4 billion in 2016, assuming an average annual growth rate of 5.9% over the next 5 years. Morningstar estimates Biogen Idec will take a 5% share of the market by 2016.

Safety Profile Advantage

One of the key issues for MS drugs is their high incidence of side effects. This was an issue for Biogen Idec and then partner Elan years ago for their drug Tysabri. Last year the company acquired full rights to Tysabri. The potential for patients to develop a life-threatening brain disease side-effect called progressive multifocal leukoencephalopathy (PML) has helped relegate the drug to second-line treatment status and has resulted in patient lawsuits.

One of the promising aspects of Biogen Idec's new drug Tecfidera is its adverse events profile, which demonstrates fewer side effects and improved efficacy. By contrast, Novartis' drug Gilenya has the potential to cause serious cardiovascular problems by lowering a patient's heart rate. Aubagio, Sanofi's pill-based drug for MS carries even harsher warnings in the form of a black box warning label from the FDA. Aubagio can cause life-threatening liver complications. It can also cause kidney problems, high blood pressure and breathing problems.

Given the safety profiles of the three drugs, even considering Tecfidera's hefty $50-$55k annual price tag, physicians and patients are more likely to opt for Biogen Idec's drug. In the 10 months post-launch, according to surveyed U.S. neurologists, Tecfidera currently captures 10% of weighted U.S. patient share compared to 7% for Novartis's Gilenya and 3% for Sanofi/Genzyme's Aubagio.

Recent Earnings Results

Biogen Idec reported earnings on January 29th. Earnings came in at $1.92 versus $1.23 the previous year, with adjusted earnings of $2.34 beating the FactSet consensus estimate of $2.28 quite handily. Revenues of $1.97 billion also the consensus sales estimates of $1.93 billion.

The company's earnings guidance was $11 to $11.20 which was short of the $11.50 FactSet consensus, but sales estimates of $8.46 to $8.64 billion were well ahead of the $8.38 billion consensus. Investors remained focused on the robust sales outlook for the stock and shrugged off product launch-related costs.

The successful launch of Tecfidera was already evident in Biogen Idec's recent quarterly earnings results as sales for the quarter totaled $398 million, coming in at $876 million during its first year on the market. From a product performance standpoint, the Tecfidera launch ranks as one of the best ever U.S. launches. According to IMS data, Tecfidera is now the #1 prescribed oral MS drug in the U.S. By year end the company expects Tecfidera to represent the largest contributor to overall revenue growth. During the quarter, Avonex continues to hold its own as a first-line therapy choice for MS patients, representing 38% of total revenue. Q4 Tysabri revenue was $427 million, or 22% of total revenue.

Summary & Risks

With the recent sell off in the biotech sector, Biogen Idec provides a strong near-term growth opportunity driven by its core MS franchise. In the coming year it has the additional potential catalyst of multiple new product launches in both MS and hemophilia and a pipeline of other products entering a "data-rich" period. As with any pharmaceutical company, drug failures or regulatory setbacks are always a risk as is competition from other company's drugs.

Biogen Idec's recent success story represents a turnaround of sorts. Back in late 2007, dissident shareholder Carl Icahn was advocating the sale of the company. Also around that time there was significant concern about the adverse side effects (PML), including patient deaths, associated with its then new multiple sclerosis drug Tysabri. And despite recent pipeline successes, just last year Biogen Idec's late-stage clinical trial to treat Lou Gehrig's disease was discontinued. While it is difficult to predict pipeline success, Biogen Idec has established a strong track record of pipeline development which is finally starting to pay off for the company and its shareholders.

Best Stocks Now! Analysis

Biogen Idec currently has a market capitalization of $64.8 billion and falls into my Conservative Growth risk category. Biogen Idec generates annual revenue of $6.93 billion and has had a 5 year average annual growth rate in excess of 19%.

Let's take a look at the current valuation of the shares.

The shares are currently trading at 19.5 times next year's earnings estimates. This compares with an estimated average annual growth rate of 18.7% over the next five years. This makes for a very favorable PEG ratio of just 1.05.

When I extrapolate next year's EPS estimate of $14.03 out at an anticipated growth rate of 18.7% per year, and then apply a multiple that I feel is appropriate for a leading pharmaceutical stock like BIIB, I come up with a five year target price of $600 per share.

The shares currently represent good value and the stock has significant upside potential.

This would seem to be a good opportunity right now for pure value investors. I require performance along with value however, in my hybrid style of investing. Let's take a look at the performance of the shares.

As you can see from the above screen, the stock has outperformed the S&P 500 by wide margin over the last one, three, and five years. It earns an overall performance grade of "A" when compared to the rest of the stock in my database.

It has stumbled badly lately along with the biotech sector recently, however. It currently has a momentum grade of "F."

I had heavy exposure to this sector throughout 2013 and was able to rack up some big gains in the portfolios that I manage. I started backing out of the sector in February, however and I currently do not have any exposure to it at all.

Biogen is prominent on my radar screen right now however, because it is one of the best of class biotech stocks. Let's have a look at the current technicals of the shares. This one more requirement that I have in my hybrid style of investing. I like a good, healthy stock chart.

I do not like to buy stocks that are in downtrends, which Biogen is currently in. In fact, the sector is still in a severe downtrend after leading the market for almost fifteen months. Biogen is closing in on its support level down around its 200 day moving average.

If it can hold that level, start building a base, and eventually break out to the upside once again, I would be very interested in owning the shares again. As I mentioned earlier, I have the shares on my radar screen at the current time.

Biogen Idec currently ranks #848 out of 3,817 stocks that I track daily. I start getting interested when they crack the top 300 level.

The stock is a value stock once again, but I want to make sure that the shares find a base and begin to rally off of it before I add it back to my portfolio.

Disclosure: I am long BIIB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Is Biogen A Value Stock Yet?