Biogen Idec Inc. (BIIB)
Sector: Healthcare
Industry: Biotechnology
Biogen Idec Inc., a biotechnology company, develops, manufactures, and commercializes novel therapeutics in the areas of neurology, oncology, immunology, cardiopulmonary, and hemophilia in the United States and internationally. The company’s marketed products include AVONEX for the treatment of relapsing multiple sclerosis (MS); RITUXAN for treating relapsed or refractory, low-grade or follicular, CD20-positive, and B-cell Non-Hodgkin’sLymphoma (NHL); TYSABRI to treat relapsing MS; and FUMADERM for the treatment of severe psoriasis.
How valuable is the Stock?
How does one know how valuable a stock is? Cash is King! If this is the case, BIIB has what it takes to blossom as an investment. When we think about value we have to think about the potential growth. How much potential?
Something called the price to sales ratio gives us the best indicator of this. The more money a company has coming in through sales compared to how much working capital it has speaks volume of its health. The lower the price/sales ratio, the healthier it is.
If we compare BIIB to its industry, we find a mind-blowing embryonic possibility to sprout and grow. The industry is heavily indebted to research and comes in with an 101.11 ratio while BIBB stands at 2.89. It screams: “I have what it takes to get bigger!”
If we take seriously the idea that “Cash is King” then the second most important thing we need to consider is how much money is flowing through this company as compared to its price. This is called the price to cash flow ratio. The closer the ratio gets to that magical “100” the less capability a company has -- “100” means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 18.70 while BIBB shows off one half of that, coming in at 9.10.
We have an abundance of upside potential compared to the industry as a whole. Since we compare companies to their industry to define their health there are two more ratios that we consider. Each ratio is defined by how low it is. The lower the better value the company has. The price to earnings ratio (P/E Ratio) and the price to book ratio also come in lower than the industry as a whole.
Our conclusion: This is still highly under valued! We give it an “A”
How profitable is the Company?
If a company has a good sales force and the money is flowing, that is a possible good sign for an investment. But alone, this is not good. What if a company brings in money but then spends it as fast as it brings it in? What if it costs them almost as much to make a sale as it does to sell? These are important things to think about and know if you are going to put your money into a company.
To know things like this, I would ask the question: “How much money is left over from a sale after you pay all your costs to make that sale?” This is called the gross margin. Comparing the industry to BIIB, the industry comes in at 63.20%, so for every dollar sold, 63.2 cents is left over. It costs the industry 36.8 cents to make one dollar. BIIB’s gross margin is blistering 91.3%. Wow! This means that it is costing ARCC only 8.7 cents to make a dollar. This is less than half the industry as a whole!
The only other question I would ask is: “How good is the company at controlling its costs?” This is sometimes referred to as the net profit margin. If we divide the net profit by net revenues we come up with a %. The higher the % the better at money management the company is. The industry’s net profit margin is an over burdened (-5.4%). So, for every dollar they make (after taxes) their REAL profit is, well they don’t have one yet! BIIB comes in at an astounding 24.1%! They are far more profitable than the industry as a whole. The 5 year margins also have ARCC above the Industry as whole.
Our Conclusion: This company is extremely profitable! We give it an “A”
Recent Growth
Knopp Neurosciences granted Biogen Idec exclusive, worldwide license to its late-stage treatment for amyotrophic lateral sclerosis, also known as Lou Gehrig’s disease, and potentially other indications. The compound, KNS-760704, is a novel oral neuroprotective therapy that has received orphan drug designation in both the United States and Europe.
Biogen will make a $60 million equity investment in Pittsburgh-based Knopp and pay the company $20 million. Biogen Idec will lead the development of KNS-760704 for ALS and its potential commercialization in global markets, with Knopp providing development support and conducting certain U.S. commercialization activities under the direction of Biogen Idec. Knopp will also be eligible for up to $265 million in additional payments based on the achievement of development, regulatory, and sales milestones; and tiered, double-digit royalties on worldwide sales.
Disclosure: Long BIIB
