Biogen Beats by a Wide Margin

| About: Biogen Inc. (BIIB)

Biogen Idec Inc. (NASDAQ:BIIB) reported third-quarter earnings per share of $1.33, well above the Zacks Consensus Estimate of $1.20 and the year-earlier figure of $1.09. Excluding the impact of stock-based compensation expense, third quarter 2010 earnings came in at $1.35 per share.

Performance was boosted by higher revenues and lower share count. Revenues increased 5% to $1.18 billion, with Tysabri and Rituxan being the primary growth drivers. Revenues were slightly above the Zacks Consensus Estimate of $1.16 billion.

Revenue by Major Products

Third quarter Tysabri revenues came in at $221 million, up 7% from the prior period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (NYSE:ELN), came in at $307 million (up 9%) in the third quarter of 2010. Tysabri global sales consisted of US sales of $151 million and ROW (Rest of the World) sales of $156 million.

Biogen estimates that as of the end of Sept. 2010, about 55,100 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 52,700 patients reported by the company in the second quarter of 2010.

With Tysabri being an important growth driver for Biogen, we remain concerned that an increase in the number of progressive multifocal leukoencephalopathy (PML) cases associated with its use could lead to a slowdown in Tysabri sales going forward. We note that new patient additions during the third quarter remained flat sequentially at 2,400.

Biogen is currently conducting studies (STRATIFY 1 and STRATIFY 2) to confirm that patients who test negative on the JC virus assay could use Tysabri with lower concerns regarding the development of PML. Biogen reported that Elan presented data supporting the utility of using a JC virus assay. The companies intend to apply for label changes in both the US and the EU by the first quarter of 2011.

Meanwhile, Biogen’s lead multiple sclerosis (NYSE:MS) product Avonex posted second quarter sales of $644 million (up 11%).

We note that, going forward, both Avonex and Tysabri will face additional competition in the form of Novartis’ (NYSE:NVS) Gilenya which was launched in early Oct. Results from a study comparing Gilenya with Avonex showed that Gilenya reduced relapse rates by 52% at one year compared with Avonex. Being an oral therapy, Gilenya could find quick acceptance as currently available therapies require injection or infusion.

Meanwhile, we were disappointed to see Rituxan revenues decline 9% to $258 million in the third quarter. Biogen and partner Roche have been working on driving Rituxan growth by expanding the label for additional indications. Moreover, Biogen has been working on improving unit and market share performance of the product through greater sales efforts, improving customer segmentation and highlighting the data on the product.

Revenues from other products declined 20% to $12 million. Royalties increased 2.9% to $36 million.

Share Repurchase

Biogen completed its $1.5 billion share repurchase program during the third quarter. During 2010, Biogen has repurchased 40.3 million shares for about $2.1 billion. The lower share count helped boost the bottom-line.

Neutral on Biogen

We currently have a Neutral recommendation on Biogen, which is supported by a Zacks #3 Rank (short-term Hold rating). Key products, Avonex and Tysabri, should continue contributing significantly to sales. Meanwhile, Biogen is working on building its pipeline through acquisitions and in-licensing deals.

However, we remain concerned about an increase in the occurrence of PML in patients using Tysabri. Moreover, we are concerned about the recent launch of Gilenya, which will compete directly with Avonex and Tysabri.